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Mirasol,
'Clean up and flow testing of HH-2z was conducted from December 2019 through to October 2020.'
Testing - ewt - not Production. I'm sure if they were producing under the FDP they would have said so.
Horse Hill Oil Field EWT and Field Development Update (UKOG 85.635% interest)
UK Oil & Gas (UKOG) has announced that as a result of a successful reservoir pressure 'interference' testing campaign, undertaken to assess the degree of communication between Horse Hill-1 ('HH-1') and the new HH-2z horizontal, the Company now intends to accelerate the start of up to 25 years of continuous long-term production by 6 months. Production is now planned to commence by bringing HH-1 into Production during Spring 2020 and to be followed by HH-2z upon completion of the current extended well test ('EWT').
Jan 2020
Following recent discussions with the Oil and Gas Authority ('OGA'), a revised Horse Hill Field Development Plan ('FDP') has been submitted which, subject to OGA's final consent, will see the field's overall Production volumes grow in two initial phases compared to the single phase of the original FDP. It is planned to convert HH-2z from its current EWT status to Production in 3rd quarter 2020. "
"Mirasol - the OGA reports are for HH-1 Portland production under FDP - there is no FDP covering the oil produced under ewt by HH-2z."
Are you sure? FDP's are issued by Field not well normally...............
Ibug,
where did I say that the OGA figures included any test production from HH-2z - that's exactly my point - they are included in UKOG's figures for total produced oil from HH Portland and Kimmeridge but nowhere else.
This is what I put:-
'From the OGA:- 17592bbls produced in July to December - from HH-1'
If, and it might be an if, HH2z produced any oil under ewt after June ('Clean up and flow testing of HH-2z was conducted from December 2019 through to October 2020.') it will be in UKOG's end Jan/Feb figure for HH total oil produced (over 137,000bbls from Kimmeridge and Portland) but won't be in the OGA figures after June which have to be used to derive the Jan / Feb oil produced.
I also noticed n the FDP RNS:-
'and consented to the start of long-term production ("Production") from the field.'
UKOG use 'Production' with a capital 'P' to signify production under the FDP.
I'll leave it there.
Mirasol - the OGA reports are for HH-1 Portland production under FDP - there is no FDP covering the oil produced under ewt by HH-2z.
Mirasol
Read what what I wrote. I said "UKOG has never given any indication that they have put HH-2Z into production." I read the RNS's far more than you do so know exactly what was previously said.
"Portland oil pool Production will commence via Horse Hill-1 ("HH-1"), with Kimmeridge Production planned to be added in late spring via a conversion of the well to a dual completion. Production from HH-2z is planned to follow upon completion of the current extended well testing campaign."
It all came to a messy end and HH-2Z was never put into production.
"The OGA only publish oil figures that have been produced under a production agreement where they have given approval as with HH-1. "
Wrong - OGA approved the FDP with several wells (not drilled) in it. It will include any production from the Portland in HH2z - you don't "add" wells one at a time IBUG - OGA have better things to do . HH2z isn't producing very much if anything due to the water cut.
Penguins
The OGA only publish oil figures that have been produced under a production agreement where they have given approval as with HH-1. UKOG has never given any indication that they have put HH-2Z into production. You only need to look at the figures provided by the OGA to work out that HH-2Z has never been part of the equation.
Production oil and oil that has been produced are treated differently for fiscal reasons and a RNS would need to be issued if they had put HH-2Z into production as they did with HH-1.
2020 totals in m3
m 893
a 1160
m 871
j 753
j 600
a 633
s 445
o 233
n 483
d 403
If as you say HH-2Z oil had been included how come it does not show in the figures?
No mention of HH-2 production going into the proven developed producing (“PDP”) reserves
category.
I am quite content with my figures.
Ibug,
UKOG's oil produced figure includes all oil produced (production) oil from the Portland and Kimmeridge during 'production' and ewt or any other testing.
There isn't really another word to use for oil produced except production - next time I'll remember (maybe) to be very specific.
So from the Final Results:-
'By end February 2021, post period, the Horse Hill field had produced and exported over 137,000 bbl of Brent quality crude from its Kimmeridge and Portland oil pools'
From the June 30 Interim Results:-
'As of 29 June 2020, 113,143 bbl in total has been produced from Horse Hill.'
From the OGA:- 17592bbls produced in July to December - from HH-1
Over 137,000 (say 137,000) minus 113,143 minus 17,953 equals 6,264bbls (which divided by 59 - days in Jan and Feb - equals 106 bopd average.
But from the Final Results:-
'Clean up and flow testing of HH-2z was conducted from December 2019 through to October 2020.'
So how much oil was produced by HH-2z after June? It should be taken off the 6264bbls, but there is no way of knowing.
There's also the flippant more than 137,000bbls (too busy to look up the exact figure I suppose) that also adds uncertainty, and why to the end of February - were the results going to be published much earlier and circumstances changed and they wanted a bit of good news (pictures of site prep?) to offset them.
Anyway not a complaint just pointing out the uncertainty, not long until OGA figures for January - if they have 'turned the taps up' will there be an increase in water cut - maybe with the higher OP they can afford more water disposal?
Ocelot: presumably if they’d added the hydrocarbon revenues you detail below to the P&L, the impairment charge would merely have been increased by the corresponding amount?
