Falling production at the Horse Hill well in Surrey cut revenue for UK Oil & Gas plc last year.

The company’s 2023 annual report announced revenue from oil sales of £1.538m, down nearly 14% on 2022.

It said:

“This decrease was largely driven by an oil production decrease at Horse Hill, via HH-1.”

No revenue is expected from UKOG’s interests in the Pinarova-1 well, which the company previously described as “irresistible” and had hoped for “rapid monetisation” of reserves. Testing revealed an absence of commercial rates of hydrocarbons and has been halted, UKOG said.

UKOG’s gross profit for the year fell 11% to £275,000, from £310,000 in the previous year.

The company’s accounts also reported a rise in both administrative expenses and finance costs. But depletion, depreciation and amortisation costs were down.

The loss before tax was lower in 2023, at £4.069m, compared with £5.388 in 2022.

But cash was also down at £1.9m in 2023, 59% lower than the £4.6m reported in 2022.

UKOG said it intended to cut costs by the “judicious use of farmouts to provide operational funding”.

The company has until 30 June 2024 to conclude an agreement under which Pennpetro Energy plc would fund and drill a new well at Horse Hill and carry out 12km2 of 3D seismic surveys. It also said it was in talks for other parties to carry all the costs of drilling and testing the Loxley-1 well, also in Surrey.

UKOG said it had enough cash to continue in business for at least 12 months. It said it would “take actions to address any cash constraints by seeking to raise capital through equity or debt”, if required.

It added:

“Whilst there can be no certainty that sufficient funding can be obtained in the timescales required, the Directors are confident of their ability to raise capital, which is supported by successful capital placements in the past.”

Assets and staff costs

The accounts also confirmed net assets were down at £32.687m, from £35.912m in 2022, with a rise in total liabilities and a fall in total assets. But UKOG made no impairment of oil and gas assets in 2023, following a cut in their value of £2.89m in 2022.

Total employment costs, including directors, rose to more than £2m, up from more than 1.8m in 2022.

The highest paid director was the chief executive, Stephen Sanderson, who received £337,000 out of total director pay of £507.000.

Site updates

Horse Hill

UKOG said the industry regulator, the North Sea Transition Authority (NSTA), had extended the retention area work programme for PEDL137, which includes Horse Hill, to 30 September 2025.

The company is waiting for a ruling from the Supreme Court on its planning permission for extra wells and long-term oil production.

It said it planned an infill well, to be called HH-3. If this were successful, there were plans for a crestal production well (HH-4).

Plans to convert HH-2z into a water reinjection well would improve net earnings by £250,000 a year by eliminating the cost of disposal of produced water and tanker transport, UKOG said.

Loxley

UKOG said gas from Loxley would be reformed into hydrogen to be used in the Solent cluster of industries. It said estimates put the economic value of the field at £86.5m-£124m, depending on the gas price.

The company said:

“it is going to play its part in the future hydrogen economy, fully supporting the government’s British Energy Security strategy”.

UKOG said site construction could start in the second half of 2024, after planning conditions had been discharged. The well must be drilled by 30 June 2025, under an agreement with the NSTA.

The field would be later repurposed to store around 1 billion cubic meters of hydrogen, UKOG said.

Other sites

Broadford Bridge, West Sussex: UKOG said it was considering an appeal against refusal of permission in March 2024 to extend the life of the site. Discussions were continuing with CeraPhi Energy on using the borehole for geothermal energy project.

Horndean, Hampshire Estimates last year suggested UKOG’s net share of Horndean production revenues was £297,000 per year. Net earnings after costs were £140,000. UKOG said surface beam pumps had been replaced with new surface pumps. 2023 production had been more than 20% above 2022, the company said. Operating costs were 6% below budget in 2023.

Avington, Hampshire: Partners in the site have agreed to restart production, UKOG said. A workover of the well is scheduled, followed by modifications to surface facilities, it said.

Portland, Dorset: UKOG said its subsidiary UK Energy Storage Limited (UKEN) had signed lease agreements for two sites in the former Royal Navy port at Portland for hydrogen storage in salt caverns. The company plans to submit an application for the government’s first hydrogen storage allocation round, brought forward to the third quarter of 2024. Capital costs are estimated at about £1b. UKEN intends to submit a nationally significant infrastructure project planning application. It has identified further sites in Dorset and East Yorkshire.

Key figures for the year ending 30 September 2023

Revenue from oil sales: £1.538m (2022 £1.780m)

Depletion, depreciation and amorisation costs: £0.244m (2022 £0.769m)

Other cost of sales: £1.019m (2022 £701,000)

Gross profit for the year: £275,000 (2022 £310,000)

Admin expenses: £3.320m (2022 £2.643m)

Operating loss for the year: £3.480m (2022 £5.388m)

Loss before tax: £4.069m (2022 £5.622m)

Finance costs: £589,000 (2022 £234,000)

Non-current assets: £36.916m (2022 £35.922m)

Current assets: £2.640m (2022 £5.346m)

Total assets: £39.556m (2022 £41.269m)

Total liabilities: £6.869m (2022 £5.355m)

Net assets: £32.687m (2022 £35.912m)

Impairment of oil and gas assets: zero (2022 £2.89m)

Impairment of Pinarova-1 well: £0.4m

Cast and cash equivalents: £1.9m (2022 £4.6m)

Total employment costs, including directors: £2.060m (2022 £1.867m)

Highest paid director: Stephen Sanderson, who received £337,000 out of total director pay of £507.000 (2022 Mr Sanderson received £311,000 out of total of £494,000)

Number of UKOG companies: 11 (UK Oil & Gas plc and 10 subsidiaries)

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