UK Oil & Gas PLC is pleased to announce that, in response to the Covid-19 induced low oil price environment, it has successfully implemented material cost savings at all levels across its organisation. These savings enable Horse Hill oil production to remain profitable at asset level at current Brent oil prices, and together with the funding, better positions the Company to take full advantage of any post-pandemic oil price increase and related growth opportunities.
Further to the Oil and Gas Authority's March 2020 grant of long-term production consent at Horse Hill (UKOG 85.635% controlling interest), which has now produced over 100,000 barrels ("bbl") of dry oil, the Company has negotiated a series of longer-term key equipment and services contracts at reduced rates.
These cost reductions, together with a general downsizing of all operational elements not essential for continued safe oil production, result in an operating cost ("opex") at field level of $12/bbl, a reduction of around $7/bbl from extended well test costs.
Consequently, with daily flow rates from production start at Horse Hill averaging over 300 barrels of dry oil per day ("bopd"), asset-level opex, inclusive of tanker export, sales and marketing, now equates to $17/bbl.
Further material operating cost-reductions are also ongoing via the following actions, which as per our stated Covid-19 policy, will be implemented as and when the future Covid-19 situation and oil price environment permits:
- Outright purchase of key surface facilities (e.g. stock tanks, oil and gas separator, flow lines, choke manifolds, export pumps etc.) currently expected to further reduce opex by up to $4/bbl compared to current rental costs.
- Installation of a gas to wire generator to power the site, saving around $1/bbl.
- Automation of key facilities to further reduce manpower costs and enhance site safety, saving $0.5-1/bbl.
It should be noted that none of the above cost reductions impact upon the Company's ability to fully maintain the health and safety of its staff , the site, and environment. We continue to safely operate the field 24/7 using designated critical-workers and to meet all of our environmental and other regulatory permitting conditions.
As previously reported in the Company's latest Annual Report, a series of interventions aimed at significantly increasing field production are also planned. These include interventions to add commingled Kimmeridge oil flow. If successful, the resultant incremental production will further reduce the field's overall variable opex costs per bbl.
However, in keeping with the Company's stated Covid-19 practices and policies, which currently minimise external contractor visits to those essential for safety, regulation and crude export, the interventions are on temporary hold until we obtain certainty that the necessary operational procedures have been redesigned to remove the risk of Covid-19 infection to all personnel.
At a corporate level, the Company has also instigated a number of wide ranging cost savings, many of which were underway before the pandemic struck. These include a significant cut of 20-50% to Directors' remuneration together with a reduction in non-core and non-essential asset related activities.
To fund the above costs reductions (e.g. payment of contractual notice periods) and part of the stated well intervention, production facility and other costs, UKOG has raised £1,275,000 through a placing ("Placing") of 637,500,000 new ordinary shares ("Placing Shares") in the capital of the Company. The Placing is being made at an issue price of 0.2 pence per share ("Placing Price"), representing approximately a 20% discount to the closing bid-price of the Company's ordinary shares on 24 April 2020.
The Company entered into a placing agreement ("Placing Agreement") with WH Ireland pursuant to which terms WH Ireland agreed to arrange the Placing. The Company has given certain customary warranties and indemnities under the Placing Agreement in favour of WH Ireland. Completion of the Placing is subject to the satisfaction of the conditions contained in the Placing Agreement including, but not limited to, Admission.
Your attention is drawn to the detailed terms and conditions of the Placing set out in the Appendix to this Announcement (which forms part of this Announcement).
The Appendix to this Announcement contains the detailed terms and conditions of the Placing and the basis on which investors agreed to participate in the Placing. The Placing has not been underwritten by WH Ireland. Placees are deemed to have read and understood this Announcement in its entirety, including the Appendix, and to have made their offer on the terms and subject to the conditions contained herein and to have given the representations, warranties, undertakings and acknowledgements contained in the Appendix to this Announcement.
The Placing Shares will be issued, credited as fully paid, and will rank pari passu with the existing Ordinary Shares in issue in the capital of the Company, including the right to receive all dividends and other distributions (if any) declared, made or paid on or in respect of such shares after the date of their issue.
Admission and Settlement
Application will be made for the admission to trading on the AIM market ("AIM") of London Stock Exchange plc ("LSE") of the Placing Shares ("Admission"). Admission is expected to occur on or around 01 May 2020. Following Admission, the Company will have 8,486,797,492 Ordinary Shares in issue. There are no shares held in treasury. The total voting rights in the Company is therefore 8,486,797,492 and Shareholders may use this figure as the denominator by which they are required to notify their interest in, or change to their interest in, the Company under the Disclosure Guidance and Transparency Rules.
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.