From note 11. to the annual results:
Revenues from the sale of hydrocarbons produced as a by-product of testing and evaluation activities have been offset against the costs of the intangible asset. These totalled GBP1,755,000 in the year (2019: GBP2,411,000).
Add in revenue from the income statement of £908k and total revenue from the sale of oil was £2,663k in 19/20.
Penguins,
At this point the Company is still assessing the potential of the remaining assets and will continue to develop and evaluate these assets in the coming year. Since their acquisition dates there has been no further material changes to the Licence areas. The directors therefore consider that no further impairment is required at 30 September 2020, other than detailed above. (from Note 11. of the annual results)
It is a UKOG accounting policy to assess assets for impairment on at least an annual basis.
GingerHippo: yes, I agree with you. The acceptance of constant share placings by inexperienced investors as a sort of “free money” misses the importance of the impact of share dilution. The ability of a company to pay dividends one day is the justification for investment in its equity and the more shares in issue, the smaller the dividend per share. Investment in this is a pure gamble on a big oil find with the first up Turkey well, in my view. Presumably people contributing here understand this.
Penguins
Was HH-2Z ever put into production? As far as I am aware it only ever reached the testing stage. I don't remember seeing a RNS announcing it was in production. This was the last update I saw back in March last year "Production from HH-2z is planned to follow upon completion of the current extended well testing campaign.". Have I missed something?
Oofy, people keep ignoring the accumulated losses for some reason. Writing items off is not a cash movement this year, but it was paid for at some point. UKOG need to make £80M in profits from now just to make back their historic losses. That's several million barrels of oil even at $70 per.
I don't think the company will ever be able to repay its shareholders. People buying now are speculating that the share price might go up, not investing in a profitable company. That's in itself is OK, but ppl need to be clear about these things.
Isn’t it cash flow that matters? Impairment is only important as a measure of the quality of past management decisions and in the impact it may have on the ability of a company to borrow against the value of its assets. Cash flow is what they earned/raised, against what they spent. Penguins’s figures taking account of placing receipts is surely the relevant one? If market opinion turns against UKOG, its ability to keep chucking shareholders’ money about is going to be curtailed. It’s all about Turkey for now though, isn't it? They need more cash soon too.
ibug,
Perhaps I should have said I was responding to your post yesterday - luckily I didn't post the question last night.
so where did you get your figure of 106bopd from for Jan / Feb HH-1 production? The total production from HH to end Feb will include production after June from HH-2z - assuming when UKOG say they were still testing to October they were actually flowing the well - but there are only HH-1 production figures for July to December from the OGA, and a figure for total HH production to end June - or have a missed one after September?
This from the final results:- 'Clean up and flow testing of HH-2z was conducted from December 2019 through to October 2020.'
Ocelot,
there's still a lot of intangibles associated with HH to be looked at for impairment next year.
Though as you'll be aware as long as they spend money in the UK and Turkey and keep things ticking over all that expenditure can be added to intangibles next year. Spend money, don't prove assets, but add to the intangible assets anyway - until they have to impair them.
Penguins
HH-2Z does not affect first 5 months of this financial year (Oct 20-end Feb 21). I use figures from OGA and RNS updates in my calculations.
"UK Oil and Gas PLC is a UK-based oil and gas exploration and production company."
Ignoring costs and losses associated with exploration is living in la-la land; if UKOG were not spending on developing new assets they might need to close down as current assets do not seem to pay the bills.
Penguins,
My figure provides an indication of the underlying loss, it, therefore, provides a base for projecting into the future.
After the impairment and write-off at HH in 19/20, nobody is suggesting there will be a similar impairment and write-off at HH in 20/21.
Ocelot,
That's exactly what I was referring to "loss before impairment expense, exploration write-off and taxation"
Presumably adding all those in makes a difference?
Oh - yes it does, loss before (and after taxation which was zero) was £20,937,000.
So: from the group income statement, take loss before taxation and add back impairment expense and exploration write-off.
News leak ?....
Penguins,
The number, which is a number for a loss, comes from the group's income statement.
Re selectivity, the heading I used explains which figures are involved:
"loss before impairment expense, exploration write-off and taxation"
Ocelot,
Not sure where your number is in the accounts, and it's very selective.
Looking at the consolidated cashflow account cash went down £5,258,000 from the start of the accounting period to the end - but they also raised £7,734,000.
So in simple terms they spent nearly £12,992,000 more than was coming in during the year more than £1mm a month.
That's more than a few hundred barrels - at revenue of £50 a barrel I make that over 700bopd.
In the real world that would have needed, for instance, Resan / Basur to produce (rather than have an initial test) over 1,400bopd, which is more than 3 times E Sadak field production in September 2020 - from 8 producers.
Ibug,
According to the Final results the HH-2z ewt continued to October. I'm assuming your 106bopd HH-1 average for Jan/ Feb was calculated from taking end June figure of total production plus the July to December OGA figures and subtracting it from the total HH production figure in the final results. 106bopd would mean no oil from HH-2z testing after June. Unfortunately UKOG are pretty silent on HH-2z production after the initial testing following the workover to stop the water ingress.
Thank you for your post, Ibug.
The rise in the oil price may help to explain why the much-touted placing has yet to be done.