REG - UK Oil & Gas PLC - Operational Update

UK Oil & GasAnnouncement

20/07/2022 07:00

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RNS Number : 0320T  UK Oil & Gas PLC  20 July 2022

UK Oil & Gas PLC

("UKOG" or the "Company")

 

Operational  Update

 

UK Oil & Gas PLC (London AIM: UKOG) is pleased to announce the following
operational updates in respect of its key Turkiye and Portland Hydrogen/Energy
Hub projects, together with an outline of its near-term forward strategy.

 

Turkiye Resan Licence (UKOG 50% interest):

 

Further to the Company's announcement of 30(th) June 2022, continued
examination of the new phase 1 seismic data has revealed a further potentially
significant undrilled geological structure to the south of the Basur-1 oil
discovery. The feature, currently known as Prospect B, shows the same
geological structural style as the Basur discovery, bounded on its northern
extent by a significant back-thrust fault. It appears to be of similar size to
Basur upon first review. Further phase 2 seismic lines to the west will be
required to confirm its size, prospective resource hydrocarbon volume, and to
help define any future exploration well location. A revised top reservoir
structure map and seismic line illustrating the new feature will be made
available on the Company's website.

 

Additional recent oil sampling has also been undertaken by the Resan licence's
operator, Aladdin Middle East ("AME"), at the live light 42˚ API oil seep,
located to the north of the Basur oil discovery. The oil charge to the seep
appears to be continuous as similar quantities of crude have now been
recovered from the same shallow seismic shot holes at multiple sampling events
over a one-month period. It is anticipated that a new Phase 2 seismic line
will pass over the seep to aid identification of whether it derives from a
previously unrecognised deeper Mardin/Garzan age oil accumulation.

 

To help progress Basur towards drilling, members of UKOG's technical team plan
to spend next week in the field, scouting a potential new Basur-4 location,
tying Basur seismic work into surface geology and investigating whether
Prospect B has any surface geological expression that can help define its
extent.

 

Portland Hydrogen/Energy Hub (UKOG 100%)

 

Further to recent discussions with UK and international infrastructure players
in relation to the Company's planned Portland Energy Hub as announced on 30
May 2022, the Company is now investigating the feasibility of linking
Portland's planned hydrogen-ready salt cavern storage into an envisaged future
hydrogen hub centred in and around Southampton by a consortium including a
major energy company, whereby Portland could provide both the interseasonal
and peak demand hydrogen storage necessary to provide the hub's resilience to
fluctuating demand. Via its planned LNG receiving facility, Portland could
also help satisfy demand for natural gas feedstock for reforming into blue
hydrogen within the hub.

 

As part of the Company's Portland engineering and commercial studies it has
now also received a preliminary economic model from Xodus, which details that
the updated expected capital cost to construct the 14 salt caverns, related
surface facilities and the pipeline tie-in to the current national gas grid is
£895 million. Together with the capital expenditure for the envisaged LNG
receiving terminal and the project's green hydrogen generation capability, the
project's total cost will, therefore, likely exceed £1 billion.

 

The Company continues to talk to interested parties, potential contractors and
potential strategic partners and to shape its vision for this new long-term
project which is at the planning stage and remains subject to a number of
conditions including planning consents and financing. A diagram illustrating
the Company's current vision for Portland will be made available on the
Company's website.

 

Forward Strategy

 

Given the promising positive outlook derived from the Company's Basur Phase 1
seismic programme, plus the confirmation from the oil seep that the area has
an active light oil petroleum system, the Company's focus for the forthcoming
6-9 months will be firmly upon the delivery of Phase 2 seismic and a new Basur
appraisal well, now anticipated to be able to add near-term oil production to
the Company in H1 2023, subject to necessary funding. As previously stated,
the Petroleum Law enables a successful oil well in Turkiye to be put into full
time production within days to weeks of a successful test.

 

AME's desire to shoot new unbudgeted Phase 2 seismic before continuing the
Basur appraisal drilling programme (as per UKOG's 30(th) June RNS), combined
with a longer than expected seismic acquisition period over winter, has both
required additional previously unbudgeted working capital and deferred the
start of the anticipated cash flow from a successful Basur well. The Company
will, therefore, need to seek further finance before mid Q4 2022 to fund this
planned programme and for general working capital purposes. Success at Basur
is anticipated to provide additional working capital to help fund UKOG's other
significant projects which, by their nature, have a longer lead time to cash
generation.

 

With respect to the June 7(th) 2022 grant of planning consent for the
Company's 100% owned Loxley gas appraisal project the Company will now
 implement a pre-planned farmout programme, whereby the Company's costs would
be either fully or part carried by any farminee. The Company believes that
this is the most prudent course of action to both manage uncertainty and to
help ensure the best use of the Company's working capital.

 

Qualified Person's Statement

 

Matt Cartwright, UKOG's Commercial Director, who has 39 years of relevant
experience in the global oil industry, has approved the information contained
in this announcement. Mr Cartwright is a Chartered Engineer and member of the
Society of Petroleum Engineers.

 

 

For further information, please contact:

 UK Oil & Gas PLC
 Stephen Sanderson / Matt Gormley / Allen D Howard     Tel: 01483 941493

 WH Ireland Ltd (Nominated Adviser and Broker)
 James Joyce / Andrew de Andrade                       Tel: 020 7220 1666

 Communications
 Brian Alexander                                       Tel: 01483 941493

 

The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.

 

Notes:

 

Blue hydrogen: Hydrogen produced by reforming natural gas allied with the
capture of all CO2 from the reforming process

 

Green hydrogen: Hydrogen produced by electrolysis of water using renewable
electricity

 

Hydrogen-ready: the small size of the hydrogen molecule and its interaction
with high grade steels causes the metal to become brittle with time.
Consequently, the steel and engineering specifications currently used in
today's natural gas facilities will require modification to be fully
compatible for hydrogen. UKOG, therefore, aims to build-in hydrogen
compatibility during initial construction, thus future-proofing any Portland
Energy-Hub development.

 

Salt caverns: man-made caverns constructed by the physical dissolution of
naturally occurring halite (rock salt) deposits. The dissolution provides a
gas tight cavern space that is permanently filled with gas and/or brine at an
equivalent pressure to that within the surrounding rocks i.e., it is not an
empty void at any time. Portland Port is ideally situated for the construction
of large caverns as it overlies a thick, high quality halite section of
Triassic age. Halite deposits with sufficient thickness to accommodate
significant caverns are confined to three areas of the UK: S. Dorset
(Triassic), Cheshire (Triassic) and the northeast Yorkshire coast (Permian
Zechstein age). Thinner Triassic halite deposits are present in areas of the
NW and Somerset. Active salt cavern gas storage exists in Cheshire and the
northeast.

 

 

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