TIDMUKOG
RNS Number : 6733D
UK Oil & Gas PLC
30 June 2021
30 June 2021
UK OIL & GAS PLC
("UKOG" or the "Company)
Unaudited results for the six-month period ended 31 March
2021
CHIEF EXECUTIVE'S STATEMENT
I am pleased to present the unaudited results of UK Oil &
Gas PLC ("UKOG") for the six-month period ended 31 March 2021.
The Company's Annual Report, published in mid-April, revealed a
change in focus and ambition, reflecting my vision to transform
UKOG into an international energy business. Because of the
challenging and unprecedented times, the Board felt it was vital to
have a step-change and expand our horizons.
A year ago, we signed an agreement with Aladdin Middle East Ltd
("AME"), to take a 50% non-operated working interest in the Resan
licence in Turkey, containing the Basur-Resan oil discovery. We
also added an application for four further exploration blocks
containing similar potential to Resan. This move into Turkey is
crucial to the success and prosperity of UKOG. As I have stated
several times before, our traditional petroleum assets in the Weald
Basin remain an important part of our portfolio - but they will not
be our sole focus as we plan expansion within Turkey and other new
areas.
There are three main reasons for this: firstly, acquiring new
acreage and drilling opportunities is the lifeblood of any oil
& gas company, particularly in the exploration and appraisal
phases. To survive and prosper it is vital to stay ahead of the
game and to create fresh opportunities to give a platform for
future growth. We are well positioned in this respect, with the
Board's extensive international oil and gas connections giving
access to opportunities, which is how our Turkey acquisition came
to pass. The board also has the depth and breadth of experience to
rapidly assess such opportunities and make timely decisions.
Indeed, our Turkish acquisition was sought after by other
competitors, but UKOG was experienced and nimble enough to take the
deal on favourable terms ahead of the pack.
Secondly, the regulatory burden in the UK continues to increase,
meaning that assets cost more and take longer to monetise. In
contrast to the UK, Turkey offers the ability to rapidly monetise
success in under a year, compared to three to five years in this
country. Costs are significantly lower plus indigenous oil is given
strategic importance by the Turkish government.
Thirdly, the potential resource size in Southeast Turkey is in a
different league from the UK onshore. It is worth repeating that
the Resan licence offers the rare opportunity to appraise a
discovered oil accumulation with around the same level of appraisal
risk as our Loxley and Arreton projects but with estimated
recoverable volumes greater than all the Weald Basin's historic oil
production and reserves combined.
Our Turkish operations have moved forward at a fast pace, moving
from site construction and Turkish Ministry of Energy and Natural
Resources drilling consent in late March/early April to Basur-3
spud in late June. We look forward to the delivery of a well that
can help achieve our goal of assessing the commercial viability of
the accumulation.
As reported previously, the significant cost reductions achieved
at Horse Hill over the year and the forecast reduction in water
handling costs via the conversion of HH-2z into a water injector
means that, going forwards, Horse Hill production is forecast to be
profitable. The planned HH-3 and HH-4 infill wells are also
designed to boost production as we move forward in developing our
asset. Horndean, which continues to produce very steadily, also
remains profitable with current rates and prices.
This past year in the UK, we also submitted new planning
applications for Arreton oil appraisal on the Isle of Wight and
Loxley gas appraisal in Surrey, the latter of which is now the
subject of a formal Appeal to the Planning Inspectorate to be heard
via public inquiry from 27(th) July 2021. We remain confident that
the Appeal will be successful and that the Loxley project, one of
the UK onshore's largest ever gas discoveries, can take its place
as a source of feedstock for reformation into hydrogen, a key new
sector to help the UK meet net zero.
We have also spent significant time looking at the feasibility
of enhancing our UK sites to include renewable energy. Our vision
is that our UK sites could become integrated hybrid energy hubs,
encompassing solar, closed loop geothermal, petroleum and battery
storage. We have also been evaluating stand-alone closed-loop
geothermal activities as an addition to our traditional UK
business. Whilst this sector is still in its infancy in the UK, we
believe we have the key technical and project management skills
necessary to make such projects work.
