Acquisition of 100% interest in Licence

RNS Number : 9264A

UK Oil & Gas Investments PLC

13 June 2016

 

UK Oil & Gas Investments PLC

("UKOG" or the "Company")

Acquisition of 100% interest in 300 sq km Licence in Weald Kimmeridge Limestone Oil Province  

UK Oil & Gas Investments PLC (London AIM and ISDX: UKOG) announces that it has signed agreements with Celtique Energie and Magellan Petroleum to acquire 100% ownership of the 300 sq km (116 sq miles) Weald Basin licence PEDL234 (the "Licence"). The acquisitions more than double the Company's net acreage holdings in the prime Kimmeridge Limestone Oil province, as proven by the Horse Hill-1 ("HH-1") oil discovery which, as previously reported on 21 March 2016, flow tested at a commercial aggregate stable dry oil rate of 1,688 barrels of oil per day from the Kimmeridge Limestones and Portland section.

Importantly, the Licence includes regulatory permission to drill the Kimmeridge at the Broadford Bridge-1 ("BB-1") site. Furthermore, the licence contains a further mapped gas appraisal opportunity, in the eastern extension of the Godley Bridge Portland gas discovery.

The transactions are conditional upon the extension of the Licence and the usual regulatory approvals being granted by the Secretary of State for Energy and Climate Change ("Secretary of State").

A map showing the Licence and its situation in the Weald Basin and Kimmeridge Oil Province is available here http://www.rns-pdf.londonstockexchange.com/rns/9264A_1-2016-6-10.pdf.

Transaction Summary

For a total consideration of £3.5 million, the Company will obtain 100% ownership of the Licence via:

 -     a Share Purchase Agreement ("SPA") with Celtique Energie Petroleum Limited ("CEPL") to acquire Celtique Energie Weald Limited ("CEWL") who own a direct 50% interest in the Licence and;

 -     an Asset Transfer Agreement with Magellan Petroleum (UK) limited ("Magellan") who own a 50% interest in the Licence

Additionally, via a second Asset Transfer Agreement, the Company will be assigned Magellan's 22.5% direct interest in offshore Isle of Wight licence P1916, taking UKOG's interest to 100%.

The consideration to CEWL, with an effective date of 10 June 2016, is comprised of £625,000 in cash and £1.125 million in the form of 71,324,415 UKOG ordinary shares. The consideration to Magellan for both Asset Transfer Agreements, with an effective date of 10 June 2016, is also comprised of £625,000 in cash and £1.125 million in the form of 71,324,415 UKOG ordinary shares. The issue of UKOG ordinary shares to both CEPL and Magellan is subject to a 6-month lock-in undertaking for both companies.

The overall transaction is subject to formal consent by the Secretary of State to:

-      a proposed minimum one-year extension, to at least 30 June 2017, of the initial term of the Licence.

-      the change of control to CEWL resulting from the SPA

-      the transfer of Magellan's interests in the Licence and P1916

The minimum extension period would allow the drilling of the BB-1 well at the existing well pad, plus a regulatory application to be made to drill a further new Kimmeridge well over the Godley Bridge structure.

Upon and subject to completion, the Licence ownership and operatorship will be held by Kimmeridge Oil and Gas Limited, a 100% UKOG owned private intermediary company. A further announcement will be made once the agreements have become unconditional.

The Licence

The Licence is situated to the south west of UKOG's main Kimmeridge oil interests in Horse Hill (PEDL137, PEDL246) and Holmwood (PEDL143) and straddles the centre of the Weald Basin.

Previous analyses by Nutech and the Company, of wells and seismic within and immediately surrounding the Licence, strongly suggest that the Licence presents look-alike Kimmeridge Limestone oil potential to that seen at Horse Hill. The BB-1 structure is very similar in UKOG's view to both the HH-1 oil discovery and the nearby Balcombe-1 oil discovery, following the same overall structural trends. The Balcombe-1 well, drilled in 1986, recovered 48 barrels of oil from what the Company interprets to be a naturally fractured Upper Kimmeridge Limestone. The recovered oil was typed to a Kimmeridge Clay shale source rock by Burwood et al in 1991¹.

Both CEWL and the Company also map an extension into PEDL234 of the 1983 Portland sandstone gas discovery made with the Godley Bridge-1 ("GB-1") well. The Licence thus offers the opportunity to both test the Kimmeridge and appraise the gas discovery with a single new well. If successful, the Portland is a good candidate for a potential conventional "gas-to-wire" electrical power generation project.

Numerous further undrilled structural closures at Portland, Kimmeridge, Great Oolite and Triassic reservoir levels are mapped within the Licence.

Future Plans

Regulatory permissions to drill BB-1 are in place from West Sussex County Council ("WSCC") and the Environment Agency ("EA"). The BB-1 well pad has already been constructed, the Company will secure the necessary remaining consents for drilling and testing operations from the Health and Safety Executive and OGA and will drill and test the Kimmeridge Limestones at BB-1 in 2017. Furthermore, the Company will apply to the WSCC and EA for permission to drill an appraisal of the Godley Bridge Portland gas accumulation within the Licence and also test the Kimmeridge Limestones at that location.

The Company has commissioned the following independent external studies, which will be reported shortly:

-      Nutech: a detailed analysis of the Oil in Place of the Kimmeridge section and deeper Jurassic within the 300 sq km Licence

-      Assessment of the Gas in Place and potential recoverable volumes within the Portland accumulation proven by GB-1

Stephen Sanderson, UKOG's Executive Chairman, commented:

"This is a transformational step for the Company and its position in the new Weald Kimmeridge Limestone oil resource play. The transaction more than doubles our net acreage position and potential recoverable resource base in the most prospective part of the play, all at a very reasonable entry price. The transaction makes UKOG the leading player and acreage holder in Kimmeridge oil and a significant player in the UK onshore oil industry.

