REG - UK Oil & Gas PLC - Unaudited results six-month ended 31 March 2023
26/06/2023 15:15
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RNS Number : 9336D UK Oil & Gas PLC 26 June 2023
26 June 2023
UK OIL & GAS PLC
("UKOG" or the "Company)
Unaudited results for the six-month period ended 31 March 2023
CHIEF EXECUTIVE'S STATEMENT
I am pleased to present the unaudited results of UK Oil & Gas PLC ("UKOG")
for the six-month period ended 31 March 2023.
This interim period was dominated by progress made by the Company's
wholly-owned subsidiary, UK Energy Storage Ltd ("UKEn"), at Portland Port in
Dorset, which plans to provide key enabling hydrogen energy infrastructure to
help the UK realise a future powered by home-grown renewable energy. Much time
was also spent in evaluating the shallow Pinarova prospect in Turkey prior to
its drilling and testing post period. Testing will be resumed in the well
pending import of larger perforating guns into Turkey.
We have made significant progress with our hydrogen project in Dorset, having
signed an Agreement to Lease with Portland Port Limited covering two sites at
the former Royal Navy port. We intend to develop a hydrogen energy hub,
centred around large scale hydrogen storage in manmade salt caverns.
Portland Port is ideally situated for the construction of large salt caverns
as it overlies a 450-metre thick, high quality rock salt or halite section of
Triassic age. Halite deposits with sufficient thickness to accommodate
significant caverns are confined to only three areas of mainland Great Britain
and are found in Dorset, Cheshire and along the north-east Yorkshire coast.
This is a proven and safe technology used in the UK and globally since the
1970s.
We aim to build 19 hydrogen storage caverns wholly within the Dorset Halite
member of the Triassic salt sequence, a 100-metre thick pure halite seam,
lying about 2.4 kilometres beneath the port's land and in the adjacent
offshore. Each lozenge shape cavern will be around 90 metres tall and occupy
around the same volume as St Paul's Cathedral in London.
Portland Phase 1 plans to provide around 1 billion cubic metres of storage,
which could provide around 10% of the UK's estimated strategic hydrogen
storage capacity by 2030. A second phase entirely in the adjacent offshore
could see this capacity double by 2035. The project is also unique in that it
plans to provide the UK with one of the first strategic hydrogen batteries,
whereby otherwise curtailed renewable wind, solar and nuclear power can be
used to generate green hydrogen which can be stored then reconverted to power
to meet peak power demand periods.
We are also in discussions with government about using some of the caverns to
provide transitional natural gas storage, but our goal is firmly focussed on
the transition to hydrogen and its use as a superb energy storage medium.
The Company has liaised closely with government specialists from the
Department for Energy Security and Net Zero ("DESNZ") and we have met the
Minister for Energy Security and Net Zero, Graham Stuart, and Lord Callanan,
Minister for Energy Efficiency and Green Finance. We took a prominent role in
helping DESNZ design a hydrogen storage business model that should effectively
underpin investment into this new sector. We are delighted that the government
now accepts the criticality of hydrogen storage for the UK's future energy
system and that an unopposed Energy Bill amendment will now see provision for
a storage business model, which is expected to provide sovereign guaranteed
revenue support. The timely adoption of a government "minded to" position on
the business model this summer would greatly strengthen the sector's ability
to attract the private capital it and the UK needs to succeed.
The Company intends to complete further detailed engineering and commercial
studies in conjunction with the preparation and submission of a Nationally
Significant Infrastructure Project planning application.
UKEn is now a member of The Solent Hydrogen Cluster, a partnership of
organisations who wish to collaborate to decarbonise the Solent region and
beyond. Our vision is that our Portland/Dorset hydrogen storage would provide
the key enabler for the decarbonisation of ExxonMobil's Fawley Refinery and
two power stations, together with other regional decarbonisation developments.
The scheme we are looking at has revised the cavern designs of Portland's
predecessor gas storage project, as cavern safety design for hydrogen and gas
has moved on since this scheme was granted planning consent in 2008.
Basically, this means that the caverns are slightly smaller. In total we're
looking at 15 caverns onshore plus 4 offshore for a Phase 1. We are also
looking at a Phase 2 scheme mostly in the adjacent offshore, which could
effectively double Phase 1's 1 billion cubic metres of storage and could then
supply around 20% of the National Grid's mid case Future Energy Scenarios
forecast of required hydrogen storage by 2035.
