The Horse Hill oil field in Surrey, once described by its owner as world class, was likened today to a “talented but troublesome teenager”.
Six years ago, UK Oil & Gas said the source rock at Horse Hill was “super-rich” and was at least as good, if not better, than that in the North Sea.
But in the latest company’s accounts, published this afternoon, chairman Allen Howard said:
“The oil field has behaved like a talented but troublesome teenager: plenty of promise but with the expected problems too.
“In addition to the constant and mounting regulatory workload, the oil field’s geology has proved unexpectedly complex.”
Official oil production at Horse Hill began in March 2020. The results, said UKOG’s chief executive, Stephen Sanderson, were “less than hoped for”. This, along with falling oil prices and demand had reduced the value of the company’s assets, he said.
The company reported a gross loss of £1.63m for the 12 months to September 2020, compared with a gross profit for the same period in 2019 of £0.12m.
The operating loss was £14.05m for 2020, compared with a £4.788m loss in 2019.
Revenue from oil production at Horse Hill and Horndean rose to £0.91m, from £0.21m in 2019. But depletion, depreciation and amortisation saw a big rise to £1,37m (2019 £0.225m).
The company wrote down £17.25m of historic investments, mainly at Horse Hill and the exploration licence PEDL143, which UKOG relinquished in 2020.
Weald versus Turkey
In July 2020, UKOG bought a 50% share in an oil appraisal licence at Resan in south east Turkey.
Stephen Sanderson said:
“the petroleum system and potential resource size in South East Turkey is simply in a different league from the Weald Basin and the UK onshore”.
He said Horse Hill production was forecast to be profitable and by the end of February 2021, it had produced 137,000 barrels of oil from the Kimmeridge and Portland oil pools.
But he said UKOG’s Weald Basin assets, though some of the best in the UK onshore, “simply do not offer the same step-change growth potential we aspire to and, due to the increasing regulatory burden, take far too long to monetise.”
UKOG directors agreed to an interim salary cut of 20-50% in July 2020 because of the impacts of Covid-19 and falling oil prices.
Operating costs were cut by 66% overall.
But the accounts said the cost of dealing with produced water from oil wells “had increased substantially”.
A sidetrack well drilled at Horse Hill in autumn 2019 produced more formation water than oil in tests. The company has applied for permission to convert it into water injector.
UKOG said it was disappointed to be refused planning permission to drill for gas at Loxley, near Dunsfold in Surrey.
Describing the meeting of the county council’s planning committee, Allen Howard said:
“some of the committee appeared not to listen to the objective evidence presented to them and stuck rigidly to a narrow agenda which went against the conclusions and recommendations of the council’s planning and highways officers.
“They preferred to focus on subjective local issues and failed to see the many positives at local, regional and national levels. So be it.”
UKOG has appealed against the decision and a public inquiry is due to begin on 27 July.
Mr Howard said:
“Now UKOG has taken its case to a higher authority, who will hopefully decide upon facts not perceived fiction. The Loxley appeal will occupy much of this year with a decision expected by year end.”
The Oil & Gas Authority has approved an amendment to the Loxley work programme, requiring a well to be drilled by December 2021.
The accounts said a decision on UKOG’s application to drill for oil at Arreton on the Isle of Wight was expected in the second quarter of the year. If approved, site construction and drilling would be scheduled once “the pandemic situation stabilises.
Stephen Sanderson said UKOG was investigating hybrid geothermal projects at two of its UK sites and would review geothermal opportunities onshore in Tukey.
Gas from Loxley would be reformulated into hydrogen, while the company was considering whether to add 250kW of photovoltaic solar power and 100kW of battery storage at Horse Hill. This would reduce site energy consumption, carbon dioxide emissions and operating costs, the company said. It had also invested in a scoping study aimed at cogeneration and standalone geothermal energy at Horse Hill.
Mr Sanderson said:
“Our vision is that our UK sites could become integrated hybrid energy hubs, encompassing solar, closed loop geothermal, petroleum and battery storage.”
12 months to September 2020
Revenues: £0.91m (2019 £0.21m)
Depletion, depreciation and amortisation: £1,367m (2019 £0.225m)
Operating loss: £14.05m (2019 £4,788m)
Exploration write-off: £6.598m
Gross loss: £1.63m (2019 gross profit of £0.12m)
Admin expenses: £1.76m (2019 £3.94m)
Impairment charge (mainly at Horse Hill and the relinquished PEDL143): £7.89m
Total non-current assets: £37.78m (2019 £46.65m)
Total current assets: £2.38m (2019 £8.07m)
Total liabilities: £5.07m (2019 £13.50m) – as a result of repaying convertible loan note
Employment costs: £1.619m (2019 £2.481m)
Employees: 13 (2019 11)
Stephen Sanderson’s total package: £301,000 (2019 £766,000)
Total directors’ pay: £516,000 (2019 £1,086,000)
Total borrowings: £3.084m (2019 £7.473m) – reduction follows payment of convertible loan