UK Oil & Gas PLC (LON:UKOG) Horse Hill Granted Long-term Production Consent

Horse Hill Oil Field Granted Long-term Production Consent by Surrey County Council

UK Oil & Gas PLC (London AIM: UKOG) is pleased to announce that, earlier today, Surrey County Council’s (“SCC”) Planning and Regulatory Committee granted full planning consent for long-term oil production at the Company’s flagship Horse Hill oil field near Gatwick Airport. Following yesterday’s acquisition of Tellurian’s 35% stake in Horse Hill, the Company now holds a significant and controlling 85.635% interest in the field and the highly prospective surrounding PEDL137 and PEDL246 licences. The field is operated by the Company’s subsidiary, Horse Hill Developments Ltd (HHDL), in which it holds a 77.9% controlling interest.

Planning Consent Summary

The planning consent gives permission to produce oil over a period of 25 years at up to 3,500 barrels of oil per day from a total of six wells within the Portland and Kimmeridge oil pools, including the existing Horse Hill-1 (“HH-1”) and the forthcoming HH-2/2z horizontal well. Consent also includes permission to drill one water reinjection well to help maximise oil recovery. All existing and future wells will be drilled from within the existing 20 x 15 metre concrete pad. No further drilling sites beyond Horse Hill are required.

What Does the Consent Mean to UKOG and Horse Hill?

Critically, this consent means that the field’s immediate oil production from HH-1 and HH-2/2z will no longer be limited to existing extended well test planning consents. The ability to produce over the field’s economic lifespan also enables the transfer of current and future assigned recoverable resource volumes into the category of Reserves, which, by definition, conveys with more certainty that a known volume of petroleum can be produced commercially over a given time.

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The commercial certainty associated with the allocation of Reserves at Horse Hill is therefore a critical step necessary to help facilitate the potential use of debt-based funding for field development and other Company working capital requirements. It is planned to commission a new Competent Persons Report to establish the Company’s net Reserves following completion of HH-2z production testing in the Autumn.

The permission also enables the Company to finalise its Field Development Plan and submit it to the Oil and Gas Authority (“OGA”) for the necessary regulatory and technical consent. Meetings in this respect have been scheduled with OGA in the coming weeks.

The field’s environmental permit application, covering the four new wells and production activities, was submitted to the Environment Agency (“EA”) in January and is under review. Drilling of the four new production and reinjection wells will require the usual drilling regulatory consents from the HSE and OGA.

Forward Operational Plans at Horse Hill

The first new horizontal production well, Horse Hill-2/2z (“HH-2/2z”), designed to produce at rates potentially of up to 2-3 times the rate of the vertical HH-1 well, is scheduled to start drilling before the end of this month, with a further new Portland production well and Portland water reinjection well planned to follow upon completion of production testing in early 2020. During HH-2/2z drilling, the Kimmeridge oil pool will continue to be production tested to provide further key technical data and associated sales revenues to partially offset drilling and testing costs. Planning approval also exists to sidetrack the HH-1 well horizontally into either the Kimmeridge or Portland oil pools.

Stephen Sanderson, UKOG’s Chief Executive, commented:

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“This landmark milestone, perhaps the most significant event at Horse Hill since the HH-1 oil discovery, paves the way for the Company to realise the full value of future long-term production from the Horse Hill oil field, our flagship asset. It is also a key enabler that will help us achieve our goal of long-term oil production and related cash flow by year end.

The decision’s timing fits hand in glove with yesterday’s completion of the acquisition of Tellurian’s 35% interest in Horse Hill. It fully justifies the price paid to boost our share of oil sales revenues, net Reserves and recoverable resources by over 69%.

Now that we are firmly in control of the forward Horse Hill drilling programme and development schedule, the Company is well placed to deliver its stated goals. We look forward to maintaining the considerable forward momentum of the past weeks during the forthcoming simultaneous drilling and production testing campaign.”

Qualified Person’s Statement

Matt Cartwright, UKOG’s Commercial Director, who has over 35 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.

 


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