The project gives us the opportunity to complete a pilot scale green hydrogen
battery before scaling up to a large system level facility. The Company plans
to develop future potential to supply significant renewable electricity for
green hydrogen production at or close to the site, for example via an
over-the-horizon floating wind farm.
Our 100% owned hydrogen feedstock project at Loxley would also make a valuable
contribution to the UK's future hydrogen economy. Our highly experienced legal
counsel remains confident of success following the recent High Court challenge
from opponents of the project near Dunsfold in Surrey.
The Environment Agency, the body responsible for safeguarding the UK's
environment, granted UKOG a full environmental permit covering all aspects of
the Loxley operation back in June 2020. The statutory review decision will be
handed down by Mrs Justice Steyn later in the summer.
UKOG has consistently stated that Loxley can play its part in the government's
Hydrogen and British Energy Security Strategies via the supply of its gas as
feedstock for reformation into clean burning hydrogen in the Solent Cluster.
Once the field has been depleted of natural gas, Loxley can also be repurposed
to store around 1 billion cubic metres of hydrogen, which is around a tenth of
National Grid's mid case Future Energy Scenarios forecast of required hydrogen
storage by 2035.
Similarly, the Company and its legal counsel remain convinced that planning
consent at Horse Hill (85.635% operated interest) was granted entirely
lawfully, and that the challenge at the Supreme Court by the Weald Action
Group et al against Surrey County Council's oil production consent will fail
at this final legal hurdle, which took place on 21-22 June 2023. To date five
judges and the Court of Appeal have dismissed the appellants claim.
Post period testing operations in Turkey at Pinarova-1, operated by our
partners Aladdin Middle East, were temporarily suspended in late May 2023 in
order to access larger and more powerful 7-inch perforating guns, capable of
fully penetrating Pinarova's 9⅝-inch casing and cement. The decision results
from analysis of downhole pressure gauge data from testing operations, which
indicates that the 4.5-inch perforating guns used have been unable to
establish direct contact with the formation through the casing and cement.
Consequently, to date, and rather frustratingly, tests have not yet been able
to assess the potential of the zones associated with the 12 hours of strong
crude oil odour and oil at surface as previously reported. We await the
results of geochemical analyses of oil samples collected from the well's mud
pits, the nearby shallow oil seep and the nearby East Sadak field in due
course from our chosen UK specialists. These results will tell us whether the
seep and Pinarova oils are from the same deeper source. Given the oil to
surface we remain bullish about the prospect's viability and are investigating
whether an additional deeper target sits below Pinarova within the Cretaceous
Mardin and Beloka section, the proven reservoir at Basur-1 and the nearby
producing E. Sadak field.
UKOG holds a 50% non-operated interest in Pinarova-1 and the surrounding 305
km² Resan licence, which also includes the as yet undeveloped Basur-1 light
oil discovery, which still remains as a potential future appraisal drilling
target.
OPERATIONAL REVIEW
Health, Safety and Environment
Once again there were no Lost Time Incidents, reportable environmental
incidents or health issues on any of UKOG's sites during the period or post
period, including during Pinarova-1 site construction, drilling and testing
operations in Turkey. The operational team maintain focus on health, safety,
and environmental performance as it is number one priority.
Modifications at the Horse Hill site are continuing in order to comply with
The Control of Major Accident Hazards regulations (lower tier), as well as
other regulations. Liaison continues ongoing with the Health and Safety
Executive and the Environment Agency ("EA") to ensure the Horse Hill site
maintains its regulatory obligations.
OIL AND GAS ASSETS
Loxley, Broadford Bridge, PEDL234 (UKOG (234) 100%)
RPS Energy issued a Competent Person's Report ("CPR") illustrating the
potential economic value of the Loxley gas discovery. 31 billion cubic feet of
2C Contingent Resources were estimated to lie within the PEDL234 licence. 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.
Work has commenced to discharge planning conditions for Loxley after which
site construction plans can proceed. It is anticipated that site construction
will commence in the second half of 2023, with the drilling of Loxley-1 to
follow in 2024.
SGN (southern England's gas distribution pipeline network operator) has
confirmed that their Local Transmission System ("LTS") can accept all the
potential future gas production from the Loxley gas discovery. SGN's capacity
thus provides a clear route to the wider gas market and the monetisation of
Loxley's gas. A feasibility study for the Loxley pipeline connection into the
LTS is now ongoing.