In order to further our geothermal projects and credentials we
became a founder member of a new geothermal stakeholder
organisation, the Geothermal Energy Advancement Association.
In an ongoing series of cost cutting measures, the Company also
significantly reduced the Horse Hill oil field's operating costs.
From January 2020, operating costs were reduced by a substantial
66% overall, even though water handling costs increased
substantially. The savings place Horse Hill in a good position to
take advantage of the strengthening Brent crude prices.
As part of the cost-cutting measures, the Company completed the
final instalment due under the sale and purchase agreement of the
Horse Hill surface production equipment from PW Well Test Ltd
("PW"). We acquired the equipment from PW for GBP1.65 million. The
purchase was via three equal instalments of GBP550,000. The final
payment was made via the issue of 262,759,440 UKOG shares.
Basur-3, Turkey
I have been impressed by the speed of Turkish operations, more
in keeping with the pace I have experienced in the many other
onshore international arenas. The UKOG technical team have been
working hard with AME to design and deliver this first appraisal
well, aimed at helping determine whether the as yet undeveloped
Basur-Resan oil discovery is commercially viable.
Given the complex nature of the subsurface there are, of course,
no absolute guarantees of success, but we remain confident that
Basur-3 will move our understanding of the accumulation in the
right direction. Due to the size of the geological structure,
follow up wells will undoubtedly be required, notably in the
southeastern culmination at the Resan end, before we fully
understand how things fit together.
The Basur-Resan oil discovery was assessed by Xodus Group Ltd to
contain an estimated mean case discovered recoverable oil volume of
approximately 34 million bbl gross, potentially delivering to UKOG
approximately 17 mmbbl for its net 50% interest.
Therefore, in the success case, Basur-Resan has the potential to
surpass the recoverable oil and gas volumes currently assigned by
Xodus to both our Loxley and Arreton appraisal projects and the
entire aggregate sum of the Company's UK portfolio.
We also look forward to hearing the outcome of our application
with AME for three further exploration licences in Southeast
Turkey. I am excited by the prospective size of the undrilled
anticlines in these blocks, and should the award be confirmed, we
plan to acquire seismic over the most prospective as part of the
Basur-Resan survey.
Director Share Purchase
The Board of UKOG announced a commitment to put in place an
annual MAR-compliant Defined Director Share Purchase Programme in
which a director agrees to purchas e UKOG ordi nary shares each
month equivalent in value to a fixed percentage of their net
monthly salary. In line with other such schemes, the director's
commitment is envisaged to be in the range of 5 to 10% of net
salary, dependent upon individual circumstance.
General Meeting
Post period in June 2021, UKOG put two resolutions to
shareholders to grant directors the authority to allot shares and
also to dis-apply pre-emption rights. Both resolutions were passed
with over 90% support. This gave the Company the ability to raise
finance to comply with commitments in Turkey.
OPERATIONAL REVIEW
H ealth, Safety and Environment
Once again there were no Lost Time Incidents, reportable
environmental incidents or health issues on any of UKOG's sites
during the period or post period.
Covid-19 continues to be a challenge for site operations. Staff
were put onto a 2-week shift rotation patterns, Covid controls were
put in place on site and any service personnel and visitors were
restricted access to site unless strictly necessary. All site staff
have now received their vaccines, but monitoring of personnel
entering the site still continues.
Horse Hill well site is working to become more energy efficient.
Systems of alternative power generation are being reviewed to
reduce diesel fuel usage. New lighting has been installed. This has
removed the use of temporary lighting generators and has also
helped in the reduction of lighting pollution on site.
We are carrying out modifications at the site to comply with The
Control of Major Accident Hazards regulations (lower tier), as well
as other regulations. Liaison continues with the Health and Safety
Executive and the Environment Agency ("EA") to ensure the Horse
Hill site satisfies these regulations.
