Gatwick gusher

UKOG update October 9 - HH-2z Portland and HH-1 Kimmeridge wells in long term production by end of 2019

Horse hill october 8th 2019 rig

UK Oil & Gas PLC (UKOG) have just announced that the planned simultaneous drilling and test production operationsat Horse Hill have been successfully implemented.

Continuous Kimmeridge oil production from Horse Hill-1has been maintained since the start of the Horse Hill-2/2z horizontal drilling campaign on 29 September 2019. Total HH-1 Kimmeridge test production now stands at over 41,800 barrels of light, sweet 40° API crude, pushing combined total aggregate Portland and Kimmeridge production to over 71,368 bbl. No discernible Kimmeridge formation water has yet been recovered to surface.

The establishment of safe sim-ops is designed to permit the continued collection of further essential reservoir performance data from the Kimmeridge oil pool and to provide significant oil sales revenues to offset the Company's operational costs. UKOG's innovative use of bespoke safety equipment to protect the HH-1 wellhead and pump during sim-ops places the Company at the forefront of safe UK onshore operational practices.

Following a planned extensive HH-2z production flow-testing campaign, both HH-2z Portland and the HH-1 Kimmeridge well are expected to be put into long term production by the end of 2019.

UKOG holds a controlling 85.635% interest in the Horse Hill oil field and surrounding highly prospective PEDL137 and PEDL246 licences, which are operated by UKOG's subsidiary company, Horse Hill Developments Ltd.

Stephen Sanderson, UKOG's Chief Executive, commented: "The establishment of safe and innovative sim-ops at Horse Hill marks another significant operational milestone for the Company in 2019. "

News and share price outlook

share price ukog october 8th 2019

Great news from UKOG this morning. All on track and HH-2z Portland and HH-1 Kimmeridge wells in long term production by end of 2019. Plenty of £££ into the account. 1.1p is ridiculous. Some were sceptical after the Broadford Bridge “cement job” disaster, but Horse Hill is progressing well and no ramping needed. Very undervalued IMHO.

Revenue per day and month key assumptions

UKOG are pumping around 250 barrels a day currently whilst the new wells are drilled during October and November.

Brent Crude = $57 a barrel

Net revenue after lift, marketing and transport = $37 a barrel ($20 assumed costs)

UKOG share of HH = 87%

250 bbl a day x 87% x $37X 30 = $241,000 a month net to UKOG! Once the Horizontal HH-2z Portland super happy days since more like 1000 bopd.

The assumptions going into my NPV 10 model seem more than valid now. See below:

UK Oil and Gas Investments (UKOG) has one hell of a week!

About UKOG and share price history

UK Oil and Gas Investments has had quite a week, up another 33%, making it a close to 400% rise in the shares since July 2016 and for those buying at lows in May, a ten bagger was achieved at one stage this week. At today's closing price of 6.6p (down 15% on the day), the company has a market cap of £230 million.

UKOG management team

David lenigas

Up to July 2015, the infamous David Lenigas was chairman of the company and very much associated with so-called “Gatwick gusher” in the Weald basin in Surrey and Sussex. At this point Lenigas stepped down to focus on other business interests and handed over the reins to Stephen Sanderson, who was previously the company’s chief executive.

Stephen Sanderson - Executive Chairman and CEO

Stephen Sanderson UKOG executive chairman and CEO

Stephen Sanderson joined UK Oil & Gas Investments PLC in September 2014 and was appointed Executive Chairman and Chief Executive in July 2015. A highly-experienced petroleum geologist, oil industry veteran and upstream energy business leader, with over 30 years operating experience, Stephen held a variety of senior management roles for ARCO (which was acquired by BP in 2000), Wintershall AG (a subsidiary of German chemical giant BASF) and three junior start-ups. He created and ran successful new exploration businesses in Africa, Europe and South America. He has significant technical and commercial expertise in the petroleum systems of Africa, the North Sea, Norway, onshore UK & Europe, South America, the South Atlantic, Middle East, Asia, India, Australia and the USA. He is a graduate and Associate of the Royal School of Mines, Imperial College, London, a Fellow of the Geological Society of London and a member of the American Association of Petroleum Geologists. He served for four years in the British Army and TAVR as a platoon commander, serving in the UK and Berlin.

