UKOG update February 21st 2018 - More Broadford Bridge disappointment

ukog logo

Its been a while since my last update concerning UKOG and the Broadford Bridge drill site in Sussex, with my interest having waned since the operational problems first reported in the Autumn of 2017.

Early yesterday afternoon the shares were trading 15% higher at 3.3p. Now they change hands for as little as 1.50p after another disappointing RNS from the company at 2.50 pm on February 20th. 

UKOG share price Feb 2017-Feb 2018

Much hope was resting on a successful outcome from the prolonged drilling and testing of the BB-1-z sidetrack well. 

All seemed to be well at Broadford Bridge when Stephen Sanderson, UKOG's Executive Chairman, commented on September 6th, 2017:

"I am delighted to report the safe and successful completion of the drilling and completion phase of the well at our flagship Broadford Bridge oil discovery.

The well continues to deliver significant technical insights, this time via the extensive perforation programme, the results of which provides further encouraging confirmation of mobile, light oil within the target Kimmeridge reservoir zones.

I thank all the many staff and contractors involved for their professionalism and dedication in delivering the well in optimal condition for the extensive flow testing programme, which is now underway."

broadford bridge UKOG

But then the bombshell hit on October 10th, 2017 concerning well problems. So much for BB-1-z being in optimal condition. Up to then there was much euphoria about the potential for significant oil recovery from Southern England's Weald Basin. 

"To ensure that the flow testing of Kimmeridge reservoir zones is fully optimised, the Company will proceed ahead to workover the well and implement a revised testing programme.  The well clean-up operation will continue, then the current multi-zone completion assembly will be retrieved, the well worked over and flow tested sequentially over multiple, individual reservoir zones. Additional perforated zones will be added to the existing 1064 ft aggregate perforated section.

The decision to workover the well follows receipt of two independent cement-bond analyses.... which demonstrate that the quality of the cement-bond over some of the reservoir zones within the current BB-1z well is less than optimal. The findings conclude that, due to the cement-bond condition over segments of the reservoir section, the current completion programme has not effectively connected the wellbore to much of the best open natural fractures. Therefore, the testing to date has not properly evaluated the full flow potential of the overall Kimmeridge reservoir sequence.

Consequently, following the removal of the current BB-1z well completion assembly, the Company plans to carry out a short sequence of cement-squeezes through the 7-inch casing to rectify sections of the reservoir zone's cement-bond."

Investors then had a wait for further results which started coming through after the cement-squeeze but culminated in an RNS of December 27th, 2017. Things hadn't gone too well causing the shares to decline further.

"Basal KL3 test successfully re-run following mechanical problems. Initial natural flow of approximately 300 barrels of returned completion fluids per day ("bfpd") decreasing to a continuous rate of 30-50 bfpd during well clean-up. Gas blow and live oil traces recovered to surface. Low reservoir productivity indicates zone likely not economically viable."

Apparently BB-1-z was now not in the "sweet spot"! Alarm bells should have started ringing when Sanderson stated this in the RNS.

Then yesterday further results came through causing a 50% reduction in the share price over 2 trading sessions.

"Oil flowed to surface from Kimmeridge Limestone 5 ("KL5") throughout 96 hours of near-continuous rod-pumping. Fluid returns, measured as half-hourly instantaneous pumped rates, currently range from around 10 to 72 barrels per day ("bpd").

Fluids flowed to surface consist of oil mixed with returned reactants ("spent acid") from an acid-wash programme. Associated average oil percentages ("oil-cut") exceed 30% with intermittent periods exceeding 50% by volume and continue to increase. To date, no obvious formation water has been observed in returns.

In the light of results and analyses from tests 5 and 6, together with learnings from test 7 in KL5, the Company and its consultants are currently investigating the possibility that zones 5 and 6, originally perforated in summer 2017 and acidised during the original test programme, were damaged by a combination of the long residence times of spent acid within the reservoir prior to current testing and the perforating technique utilised.  It is now thought that both fractures and perforated channels around the wellbore of KL3 and KL4 could be partially blocked by released clay particles and cement related debris, thus preventing sustainable fluid inflow.

