UK Oil & Gas plc said today it had delayed its capital expenditure programme because of the covid-19 outbreak.
The company said:
“the Group has delayed its capital expenditure programme across its assets as the effects of Covid-19 have significantly constrained the supply of specialist oil sector services, equipment and civil engineering activities.”
It said it had been “actively reducing operating costs” at the Horse Hill oil site in Surrey.
“The timeliness of the exercise, given the Covid-19 emergency and the resultant falling oil price, has seen field operating costs reduce substantially.
“The cost reduction exercise will continue, with the aim of positioning the field to at least break even at current Brent prices.”
The company’s accounts, published this afternoon, revealed an increase in more than £1m in operating losses. Exploration and evaluation assets rose and current liabilities more than doubled.
The accounting period, for the year to September 2019, saw UKOG get planning consent for long-term production at Horse Hill and increase its stake in the licence by acquiring Magellan Petroleum’s shares. A field development plan for the Portland reservoir of the Horse Hill-1 (HH-1) well was also approved. The company raised £5.5m in two share placings and arranged a £5.5m loan.
The accounts acknowledged “substantial losses” made by the group. The operating loss rose to £4.79m, up from £3.76m in the year before.
There was a net decrease in cash of £5.54m and an increase in administrative costs, mainly because of increased wages and salaries.
But the accounts said costs could be reduced quickly if cash flows became constrained. They forecast that the group had “sufficient cash funds available to allow it to continue in business”.
Horse Hill well tests
UKOG said it had produced 96,000 barrels of oil from the Portland and Kimmeridge formations during well testing at Horse Hill.
It said it planned to submit further field development plans to the Oil & Gas Authority (OGA) for the HH-1 Kimmeridge reservoir and for the second well at the site, HH-2z.
The OGA granted extensions to three UKOG exploration licences, the accounts said.
The exploration phase of PEDL331, on the Isle of Wight, has been extended from July 2021 for two years.
The retention area work programme for PEDL234 in West Sussex and Surrey has been amended so that the deadline for the Loxley-1 well at Dunsfold, has been extended to 2021. A planning application for the proposed well site is currently before Surrey County Council.
An exploration well in PEDL143 in Surrey now does not need to be drilled until September 2022. The licence area, formerly called Holmwood, was renamed the A24 prospect when UKOG took over as operator from Europa. The accounts said “multiple potential new drilling sites outside the nearby [Surrey Hills] Area of Outstanding Natural Beauty are under evaluation.” No details were given of these sites.
Isle of Wight plans
The accounts said UKOG had signed leases for exploration sites at Godshill and Arreton. A planning application for the Arreton site was submitted earlier this month but will not be decided until the coronavirus outbreak has ended.
The company said it wanted to drill a vertical well at Arreton, followed by a horizontal sidetrack, if oil flows were “encouraging”.
Depending on the Arreton results, it may then drill, core and test a vertical pilot hole at Godshill, followed possibly by a horizontal sidetrack.
UKOG said it had also identified a potential oil field at Arreton East.
“Initial mapping shows this feature to be many times larger than both the Arreton oil discovery and Godshill prospect combined.”
UKOG said there remained “a security threat onshore UK from protester groups”. It said:
“The Company meets and communicates regularly with local police to give operational updates.”
A hearing is due at the High Court on Thursday 2 April 2020 at which UKOG will seek to add more than 100 people to its injunction against protests at its sites. Five campaigners will ask for the injunction to be quashed.
Key numbers from the accounts
Revenue: £213,000; 2018: £225,000
Revenues from the sale of oil produced as a by-product of the evaluation or “testing” phase of a well: £2.41m – offset against the cost of the intangible asset
Admin costs: £4.17m; 2018: £3.24m – mainly because of increased wages and salaries
Staff numbers: 11; 2018: 6
Operating loss: £4.79m; 2018: £3.76m
Loss before taxation: £5.39m; 2018: £16.75m – because of net effect of finance cost and income
Net cash outflow from operating activity: £5.73m; 2018: £7.42m – increase in trade and other payables
Cash outflow from investing activities: £8.32m; 2018: £3.53m – payments for Magellan Petroleum
Cash equivalents: £6.89m; 2018: £12.43m
Net decrease in cash: £5.54m
Decrease in cash and cash equivalents: £6.89
Funds raised net of costs: £8.5m
Exploration and evaluation assets: £27.22m; 2018 £22.64m
Goodwill: £17.44m; 2018 £6.29m
Total non-current assets: £46.65m; 2018: 31.01m – acquisition of Magellan Petroleum shareholding
Total current assets: £8.07m; 2018: £13.65m
Total current liabilities: £13.49m; 2018: £6.52m
Total non-current liabilities: £427,000; 2018 £1.34m
Share price: Highest value 2.08p; lowest 0.83p; current: 0.38p, down 3.75% on the day
Total directors’ pay: £1,086,000 (salary £545,000; bonus £310,000; share based payments £231,000). Increased from total of £744,000 in 2018
Stephen Sanderson total payments: £766,000 (salary 314,000; bonus £310,000; share based payments £142,000). Increased from total of £584,000 in 2018.
Remuneration of key management personnel: £1.84m; 2018 £1.31m
Don’t worry, Steve is doing ok in this tough time for investors, keep making donations please.
All helps to re-instate those sites that are re-instated. Not much mention when they are (surprise, surprise!) but a lot of piffle around they will not be.
Looking at the number of shares bought yesterday Jono, looks as if more than a few see some upside here.
Somewhat a surprise, as I anticipate there may be more share trades to do with stocking up the bank of Mum and Dad ready for some hefty “loans” currently, than filling up the ISA allowance. UKOG seems to be bucking that trend.
It does not take a lot to see how much they must have depleted reserves since September. Another well with issues!! Solving water ingress. Halliburton must have cost loads. Constant fiddling with the first well. Oh and dont forget the 6 months of salaries. Lets see if the councils trust them enough to extend Broadford Bridge and Drill Loxley. The IOW have had 4 years of threats to build up opposition.
You mean the Council’s “trust” which has been given already for HH?
In terms of IOW, the decision will also be in the hands of the Council and other authorities. If “opposition” was the key factor no new housing would ever be built in the UK! Remember, there will also be “supporters” and the more shares UKOG issue the more there will be. A cunning plan. LOL
Depleting reserves? Unlike the oil under the ground, Dr. When, if they become too depleted then they top them up.
You fall into the constant DoD trap that seems to feel that companies can not access new funds, although the repeated evidence is there to see. I recognise that has to be the mantra so as to encourage certain activity to cost the companies money, but you have been sold a pup on that one.
Nothing to do with the price of oil then or maybe climate conscience.
Not a lot to do with price of oil at the moment David. The price of oil may have some influence when production has really started. Currently, the price of oil is a bit of a side issue. Perhaps you can predict what the price of oil will be going forward? (Many have tried that in the past and been a long way out-including most of the oil industry!)
There will not be too many airlines booking aircraft to be built at the moment either.
Priorities are changing whilst the virus continues.
Yep, quite a bit. Much better for the environment and the world for local production to supply local consumption. The UN has stated as much. Supply chain becoming an issue that will receive a lot of focus after the virus.
Trees being replanted as previously agreed under terms applied to sites in the UK.
Elsewhere, (Germany), Mr. Musk had to be stopped from completing the destruction of a whole forest because he simply thought he could ignore controls.
Compare and contrast.
Some Green “alternatives” not quite so green. And, that is before any scrutiny of toxic materials!