Matt Cartwright -Chief Operating Officer

Matt Cartwright UKOG chief operating officer

Matt Cartwright joined UK Oil & Gas Investments PLC as Business Adviser in July 2014 to help close and manage the company’s Northern Petroleum acquisition. He was appointed to the role of Chief Operating Officer in September 2015. Matt has worked for 32 years in the international oil & gas industry for super-majors and start-ups. He started his career with BP and ARCO in the UK before spending 13 years with Total where he made a significant contribution to Total’s growth in the Canadian heavy oil sands, the UK Elgin/Franklin development and in several ultra-deep-water W. Africa projects. 

UKOG Controversy and "The Gatwick Gusher"

Horse Hill 1 site at Horley, near Gatwick airport in Surrey

In 2015, there was considerable press relating to UKOG after the company reported that more than 9-10 billion billions of barrels of oil could be in place (OIP) under the 55-square-kilometre licence area in the Weald Basin called Horse Hill. David Lenigas was very active on social media at the time and the term "Gatwick Gusher" was coined. The Horse Hill well was drilled close to Horley, adjacent to Gatwick Airport in Surrey. The project is co-funded by Solo Oil, Alba Mineral Resources, Doriemus, Evocutis, Regency Mines and Stellar Resources.

UKOG believe that between three per cent and 15 per cent of the oil at Horse Hill can be extracted from the 9-10 billion OIP, so between 300 million and 1.5 billion barrels. 

In March 2016, the company reported that Gusher had produced the highest flow rates of any onshore wildcat well in the UK after final tests at Horse Hill showed that the aggregate flow from three layers of oil-bearing rock had been 1,688 barrels per day. During the tests the Horse Hill well delivered 1,940 barrels of “light sweet oil” to Esso’s Fawley refinery.  Steve Sanderson said “The flow test results are outstanding, demonstrating North Sea-like oil rates from an onshore well. This simple vertical well has achieved an impressive aggregate oil rate equivalent to 8.5 per cent of total UK onshore daily oil production. We are delighted, therefore, that this discovery has the serious prospect of being a meaningful addition to the UK’s own supply of oil in a period where North Sea production is declining more rapidly than expected.”

The company had the Horse Hill licence extended until the summer of 2021, with the rights to explore and develop a second area nearby.

Broadford Bridge Billinghurst protests

Many people in the UK are fearful of oil drilling in their backyard, especially as because unlike the USA, private landowners are not entitled to royalties from production. Fracking (hydraulic fracturing ) is particularly controversial, though UKOG do not employ thus technology. The company uses "new non-massive fracking-based reservoir stimulation technology", not hydraulic fracturing with sand and water under pressure.

In May 2017, the company temporarily dropped its application to drill for oil in the South Downs National Park. UKOG planned to drill at Markwells Wood but a request from the Environment Agency for further evidence to support a groundwater risk assessment has delayed the project and the company now need to resubmit its planning documents in a new bid. UKOG hopes the Markwells Wood project will be able to proceed by early 2019.

UKOG portfolio

UK Oil & Gas (UKOG) is listed on UK's AIM and NEX Exchange (Formely the ISDX Growth Market) and has a portfolio of direct and indirect investments in 11 UK onshore projects.

These assets cover 650 sq km in the Weald and Purbeck-Wight basins of Southern England. and includes interests in producing oil fields in the region: Horndean and Avington.

The company is currently developing the Horse Hill and Broadford Bridge projects and advancing licences in Markwells Wood, Baxters Copse, Holmwood and the Isle of White.

About Horse Hill, Horley, Surrey

Onshore licences PEDL137 (99.3 km², net interest 31.2%) and PEDL246 (43.6 km², net interest 31.2%) contain the Horse Hill Portland and KL light oil discoveries. Long term production testing is planned for 2017, to be followed by two further appraisal/development wells in 2018.