Turkey, Resan Licence (UKOG 50%)
In October 2020 UKOG signed a Participation Agreement and Joint
Operating Agreement with Aladdin Middle East Ltd ("AME"), an
independent oil company with 60 years of operational experience in
Turkey, to take a 50% non-operated working interest in the 305
km(2) Resan Licence. UKOG will take an active technical role in a
4-well oil appraisal and step-out exploration drilling programme.
The transaction was approved by the Turkish government and it was
completed in January.
The Resan Licence lies within the SE Anatolian basin, a
geological continuation of the prolific Zagros "fold-belt"
petroleum system within the foothills of the Taurus-Zagros
mountains in Iraq, Iran and Turkey, one of the Middle East's major
oil producing areas. Multiple producing oil fields lie to the
immediate west and south-east of the Licence, containing
significant proven recoverable reserves.
In November 2020 UKOG quickly built on this exciting entry into
Turkey by submitting an application for three further exploration
licences, again with a 50% interest and AME as operator. UKOG is
awaiting the Turkish government's decision on our application.
In March AME began construction of the drilling pad and access
road for the first appraisal well, Basur-3. Construction and
pre-setting of the well conductor were completed in May.
In April the Turkish Ministry of Energy and Natural Resources
granted formal consent to drill Basur-3. The drilling rig mobilised
to the site and the well was spudded in June.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG 85.64%)
The field and surrounding licence are operated by UKOG's
subsidiary company Horse Hill Developments Ltd ("HHDL") in which
UKOG holds a 77.9% ownership. The Licensees are HHDL (65% interest)
and UKOG (137/246) Ltd (35% interest).
A w ell intervention on the Horse Hill-1 well ("HH-1") was
safely completed, optimising oil flow by isolating the Kimmeridge
perforations, reperforating the full Portland oil producing
section, inserting a new simplified production tubing string and
setting the downhole pump at a deeper level to increase pumping
efficiency. These improvements set HH-1 up for long term continuous
and optimised oil production from the Portland.
A Field Development Plan addendum was submitted to the Oil and
Gas Authority (OGA) for the conversion of the HH-2z well into a
water injector. Water injection plus further infill development of
both Portland (HH-3 well) and Kimmeridge (HH-4 well) offer upside
for the Horse Hill field.
The intervention was immediately followed by a series of
multi-week production optimisation trials to achieve an optimum
balance between oil revenues and water handling and other
operational costs. The trials included well cycling (i.e., shutting
in the well for a set period each day to reduce water inflow) and
pump fill optimisation. Optimised costs and stable water influx
levels have now been achieved.
As of 31 May, 146,900 bbl of Brent quality crude had been
produced and exported from the Kimmeridge and Portland pools.
Significant efforts are ongoing to manage and reducing
operational costs. From January 2020 to January 2021 our total
operating costs were reduced by 66%. Brent crude prices have
recovered strongly to over $70/bbl.
It is expected that further HH-3 Portland and HH-4 Kimmeridge
infill wells will be planned in detail and drilled at Horse
Hill.
During the period UKOG completed an energy efficiency study on
Horse Hill which has confirmed energy and operating cost savings
over the life of the project by the installation of 250kW of
photovoltaic solar panels and 67kWh Li-Ion batteries. Installation
of the technology is now being factored into future field
development plans.
In May UKOG commenced a study with Ceraphi Energy Ltd to review
the geothermal energy potential of the Horse Hill site and
surrounding area. The results of the work are expected during
Summer 2021.
Loxley, Broadford Bridge, PEDL234 (UKOG (234) 100%)
In the rerun of the Loxley planning committee meeting by Surrey
County Council on 27 November 2020, UKOG's planning application was
narrowly refused, despite the recommendation to approve our
application by its own planning officers and the permit approval by
the EA in June 2020. UKOG filed an appeal of this planning decision
in February and the public inquiry is scheduled to start on 27
July.
The Loxley well is intended to test the crest of the Portland
gas accumulation, originally discovered on the neighbouring licence
by the Godley Bridge-1 well, and will also test the underlying
Kimmeridge section.
OGA has approved a further amendment to the PEDL234 Retention
Area work programme such that Loxley-1/1z is to be drilled by
December 2023.
