REG - UK Oil & Gas PLC - RPS Loxley Gas Discovery Report

UK Oil & GasAnnouncement

21/02/2023 07:00

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RNS Number : 4930Q  UK Oil & Gas PLC  21 February 2023

UK Oil & Gas PLC

("UKOG" or the "Company")

 

RPS Loxley Gas Discovery Report

 

Highlights:

 

·    RPS Energy Consultants ("RPS") completes Competent Person's Report
("CPR") illustrating the potential economic value of UKOG's Loxley Gas
discovery, located 9 miles south of Guildford in Surrey.

 

·    Up to £124 million net UKOG mid-case 2C post-tax net present value
(at 10% discount rate).

 

·    31.0 billion cubic feet 2C Contingent Resources within UKOG's 100%
owned PEDL234 licence

 

·    Planning and environmental consents in place for Loxley-1 appraisal
campaign.

 

·    The CPR's estimates of recoverable gas, pre-tax revenues and
associated post-tax present values discounted at 10% per annum ("NPV10") are
summarised in Tables 1 and 2 below, and the associated potential pre-tax
revenues are given in CPR Appendix C:

 

 

Table 1: Loxley CPR Valuation - flat £1.86/therm gas price case (UK NBP price
as of 31/12/2022)

 

 Case: £1.86/therm flat                Full Field (100%)       UKOG Net Within PEDL234
 PRMS Resource category                1C      2C      3C      1C        2C        3C
 Recoverable gas (billion cubic feet)  21.0    40.2    68.7    16.2      31.0      52.9
 Post tax NPV10 (£ million)            76.8    160.7   284.7   59.2      123.7     219.2

 

 

Table 2: Loxley CPR Valuation - RPS forward gas price forecast case

 

 Case: RPS price forecast              Full Field (100%)       UKOG Net Within PEDL234
 PRMS Resource category                1C      2C      3C      1C        2C        3C
 Recoverable gas (billion cubic feet)  21.0    40.2    68.7    16.2      31.0      52.9
 Post tax NPV10 (£ million)            53.4    112.4   202.9   41.1      86.5      156.2

 

The potential future cashflows for all 12 of the above valuation cases are
shown in Appendix C of the CPR. The 2C £1.86/therm cashflow cases above are
in tables C8 (full field) and C11 (UKOG net), the 2C RPS forward gas price
cashflows being shown in tables C2 (full field) and C5 (UKOG net).

 

The CPR was prepared in accordance with the requirements and standards of the
Petroleum Resources Management System ("PRMS") of the Society of Petroleum
Engineers and will be made available on the Company's website (www.ukogplc.com
(http://www.ukogplc.com) ).

 

UK Oil & Gas PLC (London AIM: UKOG) is pleased to announce receipt of an
RPS CPR demonstrating the potential economic value of the Company's 100% owned
Loxley gas discovery. RPS are a leading global consultancy with specialist oil
and gas sector reserve assessment and advisory expertise.

 

The CPR demonstrates that the NPV10 of Loxley's 2C recoverable gas ranges from
£123.7 million net to UKOG, assuming a gas price of £1.86/therm, the UK gas
price on 31(st) December 2022, the effective date of the CPR, and £86.5
million net to UKOG utilising RPS' proprietary gas price forecast (see tables
1 and 2 above).

 

Delivery of a successful Loxley-1 appraisal programme, currently planned for
2024 and which has full planning and environmental consents, could further
help cement this value in the foreseeable future.

 

The directors believe that UKOG will be able to offset a significant portion
of the CPR's calculated Corporation, Supplementary Charge and Energy Profits
Levy taxes against prior UK onshore sunk costs and future investments, further
improving the Company's net revenue from any future Loxley production.

 

Table 3, below, reflects the CPR's revised gas in-place and recoverable
volumes. Reassuringly, they are not materially different from those stated in
the Company's 2022 Annual Report which utilised Xodus' prior estimates of
20(th) September 2020.