Following the HH-1 well. overall stablised flow rate from the KL3 and KL4 uppermost limestones were an aggregated 1,365 bopd (40 API gravity dry oil) and this result was above expectations for UKOG. 

The company said "The rates undeniably proved that the limestones could produce at initial commercial rates. No evidence of depletion was indicated from the data analyses".

Subsequently the company acquired Angus Energy's and Flowermay Ltd interests in the Horse Hill licence abd began the planning application with Surrey County Council to undertake the long-term production testing and drill further wells.

By agreement with Surrey County Council,  the determination ofthe planningapplication was to take place by the end of July . However this appears to have been delayed as further information has been requested.  End date for representations: 4 August 2017 and the next council planning meeting is set for 13 Sep 2017 10.30 am.

The testing will last for approximately six months and the planned production rates are specifically designed to prove access to a commercial volume of oil in place (OIP), followed by a declaration of commerciaity for the Kimmerdige and Portland following these results with a Competent Persons Report in 2018.

Planning application details:

Notice RH6 0HN Horse Hill Developments Limited: Environmental permit draft decision advertisement, Published 10 July 2017: The Environment Agency has received an application to vary an environmental permit for onshore oil and gas exploratory operations under the Environmental Permitting (England and Wales) Regulations 2016 involving a change to a permit from Horse Hill Developments Limited. They are now consulting on the proposed decision.

Reference number: EPR/BB3300XG/V004

Brief description of activity: Permit for a mining waste operation for the management of extractive waste from prospecting for mineral resources, not involving a waste facility, and the flaring of gas in plant with a capacity of less than 10 tonnes per day.

Horse Hill Well Site , Hookwood , Horley , Surrey , RH6 0HN 

Additional information received after the original consultation. End date for representations: 4 August 2017

About the Broadford Bridge-1 ("BB-1") oil exploration well

Broadford Bridge-1 ("BB-1") oil exploration well

BB-1, an exploration step-out, is located near Billingshurst, West Sussex, within the 300 km² PEDL234 licence, in which the Company has a 100% interest via its ownership of the licence's operator, Kimmeridge Oil & Gas Limited ("KOGL").

UKOG believes that the multiple positive indications of mobile light oil observed throughout the entire naturally fractured Kimmeridge KL1-KL4 limestone and shale target section is supportive that a significant continuous oil deposit, with a vertical extent in excess of 1100 feet has been demonstrated at BB-1. The uppermost two units of this zone, KL4 and KL3, flowed oil at a stable aggregate rate of 1365 barrels per day in the HH-1 discovery near Gatwick Airport.

This continuous oil deposit therefore likely underlies the entire PEDL234 licence and a significant area of the wider Weald Basin, including the Horse Hill-1 Kimmeridge oil discovery some 27 km to the north east. The Company has the largest licence holding in the Weald Basin and within the prospective area of the Kimmeridge play.

Recent UKOG news

14th July 2017 RNS

UK Oil & Gas Investments PLC announces that the Oil and Gas Authority has granted final consent for the Company's forthcoming extended flow test programme at its 100% owned Broadford Bridge-1 ("BB-1") oil exploration well. As previously reported, given the multiple positive indications of oil-filled fractures throughout a vertical Kimmeridge section of more than 1100 vertical ft, the planned flow test programme has now been substantially increased. The programme will now test around 900 feet of naturally-fractured Kimmeridge section over multiple zones and is designed to establish if oil can flow at commercial rates and in commercial quantities from BB-1.

A  comprehensive electric logging and fracture-imaging programme is now underway, the final two logging runs of which are scheduled to be run at the weekend. The Company will provide an update on preliminary log evaluation results in due course. Flow-testing will follow directly after the completion of electric logging and the setting of 7-inch steel casing.

Stephen Sanderson, UKOG's Executive Chairman, commented "I am confident that the logging and testing results will add further weight to the "proof of concept" that BB-1 lies within a regionally extensive continuous Kimmeridge oil deposit. The thickness and vertical extent of this deposit would be of national significance. More importantly, perhaps, the expanded testing programme will also determine whether BB-1 itself is commercially viable and provides the basis for the Company's first 100% owned Kimmeridge oil production site."