Arreton, Isle of Wight, PEDL331 (UKOG 95%)
The Arreton planning application was submitted in March 2020
with the Isle of Wight Planning Committee expected to take place in
late summer. The permit application for Arreton has been submitted
and is under review by the EA.
UKOG intends to drill, sidetrack and test an Arreton-3/3z well,
which will appraise the Arreton-2 oil discovery made by British Gas
in the 1970s. The primary target will be the Portland oil
discovery.
Other Assets
As operator of PEDL143 (UKOG 67.5%), UKOG reviewed the oil &
gas potential of the licence and surveyed possible well sites. We
concluded that the required long-reach/shallow target-depth wells
are neither technically viable nor economically feasible. It was
agreed with the partners to relinquish the licence.
Stable oil production with low water cut continues from the
Horndean oil field in Hampshire (UKOG 10%).
UKOG is actively reviewing geothermal and energy storage
opportunities onshore UK with potential collaborative partners.
FINANCIAL REVIEW
The operating loss for the six months to 31 March 2021 was
GBP1.02 million compared to GBP0.90 million for the same period
last year. Revenue for the six months saw an increase from GBP0.08
million to GBP0.72 million, which was a result of production of
Horse Hill field, which in the same period last year was in
development and as such oil sales from the Horse Hill field were
not included in the revenue line but rather netted off exploration
and evaluation expenditure.
Net cash outflow from operations decreased from GBP1.06 million
to GBP0.96 million; this decrease was driven by a decrease in trade
and other payables.
For further information please contact:
UKOG
Stephen Sanderson / Kiran Morzaria Tel: 01483 900582
WH Ireland (Nominated Adviser and Broker)
James Joyce / James Sinclair-Ford Tel: 0207 220 1666
Communications
Brian Alexander Tel: 01483 900582
Glossary of Terms:
Term Meaning
deg API A measure of the density of crude oil, as defined by
the American Petroleum Institute
bopd Barrels of oil per day
calcareous Containing calcium carbonate (limestone)
Contingent Those quantities of petroleum estimated, as of a given
Resources date, to be potentially recoverable from known accumulations,
but the applied project(s) are not yet considered mature
enough for commercial development due to one or more
contingencies. Contingent Resources are further categorised
in accordance with the level of certainty associated
with the estimates and may be sub-classified based
on project maturity and/or characterised by their economic
status.
core or coring A drilling technique that involves using a doughnut-shaped
drilling bit to capture or "cut" a continuous cylinder-shaped
core of undamaged in-situ rock. The core is captured
in a steel pipe or "core barrel" above the bit. Core
is normally cut in 30 feet lengths, or multiples of
30 feet, and normally with a diameter of 3.5 or 4 inches.
Core is taken in petroleum reservoir rocks for detailed
laboratory analyses of petrophysical and geomechanical
parameters
discovery A petroleum accumulation for which one or several exploratory
wells have established through testing, sampling and/or
logging the existence of a significant quantity of
potentially moveable hydrocarbons
drawdown pressure drawdown ( P) is defined as the difference
between the reservoir pressure and the flowing bottom
hole pressure. Drawdown enables fluids to flow from
the reservoir into the wellbore. The magnitude of the
drawdown is a major controlling factors of a well's
production rate
extended a well test, as per the permission granted by the Oil
well test and Gas Authority, with an aggregate flow period duration
over all zones of greater than 96 hours
flow test A flow test or well test involves testing a well by
flowing hydrocarbons to the surface, typically through
a test separator. Key measured parameters are oil and
gas flow rates, downhole pressure and surface pressure.
The overall objective is to identify the well's capacity
to produce hydrocarbons at a commercial flow rate
limestone A sedimentary rock predominantly composed of calcite
(a crystalline mineral form of calcium carbonate) of
organic, chemical or detrital origin. Minor amounts
of dolomite, chert and clay are common in limestones.