In this respect, serious consideration is being given to a possible future short sidetrack and selective re-test of KL3 and KL4 which electric logs show as oil-saturated.

Existing planning consent time permitting, following completion of KL5 testing, the plan remains to test a 40 ft thick limestone zone in KL1 which, as per KL5, was not perforated or acid-washed in 2017."

Summary of situation for UKOG after February 20th RNS

 Stephen Sanderson Exec Chairman UKOG

Stephen Sanderson Exec Chairman UKOG

During a conference call with Angus Energy shareholders, Paul Vonk, CEO, made some references to well problems at Broadford Bridge and these have come to pass. 

With 3,668,067,032 shares now in issue, the company is valued at around £59 million as of today. With 10-72 barrels per day from Broadford shareholders must now hope for Horse Hill to come good as the new wells are drilled near Gatwick in the coming weeks. But the valuation seems excessive given the disappointment with BB-1-z and £6.5 million of loan shares still be issued, albeit into a market where the share price is much lower and hence a lot more dilution.

Unless the final testing at Broadford Bridge is spectacular, I don't see why the shares should readily recover and will probably drift lower as more shares hit. 

Its been a really disappointing journey since the high hopes of last summer for the Weald Basin bonanza. A combination of bad luck, overly high expectations and botched well operations by Schlumberger have left many shareholders nursing substantial losses. Poor news from Angus Energy haven't helped as the Lidsey Well has too struggled to produce substantial oil flows. No wonder the major oil companies have kept their distance from this acreage.  It was amazing that the shares were close to 10p before all the operational issues came to light. Another AIM oil disaster to follow on from Xcite Energy, Sound Oil, Gulf Keystone, Range Resources and many more. Really gutted for UK PLC and that is genuine!

The question now are will a new sidetrack well be drilled at Broadford Bridge and the new "sweet spot" wells? This will take time and plenty of money at £2-3 million per well. New planning consents with West Sussex County Council will also be required (which will take a little time) as this window of opportunity will expire shortly.  A rig currently going to Horse Hill is therefore unlikely to take a side trip to Broadford Bridge as it would delay Horse Hill by some time.

Oil is flowing, but nowhere near enough to be commercial at around 100 bopd per day best after further clean up work and the final testing zone. The dreams of 1000-2000 bopd have gone with the news over the last few months. 

The fall out from Carillion collapse will be felt far and wide

Carillion logo

Carillion, the U.K.'s second largest construction company, collapsed today taking with it 19,000 jobs in the U.K., wiping out shareholders and causing huge write-offs for its lenders. The collapse leaves Carillion's creditors, which include Barclays, HSBC, Lloyds Banking Group and Santander UK with a combined hit of up to £2 billion.  But the pain could be felt for months or even years to come as the effects on sub-contractors, consultants and partners become fully evident. The construction industry like automobiles involve many parties in large projects. 

Carillion contract wins 2017

Carillion was spun out of Tarmac in 1999 before acquiring George Wimpey, McAlpine and Mowlem. By the end of 2017 its net borrowings had ballooned to over £800 million as a number of contracts soured due to engineering challenges including the £750 million Aberdeen bypass and the £350 million Midland Metropolitan Hospital in Smethwick and the Royal Liverpool University.

 In July, it shocked the market with £845 million of write-downs (the three projects above alone accounted for £375 million) and the departure of its chief executive Richard Howson.

The company's market capitalisation at the end of last week was just over £60 million, which was dwarfed by its debts and it also had a £587 million pension liability. 

Balfour Beatty has had to say goodbye to an additional £45 million due to three joint ventures on road projects with Carillion in Aberdeenshire, Cambridgeshire and north-west England.  In 2014,  Carillion briefly tried a  £2 billion takeover of Balfour Beatty.

Galliford Try says it expects to pay up to £40m to complete a joint venture it was working on with Carillion on the Aberdeen Western Peripheral Route project in Scotland.

