UKOG update December 27th 2017


The long-awaited operational update from UKOG finally drops and like the infamous "cement squeeze" RNS it isn't good news from Broadford Bridge BB-1-z. On a positive note, the upper most Kimmeridge limestone layers, which flowed at Horse Hill won't be tested until early next year - KL3 (upper), KL4, KL5. It's not going to be a good day for UKOG shares unfortunately after all the talk of tanker contracts before Christmas after KL3 (basal 50 ft section)  "Low reservoir productivity indicates zone likely not economically viable." Damn and double damn!

It seems the pre-Christmas share spike based on the Hoyer Petrolog newsletter and contract win was an opportunity for longs to liquidate their positions. Today is going to be a bad day for UKOG shares.

All hopes for shareholders now rest on KL5, "Test 5, within the upper 100 ft of KL3, will recommence in the New Year. Nutech's electric log analyses indicate this zone contains around 54 ft of oil bearing limestone, similar in thickness to the Horse Hill oil discovery, with multiple open natural fractures seen on image logs and BB-1 core." and "The quantity of live oil extracted from the KL5 core indicates that oil within the KL5 limestone matrix occupies over 6% of the total KL5 rock volume. Calculated oil saturations from electric logs within this zone exceed 50%. The equivalent KL5 reservoir zone in BB-1z will form the basis of the forthcoming KL5 flow test."

"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.

"Fluids returned over the duration of KL4 testing consisted primarily of completion fluids together with traces of live oil, accompanied by a gas blow during pressure build up periods. In the Company's view this horizon, whilst containing moveable hydrocarbons, appears to be unproductive due to low reservoir permeability."

At least they have regulatory approval, "While current plans envisage testing to be completed by the end of January 2018, the Oil and Gas Authority have granted their regulatory consent for BB-1z flow testing to extend until the end of February 2018."

So as was the case with UKOG before, no news has been bad news with KL1, KL3 and KL4 all not producing good flows. The key KL5 limestone will be tested in January and it will be all or nothing for Broadford Bridge. After that it will be Horse Hil. Unfortunately, after the disappointing flows from the Angus Energy Well at Lidsey near Bognor Regis and now KL1-KL4 at UKOG's BB site, the Weald basin Dream is looking like a dream. Gutted for UKOG shareholders and UK PLC. All is not lost, but today's RNS from BB is a major set back. 

Even Sanderson sounds in a reflective mood after this failure:

 "Whilst we await further test results of key importance to the commercial success of this single well, we ought, perhaps, to take the opportunity to reflect upon the wider Kimmeridge exploration picture and the positive implications of BB-1 results to date.

The Kimmeridge play is still in its infancy, BB-1 being one of only three wells targeted at the Kimmeridge in the history of the Weald Basin. BB-1 is therefore of paramount importance to help better understand the Weald-wide Kimmeridge play, in which the Company holds the leading acreage position.

Although we still have many more questions than answers, the incoming stream of new analyses from our significant investment in BB-1 data acquisition has moved the Company's understanding of the play to new levels. Armed with this new-found knowledge, we have committed significant funds towards accelerating acquisition of two further drilling sites, located in what we now understand to be the prime "sweet spot" of the Kimmeridge oil deposit within PEDL234. These data have also opened our eyes to the possible additional ways to extract oil at commercial rates from BB-1 and future wells elsewhere in the play.

We therefore look forward to the resumption of BB-1z operations, the testing of those Kimmeridge reservoirs proven productive at Horse Hill, and the first ever test of the KL5, already proven to contain oil by BB-1 core. ".