Chalk is a form of fine-grained limestone. The Kimmeridge
Limestones are effectively chalks being comprised of
the remains of calcareous planktonic algae
mmbbl Million barrels
naturally Fractured reservoirs contain cracks or surface of breakage
fractured within rock; fractures can enhance permeability of
reservoirs rocks greatly by connecting pores together; naturally
fractured reservoirs have been created over geological
time by nature, not man-made via hydraulic fracturing
oil in place The quantity of oil or petroleum that is estimated
(OIP) to exist originally in naturally occurring accumulations
in the ground before any extraction or production
P50 (best a 50% probability that a stated volume will be equaled
estimate) or exceeded
prospect A project associated with a potential accumulation
that is sufficiently well defined to represent a viable
drilling target
Reserves those quantities of petroleum anticipated to be commercially
recoverable by application of development projects
to known accumulations from a given date forward under
defined conditions. Reserves must further satisfy four
criteria: they must be discovered, recoverable, commercial,
and remaining (as of the evaluation date) based on
the development project(s) applied. Reserves are further
categorised in accordance with the level of certainty
associated with the estimates (i.e. Proven, Probable
and Possible) and may be sub-classified based on project
maturity and/or characterised by development and production
status
sandstone A clastic sedimentary rock whose grains are predominantly
sand-sized. The term is commonly used to imply consolidated
sand or a rock made of predominantly quartz sand
shale A fissile rock that is formed by the consolidation
of clay, mud, or silt particles, and that has a finely
stratified or laminated structure. Certain shales,
such as those of the Kimmeridge, often contain a significant
proportion of organic material, which when subject
to increasing temperature and pressure over geological
time transform into petroleum (known as petroleum "source
rocks")
sidetrack Re-entry of a well from the well's surface location
with drilling equipment for the purpose of deviating
from the existing well bore to achieve production or
well data from an alternative zone or bottom hole location,
or to remedy an engineering problem encountered in
the existing well bore.
Consolidated Income Statement (Unaudited)
for the six months ended 31 March 2021
6 months 6 months
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
GBP'000 GBP'000
------------------------------------------ ------------ ------------
Revenue 721 88
Depletion, Depreciation and Amortisation (273) (87)
Other Cost of sales (544) (40)
Gross profit (96) (39)
------------------------------------------ ------------ ------------
Operating expenses
Administrative expenses (915) (715)
Foreign exchange gains (17) (17)
Other income 1 -
------------------------------------------ ------------ ------------
Operating (loss) (1,010) (771)
------------------------------------------ ------------ ------------
Finance costs (12) (130)
(Loss) from continuing activities before
taxation (1,021) (902)
------------------------------------------ ------------ ------------
Taxation
------------------------------------------ ------------ ------------
Net (Loss) after tax from continuing
operations (1,021) (902)
------------------------------------------ ------------ ------------
(Loss) for the 6 months attributable
to:
Owners of the parent
Non-controlling interest
(1,021) (902)
------------------------------------------ ------------ ------------
Other comprehensive loss
Transfer to income statement - -
------------------------------------------ ------------ ------------
Other comprehensive loss net of taxation (1,021) (902)
------------------------------------------ ------------ ------------
(Loss) per share
------------------------------------------ ------------ ------------
Pence Pence
Basic and diluted 2 (0.01) (0.01)
Consolidated Statement of Financial Position (Unaudited)
as at 31 March 2021
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
GBP'000 GBP'000
--------------------------------- ------------ ------------
Assets
Non-current assets
Exploration & evaluation assets 25,594 34,032
Oil & Gas properties 6,771 1.427
Decommissioning asset 285 344
Goodwill 0 17,443
Property, Plant & Equipment 1,772 237
---------------------------------- ------------ ------------
Total non-current assets 38,544 53,483
---------------------------------- ------------ ------------
Current assets
Inventory 1 1
Trade and other receivables 2,470 1,526
Cash and cash equivalents 1,944 780
---------------------------------- ------------ ------------
Total current assets 4,418 2,307
---------------------------------- ------------ ------------
Total Assets 42,962 55,790
---------------------------------- ------------ ------------
Trade and other payables (3,271) (2,001)
Borrowings (3,086) (5,483)
Total current liabilities (6,356) (7,484)
---------------------------------- ------------ ------------