The situation is not too different to that during the financial crisis of 2008/2009. Before declaring bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch). Under the notorious Dick Fuld, when it failed, the repercussions were felt across the financial world as its complex entanglements with hundreds of companies were unraveled over many years. 

After today's news hundreds of smaller companies in the U.K. as well as in places like Canada could collapse and thousands of pensioners will be impacted with reduced payments. 28,000 members will now be subject to the Pension Protection Fund and those who are transferred to the PPF, and not yet retired, will receive 90 per cent of the pension they were expecting, up to a limit. Members already getting pensions will continue to receive 100 per cent of their benefits but may see lower annual increases.

Despite the obvious stress the company was facing the awarding of additional contracts by the government has been criticized. Since July 2017, the government has awarded 10 awards or frameworks with a total value of £1.3 billion to the company, of which £137 million was in actual contract awards and £1.2bn was in Carillion’s estimated share of frameworks with multiple suppliers, such as the HS2 high speed rail contract.

At the end Carillion failed due to too many acquisitions, too much complexity, bad decisions and governance. At to that underbidding on complex contracts which made most of them unsustainable - any problems with construction or engineering and they became hugely unprofitable. Despite the high salaries at the top of the company, they failed to manage Carillion in a sustainable fashion. Another British company destroyed by incompetence at the highest levels. 

 Richard Howson

Richard Howson

 Keith Cochrane

Keith Cochrane

Richard Howson, Carillion’s former chief executive from 2012 until July 2017 earned £1.5 million in 2016, including £591,000 in bonuses. He will continue to receive his £660,000 salary and £28,000 benefits for another year, until October 2018. He was replaced by Keith Cochrane. 

Newmont decide to walk from Greatland Gold's Ernest Giles Project

After a long wait for shareholders in Greatland Gold (GGP) for news on their collaboration on the Ernest Giles project in Western Australia with Newmont Mining, it was not the result they have hoped for. Instead of the expected multi-bagger on good news, the shares tanked 70% at one point from Friday close of 2.16p to a low of 0.6p, before rebounding to around 1p later after a YouTube video was released featuring Chief Executive Gervaise Heddle. 

Greatland Gold share price January 15th 2018

GGP said that

Newmont has informed the Company that its current corporate priorities are largely focused in other districts. Consequently, it has informed Greatland that it will not be proceeding with the project at this time. Newmont's six month right of first refusal over the Ernest Giles Project has already lapsed in accordance with the agreement announced 16 May 2017.

Newmont's DSG survey has been successful in defining a new large gold anomaly, covering an area of approximately 5km by 1.5km and untested by previous drilling.

Heddle helped the shares to recover by remininding investors that they had £4 million in place to start work on Ernest Giles in Q1 2018 to further prove up the asset and that a "Large 5km long by 1.5km wide gold anomaly identified, oriented in an east-west direction, that sits approximately 1km to the north of Greatland's previous drilling" and that " Several additional robust gold anomalies successfully identified, many of which have not been drill-tested".

Still this is bad news for GGP and a major setback. Although Ernest Giles may prove to be a great asset Newmont Exploration decided to walk and it was not surprising that the shares are 50% plus down. A positive result would have propelled the shares many times higher of course. 

The Ernest Giles project has the potential to host a several multi-million-ounce gold deposit but this will take time to develop to a proven JORC resource and lots of $$$. The bounce from the lows of 0.6p was not unexpected, but a return to 2p will be many months away as more positive data will need to be released either from Ernest Giles or its other projects. The Newmont collaboration and potential buy-out or JV was a game changer which won't come along in the short term again but maybe in the medium-long term. Certainly the new data from Newmont will help GGP get another deal to develop the area underway but patience will be needed that's for sure. A very disappointing day for GGP shareholders, other than those buying in several months ago or at the open today.  