The North Sea Transition Authority (NSTA) granted its consent to a modified
PEDL234 Retention Area work programme. The revision will permit the Company to
focus licence activities entirely upon the acceleration of the planned
appraisal campaign of its Loxley gas discovery.
Technical and commercial discussions continue with CeraPhi Energy regarding
potential for a geothermal and agribusiness project incorporating the
Broadford Bridge asset.
Turkey, Resan Licence (UKOG 50%)
The Basur-Resan anticline containing the Basur-1 oil discovery is located
within the surrounding 305 km² Resan M47-b1, b2 licence, in which UKOG's
wholly owned subsidiary, UKOG Turkey Ltd, holds a 50% non-operated interest.
UKOG was deeply saddened by the terrible earthquake and humanitarian tragedy
in southern Turkey during February 2023. Our partner and licence operator,
Aladdin Middle East ("AME"), advised us that our Resan licence area was
unaffected by the earthquakes, being located some distance away from the fault
zone and the earthquake epicentre.
Abu Dhabi based BGP completed the seismic processing. Interpretation and
geological mapping of the processed data have also been completed.
UKOG and AME constructed the Pinarova-1 well pad and access road in March
2023. The well was spudded on 07(th) April and reached total depth of 600
metres on 27(th) April. Light oil shows were seen in the drill cuttings and a
strong crude oil odour was observed over a 12-hour period together with
associated mobile oil in the mud pits.
Following acquisition of cased and open hole logs, flow testing was carried
out over the 9⅝ inch cased hole zone corresponding to the oil odour and live
oil to surface. No flow or injectivity within the cased hole test zone was
observed and down hole pressure gauge and casing collar locator data confirmed
that the small 4.5-inch perforating guns had likely been of insufficient power
and/or proximity to the casing wall to penetrate 9⅝ inch casing and provide
contact with the formation. The tests are thus interpreted to be invalid until
such time that larger perforating guns can be deployed in the well to
establish proper contact with the formation and the potential hydrocarbon
prospectivity correctly assessed.
Consequently, AME and the Company jointly decided to temporarily suspend
testing operations pending access to larger, more powerful, 7-inch perforating
guns, capable of fully penetrating Pinarova's 9 ⅝-inch casing and cement.
AME had previously advised that the 4.5-inch perforating guns were the largest
available in-country and are now working with the sole licenced perforating
gun provider in our operational area of SE Turkey to source the required
equipment from outside the country.
Geochemical analysis of samples of Pinarova oil collected from the mud pit,
the nearby seismic shot-hole seep and from East Sadak-12's Beloka/Mardin
reservoir is proceeding ahead via laboratories in the UK and Norway.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG 85.64%)
The field and surrounding licence is operated by UKOG's subsidiary company
Horse Hill Developments Ltd ("HHDL") in which UKOG has 77.9% ownership. The
Licensees are HHDL (65% interest) and UKOG (137/246) Ltd (35% interest).
In March HHDL and UKOG (137/246) executed a conditional binding term sheet
with Pennpetro Energy ("PPP"), whereby PPP will farm into Horse Hill on an
incremental production basis via funding the acquisition of 3D seismic and the
drilling of the next infill production well, Horse Hill-3 ("HH-3").
Farm out highlights:
· PPP to fund 100% of a new crestal infill production well, HH-3,
to be spudded after the completion of a PPP 100% funded ~12 square km
high-definition 3D seismic survey (the "Farmout Programme"), subject to an
aggregate cap of £4.6 million.
· Upon Farmout Programme completion, PPP will earn a 49% share of
any oil production from HH-3. PPP will also earn an aggregate 49% non-operated
licences interest, comprised of an initial 7% on 3D seismic completion and a
further 42% interest upon HH-3 completion.
· UKOG and HHDL will retain 100% ownership and rights to all oil
production and revenues from Horse Hill-1 ("HH-1"). UKOG will remain as the
Horse Hill and licences operator.
· The assignment of the aggregate 49% licences interest to PPP is
subject to PPP providing the necessary funds to drill HH-3 and complete the
Farmout Programme within six months from the completion of the 3D seismic
which is at its discretion.
· Subject to farmout completion, UKOG's interest in HH-1 production
will remain at 85.635% and its net interest in any HH-3 production and the
Licences will be 43.67%.
