TIDMUKOG
RNS Number : 9716B
UK Oil & Gas PLC
14 October 2020
UK Oil & Gas PLC
("UKOG" or the "Company")
Turkey Resan licence update
UK Oil & Gas PLC (London AIM: UKOG) is pleased to announce
that further to its 23 July release, it has now successfully
executed the participation agreement (i.e. farmin agreement) and
the joint operating agreement with Aladdin Middle East Ltd ("AME")
for its 50% interest in the 305 km(2) Turkish Resan Licence
("Licence") and the respective oil appraisal and exploration
programme.
Further to its successful 02 October equity raise, UKOG will now
fund its agreed share of key initial preparatory operations so that
the first oil appraisal well, currently planned as Basur-3, a
surface location for which has now been chosen, can be drilled as
soon as practicable in early 2021.
Resan Licence: material overlooked recoverable oil volumes
As reported on 23 July, Xodus Group Ltd's ("Xodus") June 2020
report calculates the Licence to contain materially significant
recoverable discovered and undiscovered prospective resource
volumes (see glossary definitions), with calculated aggregate mean
and high gross cases of 43.4 million barrels (UKOG net 21.7
"mmbbl") and 84 mmbbl (UKOG net 42 mmbbl) respectively, details of
which are shown in table 1 below:
Table 1: Total Licence aggregate discovered and undiscovered
prospective resources (mmbbl)
Total Resan Licence Low Case Mid Case Mean Case High Case
(mmbbl)(1) (P90) (P50) (average) (P10)
Gross recoverable 18.9 39.2 43.4 84 (2)
---------- ---------- ------------ -----------
U KOG net recoverable
(50% WI) 9.45 19.6 21.7 42 (2)
---------- ---------- ------------ -----------
Gross oil in place 1 42 275 321 607
---------- ---------- ------------ -----------
Notes: 1. Table 1 shows an arithmetic sum of Xodus' June 2020
Basur and Resan discovered resources and Prospect A undiscovered
resources (see glossary definition). 2. Xodus report states that in
the high case, 20% of OIP could reasonably expected to be
recovered, however, tabulated P10 volumes show only c. 13.8%
recovery. A 20% high case recovery would equate to a P10
recoverable volume of 120 mmbbl (60 mmbbl UKOG net).
Of the total resources shown in Table 1, the majority lies
within the known Basur-Resan accumulation which is estimated to
contain aggregate mean and high case discovered recoverable volumes
of 37.2 mmbbl (UKOG net 18.6 mmbbl) and 67 mmbbl (UKOG net 33.5
mmbbl), respectively. The remainder, classified as undiscovered
prospective resources, lies within undrilled prospect A.
The following summarises the key points made in the Company's 23
July 2020 release and highlights why the board views the Licence to
present a compelling and material growth opportunity for the
Company:
-- Overlooked material discovered resource and "oil-play":
The Licence holds the significant 50 km(2) Basur-Resan
geological feature tested at its western end by the 1964 Basur-1
oil discovery. Basur-1 flowed 500 bbl to surface over a 6-hour
period from naturally fractured and dolomitised Cretaceous age
Mardin limestones, an extrapolated rate equivalent to 2,000 bbl of
oil per day. Basur-Resan is a geological lookalike to AME's proven
producing E. Sadak field, 20 km south west, and sits within the
continuation of the same geological fold and thrust feature. E.
Sadak is the first Turkish field to demonstrate the commerciality
of the deeper Mardin play in the area. Prior to the E. Sadak
discovery in 2014, exploration in the area focussed primarily upon
shallower traditional Cretaceous objectives.
-- Rapid success case monetisation possible - months versus years in UK:
E. Sadak was discovered and put into production in the same
year, 2014, and has seen a total of 10 wells drilled to date.
Unlike UK, which requires numerous planning and regulatory steps
before production can commence, Turkish petroleum law Article 6
(10) states that licensees are obliged to develop the field and
commence production following a discovery. E. Sadak thus
demonstrates that licensees are able to transition a successful
well test directly into long-term production with minimal delay.
For comparison, the Company's Horse Hill field was granted
production status in March 2020, over 4 years after its first flow
test in 2016, albeit a relatively quick process in UK terms.
-- Greater recoverable resources than current UK projects:
(see table 1 above and tables 1 and 2 on page 15 of UKOG's 2019
Annual Report).
-- Similar chance of success to UK appraisal projects:
Moveable hydrocarbons to surface have been demonstrated by the
Basur-1 flow test, as is the case for UKOG's Loxley gas discovery.
Greatest geological uncertainty in all UKOG's appraisal projects
is, therefore, the respective reservoir's ability to deliver
sustained commercial rates and volumes, a typical appraisal stage
uncertainty.