World's largest recent gold discoveries

Wafi- Golfu, Papua New Guinea

Wafi-Golfu mine Papua new Guinea

Wafi-Golpu is an advanced exploration project located in the Morobe Province of Papua New Guinea (PNG), approximately 65 kilometres south-west of the port city of Lae, PNG’s industrial hub and second largest city.

The project is owned by the Wafi-Golpu Joint Venture (WGJV), one of three unincorporated joint ventures between subsidiaries of Newcrest (50%) and Harmony Gold (50%), formed in 2008 and referred to collectively as the Morobe Mining Joint Ventures (MMJV).

Deep drilling conducted by the WGJV since 2008 has identified a world class porphyry deposit at Wafi-Golpu (the Golpu deposit) suited to bulk underground mining techniques, similar to those being employed by Newcrest at Cadia Valley Operations.

The project has Mineral Resources estimated to contain 26 million ounces of gold, 8.8 million tonnes of copper and 48 million ounces of silver. This includes Ore Reserves for the Golpu deposit estimated to contain 11 million ounces of gold and 4.8 million tonnes of copper. 

In December 2014 Newcrest and Harmony approved stage one of the Golpu project to proceed to feasibility study following the completion of an updated 2012 Golpu pre-feasibility study (PFS).

The updated Golpu PFS proposes a smaller, lower capital cost development for stage one of Golpu, with production expected to commence in the 2020 calendar year. The capital cost to build stage one is estimated at US$2.3 billion.

Tasiast, Mauritania

The Tasiast gold mine is located about 300km north of Nouakchott and 162km east-south-east of Nouâdhibou in the north-western Mauritania. It is an open pit mine lying in a prospective greenstone belt.

Officially opened in July 2007, the gold mine began commercial operations in 2008. The gold equivalent production in 2009 was 158,657oz with a 336/oz cost of sale. Production in 2012 increased to 185,334oz.

In the fourth quarter of 2009, the processing capacity was expanded from 1m tons per year (mt/y) to 2.5mt/y. This expansion included improvements to the crushing circuit,  and the addition of a CIL tank, a ball mill and a gold room.

In September 2010, Canadian gold mining company Kinross Gold (Kinross) acquired 100% ownership of the Tasiast mine from Red Back Mining. This takeover was part of a $7.1bn acquisition of Red Back Mining by the metal producer. The life of the mine is expected to run until 2030.

The proven and probable reserves at Tasiast as of December 2012 stood at 149.65mt graded at 1.66g/t, which is equivalent to 7.96 million ounces of gold. Measured and indicated resources are estimated at 6.75 million ounces.

Kinross planned to invest about $1.5bn for the expansion of Tasiast mine by 2013. The expansion plan is, however, deferred until 2015 due to the decline in gold prices. The expansion will include construction of a new mill to increase the processing capacity from the current 10,000t/d to 38,000t/d.

2017 stock market performance review - quite a year!

Champagne corks flying

Happy New Year readers!

Driven by strong economic growth, Trump tax cut euphoria and growing corporate profits 2017 was an exceptional year for U.S. stock market investors. 

The FTSE All-World index advanced nearly 22 per cent during 2017, its biggest gain since  the post financial crisis year of 2009 and its fourth-best yearly performance since the benchmark started in 1993. It also had 14 straight months of gains — the longest run on record.

For the first time in its history, the S&P 500 produced positive returns every calendar month of 2017 with dividends included.

The UK’s FTSE 100 finished at a record high of 7,688, a rise of 5% in December but a lowly 8% for the year. But in dollar terms,  index has gained over 17% in 2017.

2017 U.S. stock market performance

S&P 500 +19.4%

Nasdaq rose +28.2%

Dow Jones Industrial Average +25.1%

Dow Jones all time high events by year
Dow Jones Industrials Top ten performers 2017
Dow Jones Industrials Top ten worst performers 2017

2017 U.K. stock market performance

FTSE 100 +8%

FTSE ALL share + 6.6%

2017 Asia stock market performance

Japan Nikkei 225 +19.1%

China Shanghai Composite +6.8%

Hong Kong Hang Seng +36%