20th July 2017 RNS

Preliminary image log interpretations reveal a further, highly naturally-fractured Kimmeridge shale and limestone reservoir zone, designated "KL0", from 5,508-5,640 ft measured depth. Fractures on image logs coincide with lost circulation zones, oil in mud and wet gas shows.

·      Gross possible Kimmeridge fractured oil-bearing zone increased by 132 ft to 1,622 ft MD, a true vertical section of around 1,200 ft; spans five entire naturally fractured Kimmeridge Limestone and shale zones (KL0-KL4) from 4,018-5,640 ft MD. Zone may extend further upwards into fractured zones above 3,800 ft MD.

·      Schlumberger electric logging and fracture imaging completed, cement plug in deeper Corallian sandstone set and 7-inch steel casing currently being run in the hole. Flow testing of multiple zones over an aggregate 900 ft total perforated section to commence following setting of remaining 7-inch steel casing to TD and well completion.

Third party specialists at P-Ten (UK), and Premier Oilfield Laboratories ("POL"), USA, have examined image logs and 13 cores from its 100% owned Broadford Bridge-1 ("BB-1") exploration well located in licence PEDL234. They report extensive natural fracturing throughout the entire Kimmeridge section, including a previously unidentified potential oil bearing fracture-zone below the lowest Kimmeridge Limestone, KL1.  This new reservoir zone, designated as KL0, is intensely fractured and spans the interval 5,508-5,640 ft MD.  These results accord with drilling data, observed oil and wet gas shows and extend the gross possible vertical thickness of the Kimmeridge Continuous Oil Deposit to around 1,200 ft. Further fractured zones were recorded on image logs above KL4 between 3,800-4,018 ft MD.

The Company is currently mobilising equipment to perforate and flow test a total combined 900 ft of the Kimmeridge section, beginning with the deepest reservoir zones. Permissions from the Oil and Gas Authority, Environmental Authority and West Sussex County Council are in place, final consent from the Health and Safety Executive is expected in due course.

The flow test programme is specifically designed to gather further supportive evidence that the Kimmeridge contains a Continuous Oil Deposit containing mobile light oil and which can flow to surface at commercial rates and in commercial volumes. Further updates on flow testing, set to commence following completion of 7-inch casing and well completion, will be provided in due course.  

Schlumberger's comprehensive electric logging and fracture-imaging programme has now been successfully executed. This includes the first use in the Weald and Kimmeridge section of Schlumberger's Lithoscanner tool, used for elemental and total organic carbon analysis in shales and limestones.

Detailed log interpretations, calibrated to the 554 ft of BB-1 core data, are ongoing at COREX in Aberdeen, and at POL and Nutech in Houston, Texas. Further log interpretation updates and results will be announced in due course.

Stephen Sanderson, UKOG's Executive Chairman, commented: "BB-1, UKOG's new flagship asset, continues to provide a stream of data and ground-breaking technical insights into what we believe is a new and potentially highly significant oil resource. This comprehensive and extensive data set is a sound investment into the future of BB-1 and our corporate goal to establish first Kimmeridge production by the end of 2018/early 2019.

With the technical data from drilling, core and logs continuing to provide mutually supportive evidence of "proof of geological concept", we will now move on very shortly, via a comprehensive extended flow testing programme, to test the concept that oil can flow to surface from the KL0-KL4 at commercial rates and volumes, the litmus test for any oil company. Whilst there is always uncertainty in any new well and testing outcome, the technical results from BB-1 to date continue to remain both positive and most encouraging."

19 May 2017

Successful placing triggers important next phase of Weald Basin activities

UK Oil & Gas Investments PLC announces that it has today raised gross proceeds of £6.5 million through the placing of 812,500,000 new ordinary shares in the Company at 0.8 pence per New Share largely with institutional funds.

