Q&A with Stephen Sanderson Chairman & CEO at UK Oil & Investments PLC (LON:UKOG)

UK Oil & Gas Investments PLC (LON:UKOG) Chairman and Chief Executive Officer Stephen Sanderson caught up with DirectorsTalk for an exclusive interview to discuss the Horse Hill flow test results, the commercial potential of the Kimmeridge oil play and what this all means to the company and to the UK

 

Q1: You’ve put out some exciting news over the last couple of days Stephen, can you tell us about the Horse Hill flow test results?

A1: Yes, it’s been very exciting, the results we put out are from the first of our three test zones in the Horse Hill well that we’re about to do. The first comes from the Kimmeridge lower most limestone, , there are two limestones we’re going to test, this one is about 900 metres below the ground surface and I have to say we got very unexpectedly high rates out of this zone, we actually perforated at about 80 feet out of the just over 100 foot thick limestone. What we’ve got now is, over two days of flowing, this well actually flowed naturally to the surface under its own pressure, we didn’t have to lift anything with a pump, it’s flowed consistently at just over 450 barrels a day now and we haven’t seen any drop in pressure which is very encouraging. These rates, as I said, were very unexpected, this is probably the best well in the whole of the UK on-shore in the last 15 years, now I’m told that by our well test supervisor and other people who basically looked at and conducted tests over pretty much all of the wells on the on-shore and the UK over this period. I think also if you want a comparison, if you look in the United States in similar wells, similar sort of type oil wells from limestones and even shales, this would be in the top quartile of those wells in terms of the early rate. You have to bear in mind that this is still only a vertical well, it’s not a horizontal well, it’s not been stimulated, it’s certainly not been fracked, we’re not allowed to do that because we’re at 900 metres and there’s a UK frack ceiling of 1,000 metres. I can say that the crude from it is very high quality, it’s the same as Brent, it’s light, it flows very freely and we shipped our first two tanker loads yesterday lunchtime and that’s will be up on our website, the photos are there, you can even see the well test engineer pouring the oil from the test separator.

 

Q2: What’s the significance of the results with regards to the commercial potential of the Kimmeridge oil play?

A2: UK Oil & Gas Investments’ original objective in testing this formation was to actually simply show that there was movable oil in the Kimmeridge and that we could get it to the surface. We’ve clearly well exceeded that and I think if you skip back to say April last year when we announced that there were very large volumes of oil in the ground under the Horse Hill acreage, Nutech and Schlumberger said that there were about 10 billion barrels of oil underneath the Horse Hill licences, 55 square miles in tight limestones and shales. There’s about a billion barrels of oil in play in these Kimmeridge limestones that we were targeting and over the whole of the weald basin which is about 1,200 square miles, it was calculated that there was 20 billion barrels in these limestones and over the whole area, in all the tight rocks, about 124 billion. That was carried out by world class experts in Nutech and Schlumberger, I think it was still regarded as being very much a science project if you like, there’s a lot of oil in the ground so what, you’ve got to show us that you can get it out. I think what this flow test has done is basically we’ve moved now from the science project to the verge of commerciality, I mean these rates are basically showing us that we can get oil out of the ground at commercial rates. What we have to do now is go back at some stage in the future, probably hopefully in the next year or perhaps less, to actually put these zones on a much longer term production tests so that we can actually ascertain the exact volume that we can cover. So basically it proves that the Kimmeridge limestone play actually works and is now, I think, a commercial reality.

 

Q3: So what does all this mean for UK Oil & Gas Investments PLC and for the UK?

A3: Well clearly what it means for the company is we’re sitting on potentially very large volumes of oil in our acreage that we have a very high expectation of being able to extract now, I think as I’ve said it’s gone from a science project to actually being on the verge of commercial reality. Clearly we would have to drill more wells, I think this well shows us that our pre-test estimates of recovering 5% or so of this large volume of oil in the ground is very very close and very realistic now, clearly we have to drill more wells to establish that but everything on that is looking very good. So I think for the company it’s very much a game changer, I think also for the country I think it’s very very significant because these deposits do extend over 1,200 square miles of the weald and probably slightly larger area so you can imagine the amount of oil now that’s potentially extractable is very significant. There’s a very significant prize there so just out of the 20 billion in the Kimmeridge limestones, 5% of that is a billion barrels so that’s a very significant prize for the UK so if this works and we can replicate sort of the Horse Hull site round various other sites in the weald basin. Now I think we’re looking at making a significant contribution to the UK’s daily oil demand which is currently 1.4 million barrels, I think the weald could contribute between 100,000 and 200,000 barrels so we’ve calculated a range of sort of 4% to 25% of UK oil demand could be met by production from the weald. Now clearly that’s going to contribute many many billions of pounds to the UK economy, it’s going to generate a lot of direct jobs in people involved in the operation but it’s probably going to make a huge number of thousands of jobs in the actual supply chain, an induced sort of jobs that will come with the industry being down in the South-East of England. So I think that’s very important and the other thing for the UK clearly is it’s very significant for UK energy security, not only do we guarantee with an indigenous oil supply that we have the oil within our own boundaries but I think the most important thing that’s associated is of course the economic benefit and the job benefit that comes to the UK, to England and of course the South-East.

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