-- Significantly lower cost operations than UK:
Basur-3 well and flow test gross costs are estimated by AME at
$3 million (GBP2.4 million) vs $7.5 million (GBP6 million) for a UK
equivalent depth well e.g. UKOG's recent Horse Hill-2.
-- Modest project and country entry cost:
UKOG pays first $5 million of drilling and seismic costs, which
equates to $0.115 per Xodus recoverable mean case net barrel.
-- AME are a highly credible and successful Turkish operator
with a 60-year in-country history. Possess key strategic knowledge
as operator of first producing Mardin field, E. Sadak.
-- Good benchmark crude price and guaranteed oil sales:
Produced crude is expected to be of Arab medium to light
quality, which currently realises prices of c. $46/bbl, marginally
above the $41/bbl current Brent price. Oil can be readily exported
on existing roads to the Batman refinery 80 kms to the west.
Turkish petroleum law states that a Turkish refinery must accept
all indigenous oil and pay market price.
-- Prime geological address, overlooked petroleum system:
AME's nearby E. Sadak field firmly establishes the licence area
to contain an extension of the prolific 'naturally fractured'
limestone fold and thrust petroleum system of the Kurdistan region
of Iraq ("KRI"), 80 km to the south, which, in turn, is part of the
wider Iraq-Iran Zagros petroleum system, one of the world's most
important. The KRI system was itself only proven relatively
recently after Iraq war 2, long after original Basur-Resan drilling
between 1954 and 1970.
Stephen Sanderson UKOG's Chief Executive commented:
"When compared to our material Loxley and Arreton appraisal
projects, Resan offers even greater upside for similar risk,
significantly lower operational costs and, more critically, given
success, a far quicker route to production and cash flow. Resan is
therefore a compelling and material growth opportunity that could
provide potentially transformational reserves growth in the short
term. It is a valuable addition to UKOG's portfolio.
We look forward to the imminent start of preparations to drill
the first Basur-Resan appraisal well and to a long and successful
relationship with our new partner AME."
Qualified Person's Statement
Matt Cartwright, UKOG's Commercial Director, who has over 36
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.
For further information, please contact:
UK Oil & Gas PLC
Stephen Sanderson / Kiran Morzaria Tel: 01483 941493
WH Ireland Ltd (Nominated Adviser and Broker)
James Joyce / James Sinclair-Ford Tel: 020 7220 1666
Communications
Brian Alexander Tel: 01483 941493
Glossary
discovered resources are those quantities of petroleum which are
estimated, on a given date, to be potentially
recoverable from known (i.e. discovered) accumulations,
but w hose commerciality is dependent upon
a contingency e.g. further appraisal/production
testing, increased oil price, technology application,
government sanction etc.
dolomite/dolomitisation a crystalline form of calcium carbonate or
lime. The geological process of turning the
more common calcite crystalline form of calcium
carbonate into dolomite . increases the pore
space in the rock by approximately 13% thus
improving the rocks ability to store oil and
improve potential oil flow.
----------------------------------------------------------
limestone a sedimentary rock predominantly composed of
calcite (a crystalline mineral form of calcium
carbonate or lime) 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
----------------------------------------------------------
mean value the expected or average outcome of a defined
probability distribution, in this case the
calculated distribution of oil in place
----------------------------------------------------------
o il discovery an o il accumulation for which one or several
exploratory wells have established through
testing, sampling and/or electric logging the
existence of a significant quantity of potentially
moveable hydrocarbons
----------------------------------------------------------
o il field an accumulation, pool or group of pools of
o il in the subsurface that produces o il to
surface
----------------------------------------------------------
O IP or o il in the quantity of o il that is estimated to exist
place in naturally occurring accumulations within
the ground before any extraction to surface
via production
----------------------------------------------------------
prospect a project associated with a potential accumulation
that is sufficiently well defined to represent
a viable drilling target
----------------------------------------------------------
prospective resources/undiscovered are defined as those quantities of petroleum
resources which are estimated, on a given date, to be
potentially recoverable from Undiscovered accumulations.
----------------------------------------------------------
P10, P50, P90 High, mid and low case scenarios with a 10%,
values 50%, 90% probability respectively, that a stated
volume will be equalled or exceeded
----------------------------------------------------------
recoverable volumes those quantities of petroleum (oil in this
& recovery factor case) estimated, as of a given date, to be
potentially recoverable from known accumulations.
The recovery factor represents the percentage
of the OIP that can be recovered to surface
via production and normally ranges from 10-50%
----------------------------------------------------------
well test, flow involves testing a well by flowing hydrocarbons
test to surface, typically through a test separator
over a flowing period. Key measured parameters
are 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 and volumes.
----------------------------------------------------------
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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