The net proceeds of the placing will be used to supplement the Company's existing cash balances and to fund UKOG's near-term growth strategy to further develop its leading position in the Kimmeridge Limestone oil play and five conventional oil and gas discoveries in the Weald. 

Further Placing Details: The Company will apply for the admission of the New Shares to trading on AIM and such trading is expected to take place on or around 24 May 2017. Following Admission, the Company's issued share capital will consist of 3,410,134,099 Ordinary Shares with no Ordinary Shares held in treasury. 

Recent share price action and forthcoming news

On Wednesday 26th July, UKOG's shares went as high as 10.5p after the news from BB-1. On Friday 28th they closed at 6.6p, up 33% on the week. The shares have attracted considerable interest on social media and bulletin boards and the shares have shown extreme volatility driven by small investors. 

If Broadford Bridge as well as Horse Hill are confirmed as commercially viable than the current £230 million market cap will seem cheap. The question remains of the potential Oil in Place, how much can be commercially extracted using current technology and will protests from environmental groups derail future production. Around Gatwick Airport there was considerable protests after UKOG's last drilling campaign near Horley and this sort of activity could delay exploitation of resources. 

UKOG's shares are certainly a rollercoaster, but for those buying sub 1p in May 2017, they are sitting pretty, with a ten bagger achieved this week if they sold at the highs. Plenty of news flow to come in the weeks ahead will continue to make this a hot share on the Bulletin Boards. 

The rise to over 10p and a market cap of around £0.5 billion was probably unwarranted as the forthcoming flow tests will be critical.

Flow testing at BB-1 is likely to start in the coming days as the rig is demobilised and it would be expected that these initial results would be available in the next 7-10 days. Further into 2017 UKOG shareholders will get updates from other wells and a Competent Persons Report (CPR) on the resources would be expected in late 2017 or early 2018.

From the year end accounts September 2016 (released February 2017), the company said:

"Our planning permission also includes the ability to flow test the well for up to 14 weeks. If successful and and provided the tests are encouraging, KOGL would aim to apply for permanent production status from BB-1 by the end of 2018. Due to our 100% ownership, if BB‐1 is a discovery of similar nature to HH‐1, it could result in three times the overall net oil production impact to the Company compared to Horse Hill. Furthermore, should BB‐1 ultimately  prove our hypothesis that KL oil lies within a wider resource deposit, the licence’s 300 km² area could hold around three times the recoverable resources of the Horse Hill licences.   

Consequently, it is our view that a successful outcome from the BB-1 programme could have a highly material and transformational impact on the company." 

I'm not in UKOG at the moment, but will be watching with extreme interest in coming days as the volatility is interesting for trading. BB-1 could be a game changer should the initial technical aspects of the well meet expectations and the press coverage, as demonstrated by Horse Hill, could drive a lot of investor demand. There is still a little while to go to test the well as the company said it could flow test for several months, but the initial RNS will nevertheless be interesting. The well will not be full producer until 2019 so the news of an imminent change in the company's financial fortunes are off the mark.

Horse Hill is also another good prospect, but further testing in Horley is needed and all depends on Surrey County Council in September or later. Again a full production licence won't be available until late 2018, with oil flowing in 2019. However the OIP from the Competent Persons Report in early 2018 will be enlightening to the prospects.

Sanderson seems adept at feeding the media and like the "Gatwick Gusher" this could be the "Billingshurst Bonanza" for small investors with a bit of fortune on the testing front! Be careful out there though, don't buy on the spikes, watch for entry opportunities over the next week to 2 weeks pre-initial flow test results and then as the longer term data comes in (reminder - up to 14 weeks).

Remember also that the May institutional placing was at 0.8p and that further fund raising will be necessary over and above the £6.5 million raised at some point to do production testing at Horse Hill.  The market cap needs to be at reasonable levels given where the company is with appraisal drilling and oil production will not be possible until 2019 from these new assets. Talk of 20p share price on the bulletin boards soon equates to a mcap of £682 million or nearly $900 million which seems optimisitic at this stage of the game.

ContrarianUK declaration: No holding in UKOG.