Non-current Liabilities (5,483) (5,483)
Provisions (1,031) (447)
---------------------------------- ------------ ------------
Total liabilities (7,388) (7,931)
---------------------------------- ------------ ------------
Net Assets 35,574 47,859
---------------------------------- ------------ ------------
Shareholders' Equity
Share capital 12,879 12,366
Share premium account 102,058 93,624
Share-based payment reserve 1,811 1,811
Accumulated losses (81,287) (60,055)
---------------------------------- ------------ ------------
35,461 47,746
--------------------------------- ------------ ------------
Non-controlling interest 113 113
Total shareholders' equity 35,574 47,859
---------------------------------- ------------ ------------
Statement of Cash Flows (Unaudited)
for the six months ended 31 March 2021
6 months 6 months
31 March 31 March
2021 2020
(Unaudited) (Unaudited)
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
Cash flows from operating activities
Loss from operations (1,010) (771)
Depletion & impairment 273 87
Cash effect of provision release - -
Decrease / (increase) in inventories 1 -
Decrease / (increase) in trade and other
receivables (943) (347)
(Decrease) / increase in trade and other
payables 720 (27)
----------------------------------------------- ------------ ------------
Net cash (outflow) from operating activities (961) (1,058)
----------------------------------------------- ------------ ------------
Cash flows from investing activities
Expenditures on exploration & evaluation
assets (345) (7,803)
Receipts from sale of test volumes - 995
Expenditures on oil & gas properties - -
Expenditures on property, plant & equipment (550) (113)
Net cash flows on acquisition of share - -
in subsidiary
---------------------------------------------- ------------ ------------
Net cash (outflow) from investing activities (895) (6,922)
----------------------------------------------- ------------ ------------
Cash flows from financing activities
Proceeds from issue of share capital 2,310 2,000
Interest expense on minority interest
loans (144) (132)
Net cash inflow from financing activities 2,166 1,868
----------------------------------------------- ------------ ------------
Net change in cash and cash equivalents 310 (6,112)
----------------------------------------------- ------------ ------------
Cash and cash equivalents at the beginning
of the period 1,634 6,892
Cash and cash equivalents at the end
of the period 1,944 780
----------------------------------------------- ------------ ------------
Notes to the half-yearly results
1. Basis of preparation
As permitted by IAS 34, 'Interim Financial Reporting' has not
been applied to these half-yearly results. The financial
information of the Company for the six months ended 31 March 2021
have been prepared in accordance with the recognition and
measurement principles of International Financial Reporting
Standards, International Accounting Standards and Interpretations
(collectively "IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union ("adopted
IFRS") and are in accordance with IFRS as issued by the IASB. The
condensed interim financial information has been prepared using the
accounting policies which will be applied in the Company's
statutory financial statements for the period ending 30 September
2020.
The financial information shown in this publication is unaudited
and does not constitute statutory accounts as defined in Section
434 of the Companies Act 2006. The comparative figures for the
financial year ended 30 September 2019 have been derived from the
statutory accounts for 30 September 2019. The statutory accounts
have been delivered to the Registrar of Companies. The auditors
have reported on those accounts; their report was unqualified and
did not contain statements under the section 498(2) or 498(3) of
the Companies Act 2006.
2. (Loss) per share
The calculation of the basic and diluted (loss) per share is
based upon
6 months 6 months
31 March
31 March 2021 2020
(Unaudited) (Unaudited)
Group GBP'000 GBP'000
------------------------------------- --------------- --------------
(Loss) attributable to ordinary
shareholders (1,021) (902)
-------------------------------------- --------------- --------------
Number Number
------------------------------------- --------------- --------------
Weighted average number of ordinary
shares for
calculating basic loss per share 10,090,403,971 7,095,087,349
-------------------------------------- --------------- --------------
Pence Pence
------------------------------------- --------------- --------------
Basic and diluted loss per share (0.01) (0.01)
-------------------------------------- --------------- --------------
3. Availability of the Interim Report
Copies of the report will be available from the Company's
registered office and also from the Company's website
www.ukogplc.com
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
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END
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