 

Table 3: Loxley CPR PRMS Contingent Resources volumes

 

 Contingent Resources                  Full Field (100%)       UKOG Net Within PEDL234
 PRMS Resource Category                1C      2C      3C      1C        2C        3C
 Gas in place (billion cu ft)          35      57      86      27        44        66
 Recovery factor (%)                   60%     70%     80%     60%       70%       80%
 Contingent Resources (billion cu ft)  21.0    40.2    68.7    16.2      31.0      52.9

 

It should be noted that at present the potential recoverable volumes stated in
this announcement are defined as Contingent Resources (as more fully described
in the glossary) and should not be construed as Reserves. Further development
of the asset would be required to seek to move the classification to Reserves.

 

Stephen Sanderson UKOG's Chief executive commented:

 

"The CPR confirms that Loxley, one of the UK's largest onshore gas
discoveries, possesses material present value in today's prevailing higher gas
price world.  Its potential future revenue streams have the capacity to
deliver material shareholder value in the foreseeable future and its
recoverable resources to contribute towards the UK's future energy security.

 

Loxley's illustrated potential commercial robustness also means that UKOG can
now plan to fund a future development via normal conventional oil and gas debt
funding. The option of a farmout, where UKOG's costs are carried by a new
partner, remains a further viable funding option. Our focus will, therefore,
now be on implementing the necessary steps to deliver the planned Loxley-1
appraisal programme during 2024 and, if successful, gas production and sales
targeted from 2026.

 

I'd also like to reiterate, that we also still plan to sell future Loxley gas
for reforming into low-carbon blue hydrogen, entirely in accord with the low
carbon ethos underpinning our proposed Portland hydrogen hub project. Once
Loxley is depleted of natural gas by around 2036, we are also investigating
its use to store around 1 billion cubic metres of hydrogen, a further addition
to the Company's and UK's much-needed future energy storage portfolio."

 

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 / Allen D Howard                             Tel: 01483 941493

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

          Communications
          Brian Alexander                                                Tel: 01483 941493

 

Glossary of terms

 1C          the low estimate of Contingent Resources. There is estimated to be a 90%
             probability that the quantities actually recovered could equal or exceed this
             estimate, i.e., P90 case
 2C          the mid-case or average estimate of Contingent Resources. There is estimated
             to be a 50% probability that the quantities actually recovered could equal or
             exceed this estimate, i.e., P50 case
 3C          the high estimate of Contingent Resources. There is estimated to be a 10%
             probability that the quantities actually recovered could equal or exceed this
             estimate, i.e., P10 case
 CPR         Competent Person's Report, a Petroleum Resources report prepared by an
             independent Competent Person(s), providing an estimated range of remaining
             recoverable resources and their potential monetary valuation in accordance
             with the relevant reporting standard (in this case the 2018 Society of
             Petroleum Engineers' PRMS). This CPR has not been prepared under the AIM rules
             for oil & gas companies
 Contingent  those quantities of petroleum estimated, as of a given date, to be potentially

           recoverable from known accumulations, but the applied project(s) are not yet
 Resources   considered mature enough for commercial development due to one or more
             contingencies. Contingent Resources are further categorised in accordance with
             the level of certainty associated with the estimates and may be sub-classified
             based on project maturity and/or characterised by their economic status
 discovery   a petroleum accumulation (gas in Loxley's case) for which one or several
             exploratory wells have established through testing, sampling and/or logging
             the existence of a significant quantity of potentially moveable hydrocarbons
 PRMS        Petroleum Resources Management System created by the Society of Petroleum
             Engineers. A global standard of petroleum reserve and resource classification
             together with guidelines and accepted methodologies for the definition and
             estimation of petroleum resources and their monetary valuation.
 Reserves    those quantities of petroleum anticipated to be commercially recoverable by
             application of development projects to known accumulations from a given date
             forward under defined conditions. Reserves must satisfy four criteria:
             discovered, recoverable, commercial and remaining (as of the evaluation's
             effective date) based on the development project(s) applied. Reserves are
             further categorised in accordance with the level of certainty associated with
             the estimates and may be sub-classified based on project maturity and/or
             characterised by development and production status.

 

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.

 

 

 

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