South Downs oil well faces plugging if new owner not found

An oil well drilled in the South Downs National Park in 2010 could be abandoned because the companies behind it have given up their exploration plans for the area. The decision follows a study which found there was little prospect of finding shale oil or gas.

Markwell’s Wood, near Rowlands Castle, on the West Sussex-Hampshire border, is part-owned by the US company, Magellan Petroleum, and Egdon Resources.

Magellan has announced that the owners are looking for a company to take over the well. If they can’t find one, Markwell’s Wood will be plugged and abandoned at a cost of hundreds of thousands of pounds. Magellan and its partners have already relinquished the licence that gives them rights to drill in the surrounding countryside.

The details were disclosed in reports that Magellan is required to submit to the US Securities and Exchange Commission.

The annual report for the financial year ending June 2014 described how Magellan and its partners had commissioned the oil services company, Schlumberger, to study the potential for unconventional gas and oil in the area. The report said:

“This study indicated that the area is probably immature for oil or gas generation and therefore unlikely to have unconventional shale oil or gas potential. This finding was consistent with the Company’s understanding of the geology of the Basin”.

The Markwells Wood well is in Petroleum Exploration and Development Licence (PEDL) area 126. Following the study, Magellan said the owners had made an agreement with the Department for Energy and Climate Change (DECC) to relinquish all of PEDL 126, except for 11.2 sq km (2,768 acres) around and including the Markwells Wood well bore. In exchange, DECC extended the exploration term for this remaining area by one year to June 30th 2015.

In the report for the three months to the end of September 2014, Magellan revealed that the partners had spent the summer considering the future of the well and the remaining licence area.

“The Company and its partners were evaluating the sale or farmout of the license to a third party on the basis of the relatively small conventional reservoir contained therein and the potential value of the wellbore to a third party”.

It also explained what would happen if the partners could not find a company to take on the licence.

“If the Company and its partners are unable to sell or farmout PEDL 126, the Company may face a plugging and abandonment liability of approximately $378 thousand net [£243,000] to its interest, which liability is reflected on the Company’s balance sheet as of September 30, 2014”.

Markwells Wood was drilled in 2010 and the partners announced there was potentially up to 61.4m barrels of oil.

But in 2012, Egdon Resources admitted that Markwells Wood had performed below expectations during the extended well test (details)  In its annual report in July 2014, Egdon described Markwells Wood as suspended. The other company involved in the project, Northern Petroleum, sold all its UK licences and assets in July 2014 to UK Oil and Gas Investments PLC.

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