UK Oil & Gas Investments PLC (LON:UKOG) Chairman and Executive Director Stephen Sanderson caught up with DirectorsTalk for an exclusive interview to discuss the Angus Energy acquisition
Q1: Now Stephen, yesterday you announced the acquisition of Angus Energy’s stake in Horse Hill, what was the rationale behind the acquisition?
A1: Well to be perfectly honest it was a bit of a no-brainer for us, this is arguably a flagship asset with the Gatwick Gusher in it. I think when you look at the recent flow tests, it was clearly a very significant well, a combined rate of almost 1700 barrels a day from the three zones, likely the highest rate from any discovery well in UK onshore and those rates importantly show us that it’s commercial from a flow rate point of view. So clearly we wanted more of it, we want more of this very exciting time particularly for the Kimmeridge limestone play and the Kimmeridge limestone reserves hopefully that we’re looking at because that’s very new and exciting and potentially very significant. So we’ve moved from just below 20% equity to 27%, so that’s a big jump, so now we have a much more material stake in this exciting time. I think it’s also worth saying that where we’ve stated that we’re very committed to the Kimmeridge limestone oil play over the basin and this is really just one part of our strategy to increase our licence holding in that Kimmeridge limestone play and really to make us the most prominent and largest player in the Kimmeridge limestone so as I said it’s a very simply rationale really.
Q2: How do you see the acquisition in terms of value and impact to UK Oil & Gas Investments?
A2: In terms of value, the acquisition is all about adding potential recoverable resources, from that point of view the value of the transaction is exceptional. I’ll explain a little, if you go back we’ve had various analyses done by Schlumberger and Nutech and also looking at analogues in similar type of rocks that produce oil in the United States and globally. We were looking at recoveries from the considerable oil in the ground, now I’m specifically focussing on the Kimmeridge limestones, Nutech calculated that we had a billion barrels of oil in the ground over these licences, the Horse Hill licences which cover 55 square miles so if you look at hat the sort of average recovering was, then about 5%, looking for the 27% we now have we’re looking at net to us of 14 million barrels or so. The important take away from the Horse Hill flow test is that not only are the higher rates but the very low viscosity oil and the fact that it flows very freely, I think we could be looking at considerably better than 5% recoveries, maybe even up to 10% which you see in some of the analogous rocks say in the Austin Chalk in the United States. We could be looking at now 27% of 14 up to 28 million barrels net to us now that’s very significant but in terms of this acquisition, we acquired another 7.8% in the overall licences and that in using those ranges in recoveries, that equates to sort of 4-8 million barrels net to us. Now we paid £1.8 million for that so when you look at that in terms of cost per barrel of potentially recoverable resource, that’s very cheap, it’s sort of 23 cents to 45 cents a barrel, that’s very very low which is good if you’re acquiring.
I think people should understand that when we move this project forward in the next 6-18 months where we actually prove that we have commercial resources and reserves here that value per barrel is going to move significantly upwards so adding a lot more value to the company and to these assets. Looking at other assets in the basin and looking at other assets in the world which have very similar sort of rocks and performances to our Horse Hill Kimmeridge limestones I think it’s not beyond the realms of possibility that when we get to proven probable reserve we’ll be looking at in the range of $5-10 per barrel net present value so you can see that having paid only cents on the dollar with something that ultimately that has value in dollars up to $10 a barrel is a very good move and if people stay in for the long term, and long term being 6 months to a year to 18 months which is not that long, then they could see very significant returns I think. This is a very typical oil exploration story so I have to say I’m a little surprised at the market’s reaction yesterday that we added 37% of our flagship asset, 37% more potentially recoverable reserves and we didn’t see too much movement in the stock so maybe people should scratch their heads a little more.