· The farmout to PPP is subject to the completion of a formal
Farmout Agreement between the Parties, formal consent by each Parties'
respective boards, the full consent of all HHDL's shareholders and regulatory
consent from the North Sea Transition Authority for any Licences interest
assignment.
· Post Farmout Completion, each Licences participant will bear and
pay cash calls pro rata to their respective interest in the Licences.
Three groundwater monitoring boreholes were constructed, and baseline
monitored for a period of three months in preparation for water reinjection
via a recompleted well Horse Hill-2z. All permit pre-operational measures have
now been submitted to the Environment Agency for discharge in line with the
permit requirements.
As of end-April over 187,000 bbl of Brent quality crude had been produced and
exported from the Kimmeridge and Portland pools.
Horndean Oil Field (UKOG 10%)
UKOG's second producing field is Horndean located in Hampshire. IGas Energy
plc ("IGas"), the Horndean oil field operator, advised that the surface beam
pumps in the field are being replaced with new surface pumps. This is forecast
to result in 2023 in higher Horndean oil production, higher well availability
and lower operating costs through lower electrical power usage.
Avington Oil Field (UKOG 5%)
IGas, the Avington oil field operator, advised that the field is being
prepared to restart production. Avington ceased production in late 2017 due to
high operating costs. However, with higher oil prices and all regulatory
approvals in place, the joint venturers have agreed to restart production from
the field.
HYDROGEN STORAGE ASSET- Portland Energy-Hub (UKEn 100%)
UKOG, through its wholly owned subsidiary UK Energy Storage Ltd ("UKEn"), made
a highly strategic entry into the UK hydrogen storage business via our legal
agreement for a very large hydrogen storage facility on the Isle of Portland.
We intend to create a hydrogen energy hub centred on salt cavern storage at
the former Royal Navy port in Dorset.
Planning approval was granted in 2008 for 1 billion cubic metres of natural
gas storage, but, in line with the move to a hydrogen economy, UKEn's
development, will be hydrogen ready and designed to include a large system
level hydrogen battery using green hydrogen generated via electrolysis from
new offshore wind, solar or nuclear.
Since execution of the lease agreement, UKEn has:
· Carried out site activities to confirm ground conditions.
· Pursued the lease of the required subsurface mining and mineral
rights with The Crown Estate.
· Initiated planning and other regulatory activities, with a
detailed review of planning requirements, the Development Consent Order
process and related activities such as approvals required for the pipelines
and other ancillaries.
· Prepared an overall work programme and budget to achieve the DCO.
· Met with key stakeholders, such as Graham Stuart MP, Minister of
State for Energy Security, Richard Drax, South Dorset MP, Matt Prosser, Chief
Executive of Dorset Council and Lord Callanan, Minister for Energy Efficiency
and Green Finance.
· Worked closely with the Department of Energy Security and Net
Zero on the development of a business model for hydrogen storage.
Technical reviews and studies are being completed, including an update of the
original salt cavern design, plus overall development cost estimation and
economic sensitivities and optimisations.
FINANCIAL REVIEW
The operating loss for the six months to 31 March 2023 of £1.3 million was
comparable with the same period last year. Revenue for the six months remained
stable at £0.9 million with a slight oil production decrease at Horse Hill
being offset by an increase in average oil sales price.
Net cash outflow from operations increased from £1.4 million to £1.6
million; this was primarily attributable to working capital movements and
operating cash flows from Horse Hill in the period to 31 March 2023.
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:
Term Meaning
Contingent Resources 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
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 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.
flow test A flow test or well test involves testing a well by flowing hydrocarbons to
the surface, typically through a test separator. Key measured parameters are
oil and gas flow rates, downhole pressure and surface pressure. The overall
objective is to identify the well's capacity to produce hydrocarbons at a
commercial flow rate.
halite The crystalline form of salt or sodium chloride, being the primary constituent
of rock salt. Its tight molecular habit makes it impermeable to hydrogen, the
smallest and lightest molecule in the universe.
Consolidated Income Statement (Unaudited)
for the six months ended 31 March 2023
6 months 6 months
31 March 2023 31 March 2022
(Unaudited) (Unaudited)
£'000 £'000
Revenue 890 911
Depletion, Depreciation and Amortisation (235) (268)
Other Cost of sales (310) (408)
Gross profit 345 235
Operating expenses
Administrative expenses (1,676) (1,402)
Foreign exchange losses (3) (119)
Other income 14 -
Operating loss (1,320) (1,286)
Finance costs (76) (70)
Loss before taxation (1,396) (1,356)
Taxation - -
Retained loss for the period (1,396) (1,356)
Retained loss attributable to:
Owners of the parent (1,482) (1,344)
Non-controlling interest 86 (12)
(1,396) (1,356)
There are no other comprehensive income or expenses during the two reported
periods to disclose.
