Angus Energy has said it is in talks to sell its stake in an oil production licence in Surrey after revealing that a controversial sidetrack well was unlikely to flow commercially without extra stimulation.
Shares in Angus fell 64% during the day to an all-time low of 1.25p. At the time of writing (3.30pm), they were 1.35p, down 62%.
The well, BRX4z, was drilled at the Brockham oil site near Dorking in January 2017 into the Kimmeridge layer of interbedded shales and limestones.
Surrey County Council had repeatedly said there was no planning permission to drill the sidetrack. Angus disagreed but in 2018 it applied and was granted retrospective consent.
In February 2019, Angus reported water in the sidetrack and said a well test did not achieve sustainable flows.
A statement to investors this morning follows work carried out in April 2019 to isolate the water. On the results of this work, Angus said:
“it is the view of the Company that, on any conventional approach, it is extremely unlikely that commercial hydrocarbon flow can be established from the Kimmeridge layer at Brockham.
“Supplementary stimulation techniques including hydraulic fracturing have been ruled out by the present Operator. The Company, in its role as Operator, has already made clear that it is not a proponent of the use of such unconventional production techniques in the Weald and this position remains unchanged.”
“the Company announces that it has entered into preliminary discussions with a third party regarding a sale of the Company’s own 65% interest in the Licence.”
The negotiations were at what Angus described as “a very early stage” and there was “no certainty” about the outcome or any terms.
The company has 65% of the licence, PL235. The rest is held by Alba Mineral Resources (5%), Brockham Capital Limited (10%), Doriemus (10%) and Terrain Energy (10%).
Angus said it would consider whether any impairment would be required in the carrying cost of the Brockham licence. This has been said to represent 26% of the company’s gross asset value.
Five days ago, on 24 June 2019, Angus was talking about preparations for a well test at Brockham. In interim accounts it reported that the Brockham work had been “successfully completed” adding:
“Further work, preparatory to a well test, is underway as we go to print.”
But today, Angus managing director, George Lucan, described the result of the work on BRX4z as “clearly disappointing”.
Angus Energy’s operations in Surrey have been monitored by the campaign group, Brockham Oil Watch (BOW). A spokesperson said today:
“This is great news. We are grateful to all those who have been keeping a watchful eye on the actions of Angus Energy at Brockham, and helping to maintain pressure on the regulators to make sure the site is monitored closely.
“Angus confirmed today what Professor David Smythe, BOW and others have been saying all along – that it will not be possible to commercially produce from the Kimmeridge without hydraulic fracturing or acid stimulation.
“We must remain vigilant. There is still a danger that Angus will sell its share of the license and the operatorship to a company that will use these methods. If that is the case, the new company will face an even stronger opposition from the public.”
One of the companies that has a stake in licence, Alba, said its technical team would be assessing the Brockham results. The company said:
“While this news from Angus is, on the face of it, disappointing, it is important that we put it in its proper context for Alba shareholders. Our 5% stake in the Brockham licence is only a very small part of Alba’s asset and investment portfolio. Indeed, our interest in Brockham is shown in our last published accounts (to 30 November 2018), at a value of £346,904, which represents just 4.1% of our net assets of £8,466,188.”
“While the oil at Brockham appears to be reluctant to flow, meanwhile at Horse Hill, which is just a few miles down the road and in which oil field Alba has a much greater stake, the oil continues to flow steadily, and has done so ever since the flow-testing programme commenced some 12 months ago. That is testament, as ever, to the risk-reward nature of the exploration business, but also testament, in my view, to Alba’s strategy of accumulating a diversified portfolio of assets and investments such that we are far from reliant upon the success of one single project.”
Angus also announced today that a planning application for a long-term well test at its Balcombe oil well was expected to be submitted to West Sussex County Council by August.
The company confirmed that the second term of the Balcombe licence, PEDL244, had been extended from 30 June to 1 July 2020.