UKOG Announces Operational Update

Source: www.gulfoilandgas.com 7/20/2022, Location: Europe

AIM-listed UK Oil & Gas (UKOG) has announced operational updates in respect of its key Turkiye and Portland Hydrogen/Energy Hub projects, together with an outline of its near-term forward strategy.

Turkiye Resan Licence (UKOG 50% interest):

Further to the Company's announcement of 30th June 2022, continued examination of the new phase 1 seismic data has revealed a further potentially significant undrilled geological structure to the south of the Basur-1 oil discovery. The feature, currently known as Prospect B, shows the same geological structural style as the Basur discovery, bounded on its northern extent by a significant back-thrust fault. It appears to be of similar size to Basur upon first review. Further phase 2 seismic lines to the west will be required to confirm its size, prospective resource hydrocarbon volume, and to help define any future exploration well location. A revised top reservoir structure map and seismic line illustrating the new feature will be made available on the Company's website.

Additional recent oil sampling has also been undertaken by the Resan licence's operator, Aladdin Middle East ("AME"), at the live light 42° API oil seep, located to the north of the Basur oil discovery. The oil charge to the seep appears to be continuous as similar quantities of crude have now been recovered from the same shallow seismic shot holes at multiple sampling events over a one-month period. It is anticipated that a new Phase 2 seismic line will pass over the seep to aid identification of whether it derives from a previously unrecognised deeper Mardin/Garzan age oil accumulation.

To help progress Basur towards drilling, members of UKOG's technical team plan to spend next week in the field, scouting a potential new Basur-4 location, tying Basur seismic work into surface geology and investigating whether Prospect B has any surface geological expression that can help define its extent.

Portland Hydrogen/Energy Hub (UKOG 100%)

Further to recent discussions with UK and international infrastructure players in relation to the Company's planned Portland Energy Hub as announced on 30 May 2022, the Company is now investigating the feasibility of linking Portland's planned hydrogen-ready salt cavern storage into an envisaged future hydrogen hub centred in and around Southampton by a consortium including a major energy company, whereby Portland could provide both the interseasonal and peak demand hydrogen storage necessary to provide the hub's resilience to fluctuating demand. Via its planned LNG receiving facility, Portland could also help satisfy demand for natural gas feedstock for reforming into blue hydrogen within the hub.

As part of the Company's Portland engineering and commercial studies it has now also received a preliminary economic model from Xodus, which details that the updated expected capital cost to construct the 14 salt caverns, related surface facilities and the pipeline tie-in to the current national gas grid is £895 million. Together with the capital expenditure for the envisaged LNG receiving terminal and the project's green hydrogen generation capability, the project's total cost will, therefore, likely exceed £1 billion.

The Company continues to talk to interested parties, potential contractors and potential strategic partners and to shape its vision for this new long-term project which is at the planning stage and remains subject to a number of conditions including planning consents and financing. A diagram illustrating the Company's current vision for Portland will be made available on the Company's website.

Forward Strategy

Given the promising positive outlook derived from the Company's Basur Phase 1 seismic programme, plus the confirmation from the oil seep that the area has an active light oil petroleum system, the Company's focus for the forthcoming 6-9 months will be firmly upon the delivery of Phase 2 seismic and a new Basur appraisal well, now anticipated to be able to add near-term oil production to the Company in H1 2023, subject to necessary funding. As previously stated, the Petroleum Law enables a successful oil well in Turkiye to be put into full time production within days to weeks of a successful test.

AME's desire to shoot new unbudgeted Phase 2 seismic before continuing the Basur appraisal drilling programme (as per UKOG's 30th June RNS), combined with a longer than expected seismic acquisition period over winter, has both required additional previously unbudgeted working capital and deferred the start of the anticipated cash flow from a successful Basur well. The Company will, therefore, need to seek further finance before mid Q4 2022 to fund this planned programme and for general working capital purposes. Success at Basur is anticipated to provide additional working capital to help fund UKOG's other significant projects which, by their nature, have a longer lead time to cash generation.

With respect to the June 7th 2022 grant of planning consent for the Company's 100% owned Loxley gas appraisal project the Company will now implement a pre-planned farmout programme, whereby the Company's costs would be either fully or part carried by any farminee. The Company believes that this is the most prudent course of action to both manage uncertainty and to help ensure the best use of the Company's working capital.


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