Shares in UK Oil & Gas plc fell 8% today following a statement on testing its new well at the Horse Hill site near Gatwick Airport.
The price dipped to 0.85p, the lowest level for four months.
UKOG told investors it had successfully completed the first phase of the extended well test on the horizontal well, Horse Hill-2z (HH-2z).
But the statement also revealed that the well had identified formation water. It said this was thought to be from an open natural fracture at the far end of the well.
Intervention is planned to shut off the water source in the New Year, UKOG said.
The initial flow rate was up to 1,087 barrels of fluid per day, the statement said, with the oil cuts (proportion of oil) up to 60%.
UKOG’s chief executive, Stephen Sanderson, said:
“Our team’s efforts are now firmly focused upon the routine elimination of water ingress and the continued optimisation of HH-2z’s near-wellbore, both of which are designed to ensure HH-2z can deliver the best possible stable oil production rates over the coming year.”
The company said formation water produced during the long-term production phase, which would follow the extended HH-2z well test, was likely to be reinjected. This would maintain reservoir pressure and minimise the cost of water disposal, UKOG said.
Horse Hill does not yet have a water reinjection well. It received planning permission for one in September 2019. It has also applied for a variation of the environmental permit to allow water reinjection. This application has not yet been decided.
Mr Sanderson said he was “very encouraged” by the initial flow rates:
“These confirm that HH-2z’s horizontal trajectory can deliver flow rates from the Portland sweet-spot that significantly exceed those delivered by the HH-1 vertical discovery well.”
UKOG said it was also planning an intervention on the first well at the site, the vertical HH-1.
This would “further optimise” both Kimmeridge and Portland test production from the well, the company said.
The statement said dry Kimmeridge oil flow resumed from HH-1 on 18 December 2019 when HH-2z was shut in for a pressure build-up test. The average daily flow rate from HH-1 was 301 barrels of oil per day.
Field development plan
The statement also said it had submitted a field development plan to the Oil & Gas Authority. This sought consent for long-term production from HH-1 and HH-2z.