The acquisition is an entirely logical step after the very positive flow test at HH-1. It fits perfectly into our overall 2-year strategy to de-risk and push the Kimmeridge play to the point of commercial development. The drill-ready and permitted BB-1 site, along with the permitted Holmwood-1 well immediately to the north-east, should, by the end of 2017, give us the opportunity to demonstrate the replicability of the HH-1 Kimmeridge results over a more significant area of the Weald Basin. In parallel, we will be pushing HH-1 towards first oil with planned long-term production tests, appraisal wells and 3D seismic.

The potential "cherry on the cake" from this acquisition is the opportunity to appraise the conventional Godley Bridge gas discovery 30+ years after its discovery and, most importantly, at the same time to test the underlying Kimmeridge limestones through a single dual-purpose well. We look forward to Nutech's Kimmeridge oil in the ground and the Godley Bridge net gas resource findings and their impact upon the Licence's value shortly.

2016 sees major progress in the Company's exciting journey to establish the Kimmeridge Limestone oil play and its economic potential for the south-east and the UK."

Qualified Person's Statement:

Stephen Sanderson, UKOG's Executive Chairman, who has over 35 years of relevant experience in the oil industry, has approved the information contained in this announcement. Mr Sanderson is a Fellow of the Geological Society of London and is an active member of the American Association of Petroleum Geologists.

For further information, please contact:

UK Oil & Gas Investments PLC

Stephen Sanderson / Jason Berry                                                                             Tel: [phone]

WH Ireland (Nominated Adviser and Broker)

James Joyce / Mark Leonard                                                                                      Tel: [phone]

Square 1 Consulting (Public Relations)

David Bick / Brian Alexander                                                                                      Tel: [phone]

Glossary and References

[1] R. Burwood, J. Staffurth, L. de Walque and S.M. De Witte 1991. Petroleum geochemistry of the Weald-

       Wessex Basin of southern England: a problem in source-oil correlation.

Discovery	a discovery is 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
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
gas-to-wire development	a development wherein gaseous hydrocarbons are burnt to as fuel to generate, export and sell electrical power
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
oil in the ground	or oil in place, the quantity of oil or petroleum that is estimated to exist originally in naturally occurring accumulations in the ground before any extraction or production
play	a set of known or postulated oil and or gas accumulations sharing similar geological, geographic and temporal properties, such as source rock, migration pathways, timing, trapping mechanism and hydrocarbon type
source rock	a rock rich in organic matter which, if subjected to sufficient heat and pressure over geological time, will generate oil or gas. Typical source rocks, usually shale or limestone, contain above an initial 1% organic matter by weight
shale	a laminated and fissile very fine-grained sedimentary rock, consisting of compacted silt and clay-size mineral particles. Can contain high proportions of organic material, which if subjected to heat and pressure over geological time can generate petroleum (a petroleum source rock).

Notes to Editors:

The Company has interests in the following UK licences:

Asset	Licence	UKOG's Interest	Licence Holder	Operator	Area (km2)	Status
Avington 1	PEDL070	5%	UKOG (GB) Limited	IGas Energy Plc	18.3	Field in stable production.
Baxters Copse 2	PEDL233	50%	UKOG Weald Limited	IGas Energy Plc	89.6	Reviewing economics of appraisal/ development well.
Broadford Bridge	PEDL234	100%	Kimmeridge Oil and Gas Limited	Kimmeridge Oil and Gas Limited	300.0	BB-1 well permitted expected 2017 spud date.
Brockham 1	PL235	3.6%	Angus Energy 5	Angus Energy 5	8.9	Drilling of sidetrack well being considered.
Holmwood 3	PEDL143	30%	UKOG	Europa Oil & Gas (Holdings) plc	91.8	H-1 exploration commitment well planned.
Horndean 1	PL211	10%	UKOG (GB) Limited	IGas Energy Plc	27.3	Field in stable production.
Horse Hill 4	PEDL137	27.3%	Horse Hill Developments Ltd 6	Horse Hill Developments Ltd 6	99.3	Extended flow testing of HH-1.
Horse Hill 4	PEDL246	27.3%	Horse Hill Developments Ltd 6	Horse Hill Developments Ltd 6	43.6	Extended flow testing of HH-1.
Isle of Wight (Offshore) 3	P1916	100%	UKOG Solent Limited	UKOG Solent Limited	46.7	Preparing drilling planning submission.
Isle of Wight (Onshore) 2, 3	PEDL331	65%	UKOG	TBA	200.0	Preparing drilling planning submission.
Lidsey 1	PL241	4.2%	Angus Energy 5	Angus Energy 5	5.3	Drilling of infill well being considered.
Markwells Wood 2	PEDL126	100%	UKOG (GB) Limited	UKOG (GB) Limited	11.2	Compiling Field Development Plan.

Notes:

1. Oil field currently in production.

2. Oil discovery pending development and/or appraisal drilling.

3. Exploration asset with drillable prospects and leads.

4. Oil discovery with recently completed flow testing.

5. UKOG has a 6% interest in Angus Energy, which has a 70% interest in Lidsey and a 60% interest in Brockham.

6. UKOG has a direct 42% interest in HHDL, which has a 65% interest in PEDL137 and PEDL246.

 

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