All operations are continuing.
Earnings per share
Pence Pence
Basic and diluted 2 (0.01) (0.01)
Consolidated Statement of Financial Position (Unaudited)
as at 31 March 2023
31 March 2023 31 March 2022
(Unaudited) (Unaudited)
£'000 £'000
Assets
Non-current assets
Exploration & evaluation assets 32,839 31,310
Oil & Gas properties 2,279 5,506
Property, Plant & Equipment 1,490 1,607
Total non-current assets 36,608 38,423
Current assets
Inventory 3 1
Trade and other receivables 757 750
Cash and cash equivalents 2,262 2,325
Total current assets 3,022 3,076
Total Assets 39,630 41,499
Trade and other payables (344) (821)
Borrowings (3,166) (3,092)
Total current liabilities (3,510) (3,913)
Provisions (1,442) (1,442)
Non-current Liabilities (1,442) (1,442)
Total liabilities (4,952) (5,355)
Net Assets 34,678 36,144
Shareholders' Equity
Share capital 13,693 13,208
Share premium account 110,480 107,097
Share-based payment reserve 1,746 2,056
Accumulated losses (91,039) (85,927)
34,880 36,434
Non-controlling interest (202) (290)
Total shareholders' equity 34,678 36,144
Statement of Cash Flows (Unaudited)
for the six months ended 31 March 2023
6 months 6 months
31 March 2023 31 March 2022
(Unaudited) (Unaudited)
£'000 £'000
Cash flows from operating activities
Loss from operations (1,320) (1,286)
Depletion & impairment 235 268
Decrease / (increase) in trade and other receivables (7) (122)
(Decrease) / increase in trade and other payables (477) (248)
Net cash outflow from operating activities (1,569) (1,388)
Cash flows from investing activities
Expenditures on exploration & evaluation assets (640) (890)
Expenditures on oil & gas properties (115) (122)
Expenditures on property, plant & equipment (9) (2)
Net cash outflow from investing activities (764) (1,014)
Cash flows from financing activities
Proceeds from issue of share capital - -
Interest expense on minority interest loans - -
Net cash inflow from financing activities - -
Net change in cash and cash equivalents (2,333) (2,402)
Cash and cash equivalents at the beginning of the period 4,595 4,727
Cash and cash equivalents at the end of the period 2,262 2,325
Notes to the half-yearly results
1. Basis of preparation
As permitted by IAS 34, 'Interim Financial Reporting' has not been applied to
these half-yearly results. The financial information of the Company for the
six months ended 31 March 2023 have been prepared in accordance with the
recognition and measurement principles of International Financial Reporting
Standards, International Accounting Standards and Interpretations
(collectively "IFRS") issued by the International Accounting Standards Board
("IASB") as adopted by the European Union ("adopted IFRS") and are in
accordance with IFRS as issued by the IASB. The condensed interim financial
information has been prepared using the accounting policies which will be
applied in the Company's statutory financial statements for the period ending
30 September 2023.
The financial information shown in this publication is unaudited and does not
constitute statutory accounts as defined in Section 434 of the Companies Act
2006. Comparative figures for the financial year ended 30 September 2022 have
been derived from the statutory accounts for 30 September 2022. The statutory
accounts have been delivered to the Registrar of Companies. The auditors have
reported on those accounts; their report was unqualified and did not contain
statements under the section 498(2) or 498(3) of the Companies Act 2006.
2. (Loss) per share
The calculation of the basic and diluted (loss) per share is based upon
6 months 6 months
31 March 2023 31 March 2022
(Unaudited) (Unaudited)
Group £'000 £'000
(Loss) attributable to ordinary shareholders (1,482) (1,344)
Number Number
Weighted average number of ordinary shares for 21,096,376,104 16,239,233,251
calculating basic loss per share
Pence Pence
Basic and diluted loss per share (0.01) (0.01)
3. Availability of the Interim Report
Copies of the report will be available from the Company's registered office
and also from the Company's website www.ukogplc.com
The information contained within this announcement is deemed by the Company to
constitute inside information under the Market Abuse Regulation (EU) No.
596/2014.
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