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UK Oil & Gas reports Horse Hill production milestones as ‘testing’ continues

Some 35,000 barrels of crude have so far been recovered from Horse Hill where test production continues and new drilling in the coming months aims to expand capacity
oil and gas operations
165 tankers of crude have been sent from Horse Hill

As it releases its annual results, UK Oil & Gas plc (LON:UKOG) has also provided an update from the ongoing extended well test at the Horse Hill field, highlighting a number of milestones.

UKOG, which owns a 50.635% interest in Horse Hill, said that 10,000 barrels have now been produced from the Portland reservoir and it continues to flow at an average rate of 220 barrels of oil per day.

It explained that the production rate is deliberately held beneath the previously reported test rate of 362 bopd for “prudent reservoir management purposes”.

The Portland production adds to the 25,000 barrels of crude previously produced from the Kimmeridge zone in an earlier phase of the testing programme, and, takes the aggregate to 35,000 barrels.

READ: UK Oil & Gas increases stake in Horse Hill with Doriemus deal

Some 165 tankers worth of crude has now been routed from Horse Hill to the Hamble oil terminal, sold a Brent Crude Oil prices (less deductions for handling and marketing).

In its financial results, for the twelve months ended 30 September 2018, the company said that sales in that period saw oil prices between US$70 and US$80 per barrel whilst lifting costs for the test production amounted to US$20-27 per barrel – at full scale, it is anticipated below US$20 per barrel.

The extended well-testing programme (which has seen flows are a variety of rates and has included periods of downtime began in June 2018 and in UKOG’s results to the end of September it reported revenue of £225,000.

UKOG detailed a £128,000 gross profit and a £16.7mln pre-tax loss, including an £11.5mln write off against exploration assets.

Plans for production through 2019

Looking ahead, UKOG highlighted that the current plan sees Horse Hill test production revenues continuing through the remainder of 2019 and that long term field production revenues will begin before the calendar year end.

New drilling this spring – comprising the HH-2 well and a new Kimmeridge sidetrack for the existing HH-1 well – will aim to boost production capacity.

UKOG said it is optimistic that Horse Hill can achieve its horizontal production targets of 720-1,080 bopd per well. At such a level, the company said the project will be generating free cash flow in 2020.

Subject to regulatory approvals, the plan is to switch seamlessly from ‘testing’ into long term production.

It also highlighted that as the project phases into full production, the addition of proven and probable reserves at Horse Hill will open up the possibility of reserve-based lending – in other words, the debt could be raised against the crude remaining beneath the ground.

A rig tender process has recently begun for this spring’s drilling programme, and, the company noted that it already has planning and environmental permits in place for the work.

UKOG chief executive Stephen Sanderson said: "The Portland's continued excellent production performance, particularly from a non-optimised vertical well, provides building confidence that the previously reported 720-1,080 bopd horizontal well production targets are increasingly attainable.

“The recent rig-tender exercise also means we remain fully on track to begin the first horizontals in Spring, with long term production testing of both wells planned to follow directly afterwards.

“This programme puts UKOG in a strong position to deliver real growth and positive cash flow in the near future."

As of 30 September, UKOG had £12.4mln of cash and equivalents.

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