Broadford Bridge oil site in West Sussex, 11 February 2018. Photo: Broadford Bridge Action Group
The exploration company. UKOG, announced this morning it had suspended its well at Broadford Bridge in West Sussex, after describing observed oil flows as likely to be “sub-commercial”.
In a statement to shareholders, the company said it had also finalised two new exploration sites in the Broadford Bridge licence area and aimed to drill in 2019.
The statement was followed nearly two hours later by the publication of UKOG’s annual accounts, which recorded a loss of £2.26m for the year to the end of September 2017.
“New sidetrack and stimulation techniques considered for Broadford Bridge”
Earlier this month, UKOG announced that flow testing had stopped at Broadford Bridge and equipment was being removed from the site. In February shares dropped sharply on an announcement of possible formation damage in the well and low flow rates.
Broadford Bridge oil site this month. Photo: Weald Oil Watch
Today the company said it was considering drilling another sidetrack at Broadford Bridge and using other reservoir stimulation techniques.
“Whilst the KL [Kimmeridge Limestone] flow rates observed are likely sub-commercial … we are exploring new methods and technologies that might enable us to achieve higher sustainable oil rates and commercial viability from the 1400 vertical feet of oil-saturated KL reservoir rock interpreted at BB-1z.”
The statement added:
“Serious consideration is being given to a possible future short sidetrack, BB-1y. The sidetrack’s objective would include a selective re-test of the main KL units, likely utilising an alternate completion methodology, new completion fluids, the possible use of small-bore radial drilling and other reservoir stimulation techniques.”
The company added that this would happen after a trial of these methods and technologies in the next exploration well in the Broadford Bridge licence area, PEDL 234.
Two new sites
The statement said:
“Two drilling sites have now been finalised, both located firmly within what the Company interprets to be the KL oil deposit’s most prospective sweet-spot.”
The company said both were in the central area of the licence but it did not identify them. Lease terms had been agreed on the first site, the company said, and it was meeting local authority planners this week.
UKOG’s Executive Chairman, Stephen Sanderson, said:
“The Company has accelerated its future KL drilling plans to include two new firm drilling sites. These will see the KL tested in the thickest, deepest and most oil generative areas of the play in PEDL234. We plan to submit a new planning application by Q3 this year and, subject to obtaining the necessary consent, our next PEDL234 well will be drilled in 2019, following the forthcoming testing and drilling campaign at our Horse Hill discovery.
“As our understanding of the KL deposit progresses, we are exploring new methods and technologies that might enable us to achieve higher sustainable oil rates and commercial viability from the 1400 vertical feet of oil-saturated KL reservoir rock interpreted at BB-1z and our future KL wells.”
Horse Hill – production planned for 2019
Mr Sanderson said the company’s focus was now on extended well tests in the Portland and Kimmeridge Limestone at Horse Hill, near Horley in Surrey.
The accounts said:
“If the programme is successful it is planned that Horse Hill will deliver stable oil production in 2019, subject to obtaining the necessary regulatory consents.
“Although the HH-1 well is not intended to be an immediate producer, any oil produced from the tests will, of course, be sold. Sales volumes are not incorporated into budgetary planning, but a successful testing outcome would generate further oil sales revenues for the Company.”
Other plans – “batch applications”
UKOG said in the accounts its plans for 2018 included demonstrating the commercial viability of:
- Up to two wells at Horse Hill
- The Kimmeridge Limestone sequence at Holmwood, near Dorking (also known as Bury Hill Wood or Leith Hill), and the two new sites in PEDL234.
The accounts also said the company aimed to:
“Define and secure a batch of new drill sites, submit ‘batch’ planning consent applications to ensure a “hopper” of ready to drill locations.
“Consider submitting production planning applications immediately post-discovery and prior to commercial declaration. This will help deliver production from each well as early as regulatory permitting allows.
“Further consolidate our holdings in discoveries and developments, where possible, and acquire further prospective acreage and opportunities.”
On the Isle of Wight, UKOG said:
“At Arreton, a well site is being secured, and planning/permit application prepared. In the success case, production will be achieved as soon as the regulatory system allows, but it is envisaged that Arreton will be drilled in 2019.”
In the statement to shareholders on the annual accounts, there is only one reference to Markwells Wood in West Sussex. Under the list of assets, Markwells Wood is described as “Revised drilling and testing planning application underway”.
But in the annual report, also published today, the company goes into more detail. It said it was considering whether to resubmit a revised planning application for the site, after withdrawing its proposals in May 2017.
It also commented on a breach of condition notice, issued earlier this month by the South Downs National Park Authority, which ordered UKOG to clear and restore Markwells Wood. The company said:
“UKOG does not consider the notice to be valid and is considering its position on Markwells Wood in discussion with SDNPA”.
DrillOrDrop reported this week that the company lost its access rights to the site in July 2017. There is no reference to this in the accounts or annual report, nor to the injunction sought by UKOG at the High Court against protests at three exploration sites. The case is expected to be heard in about six weeks.
Earlier this month, a new company joined the UKOG group. UK Oil and Gas was incorporated on 13 March 2018 with one director, Kiran Morzaria.
This brings to seven, the number of companies in the group. Stephen Sanderson is the sole director of four, including UKOG (GB) Ltd, the operator of Markwells Wood.
Mr Sanderson, Mr Morzaria and Allen Howard II are directors of UK Oil and Gas Investments plc.
Mr Sanderson, Mr Morzaria and James Lorsong are the directors of Kimmeridge Oil & Gas Ltd, the operator of Broadford Bridge.
Key figures from the accounts
Figures are for the year to the end of September 2017. Brackets indicate negatives or loss
Revenue: £207,000; 2016: £151,000
Cost of sales: (£254,000); 2016: (£204,000)
Operating (loss): (£2,395,000); 2016: (£2,895,000)
Loss for the year: (£2,268,000); 2016: (£1,972,000)
Exploration and evaluation assets: £15,110; 2016: £6,187,000
Non-current assets: £21,711,000; 2016: £13,182,000 (increased expenditure on exploration and evaluation assets)
Net assets: £23,166,000; 2016: £17,569
Expenditure on exploration & evaluation assets: (£8,723,000); 2016: (£458,000)
Total current liabilities: (£3,725,000); 2016: (£591,000)
Total liabilities: (£4,084,000); 2016: (£950,000)
Net cash outflow from investing activities: (£8,208,000); 2016: (£4,347,000)
Cash and cash equivalents at the end of the year: £1,740,000; 2016: £2,440,000
Updated at 2.30pm with information from the annual report published after the initial accounts statement
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