Industry

Horse Hill is a “talented but troublesome teenager”, says UKOG as it goes into the red

The Horse Hill oil field in Surrey, once described by its owner as world class, was likened today to a “talented but troublesome teenager”.

Horse Hill site in Surrey, 29 April 2020. Photo: Used with the owner’s consent

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.”

Cuts

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.

Planning decisions

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.

Diversification

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.”

Key figures

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

14 replies »

  1. Not really a good look is it ? Gatwick Gusher hmmm? For a geologist of such standing one would think that Sanderson would have anticipated such problems, probably blinded by his remuneration.
    Mind you, UKOG are now the Geothermal Energy Advancement Association which will obviously be a transformational game changer for the UK company 😂
    Same old same old .
    How is the PPE production going ?
    I’ve heard better stories on Jackanory 😂

  2. “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.”

    That interim salary cut did not last long. These annual cuts must have really hurt their pockets.

    Kiran Morzaria £1k
    Allen D Howard £6k
    Nicholas Mardon Taylor £6k
    Stephen Sanderson £17k

    • Perhaps Mr. Musk could follow the lead? Nope, no sign of that.

      Now, that really is an alternative remuneration package!

      Shame that people outside the fossil fuel sectors also earn salaries, but they do, and can also be scrutinized-unless you a fan of the one sided equation. Irresistible to the antis.

      • Mr Musk works for his cash unlike Salmon Slacks , tbh I could have stuck a pin in a map of The Weald and struck more oil than the expert geologist.
        A couple of wing it interviews in the style of big Dave Laughing Gas doesn’t really warrant nearly half a million £ .
        If you want to read bitterness Martin I suggest you read the LSE UKOG chat , it’s full of mugs that got shafted 7 years ago , many of whom lost many thousands by believing the BS spouted by UKOG.

        • Oh, I do read it, Jono. It is comprised of a very small percentage of share holders, some not even share holders, who post the same stuff month in month out, thinking their posts will influence the share price. Spread your net a bit wider, and you will observe the same on many other chat sites-often with the same individuals featuring.

          Meanwhile, the majority of the share holders don’t post and made money in the last week. If they didn’t they are indeed mugs.

          Yes, there may be mugs who lost money at some time, there are also the smugs who have made money. Absolutely no different to those who invest in Tesla, but the sums are probably a little different.

          You have been singing this song for a long time. Does it have any result when a placing is made? Nope.

          The real mug punters are those who crowd fund legal challenges that keep on losing, Jono. Your choice, but at least some of the UKOG investors win some of the time!

    • Mike New

      Had you taken some time to actually read the report & accounts & have some understanding of employment law you may be better informed.

  3. Oh, the bitterness!

    Meanwhile, those who took advantage-and many did- will indeed be smug punters from the last week or so.

    But, I did like the reference to the troublesome teenager. Will it be one that suddenly matures, takes it’s time or never does? So much uncertainty will only provide those smug punters with more opportunities.

  4.  Some parts of the UKOG statement that D.O.D. Conveniently missed out… We have also spent significant time looking at the feasibility of enhancing our UK sites to include renewable energy. Our vision is that our UK sites could become integrated hybrid energy hubs, encompassing solar, closed loop geothermal, petroleum and battery storage. We have also been evaluating stand-alone closed-loop geothermal activities as an addition to our traditional UK business. Whilst this sector is still in its infancy in the UK, we believe we have the key technical and project management skills necessary to make such projects work.
    To our opponents, many of whom fail to see the irony of burning oil to drive to oil & gas sites to protest, or to disregard the safety and health of others by violating the prevailing Covid-19 gathering and social distancing regulations, I bring to their attention 2020’s Energy White Paper and the Climate Change Committee’s carbon budget, in which indigenous oil & gas remains a part of the UK’s energy transition to net zero and beyond. This is because we not only need to keep the lights on while other energy sources transition to fill demand but will also continue to need non-combusted industrial petroleum feedstocks to manufacture key 21st century materials. Without ready access to such materials there will be no electric vehicles, green aviation or wind turbine blades.
     
    On a simpler level we might also consider that the humble PPE the country continues to depend upon to combat the pandemic are also primarily derived from such non-combusted petroleum feedstocks. Where would we be without face masks and visors, gloves, protective gowns, aprons, syringes, sterile tubes and pipes in intubators and ventilators, catheters, let alone vital function computers and screens and much more?
     
    It must surely be preferable that such transitional fuel and vital feedstocks should come from domestic sources rather than those beyond the UK’s control and regulation. We have already seen during last year’s scramble for PPE what can happen if sectors are offshored.

  5. And the big winner is SS; he earned a third of their revenue from selling the little oil they produced.

    Now people think that Turkey is coming to the rescue – people forget that they famously do not vote for Xmas.

  6. What else do you expect them to earn revenue from, Ronald? Car park fees for the protestors? Maybe you think that AIM type companies should not pay salaries until they are profitable? Well, that would destroy the main purpose of AIM, and start up companies would not start up! Or, outside of AIM, then Mr. Musk would have been earning nothing until very recently.

    Your comments around Turkey are equally strange. The point about Turkey is that it is much quicker to go through the exploration process. If that successfully finds oil/gas then revenue is accelerated. If it is not successful, then obviously it isn’t. But, the “people” who invest in oil exploration companies are aware of that. It is/are the antis who seem to have difficulty actually understanding the details of what they are against. But, we already knew that, as the Tracking Survey conducted regarding fracking clearly demonstrated that.

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