UK Oil & Gas announces 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 ("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").

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.  

Necessary additional surface facilities, including generators to produce electric power from associated gas, will be installed prior to Production start. Further possible infill wells, water injection and additional gas utilisation will be addressed via subsequent FDP addenda and submitted to the OGA for consent at the appropriate time.

The establishment of Production at Horse Hill is a significant and key milestone for the Company as it will enable recoverable Reserves to be allocated to the project. This is a key first step to help access debt-based funding, which, if secured, would help meet the cost of current and future projects designed to grow the Company's asset base. Production will also enable oil sales to be booked directly as income, rather than simply netting off the revenues against EWT costs.

Further to the Company's announcement of 23 December 2019,  the planned routine intervention to shut-off water ingress into the HH-2z horizontal is now scheduled for February. Whilst the Company wished to act more rapidly, no suitable slim-hole production logging tool ("PLT"), essential to identify the exact source of water ingress into HH-2z, was available within the UK or Europe until this time. It is planned to resume the HH-2z EWT immediately following a successful intervention.

In order to conduct interference testing, HH-1 Portland EWT production was resumed on 16 January 2020, at an initial rate of 435 barrels of oil per day ("bopd") over a 6-hour period. Over the past 24 hours, stable dry-oil EWT production has averaged 293 bopd at a modest drawdown, demonstrating the Portland perforated interval has remained in good condition since the last June 2019 shut-in. A short routine intervention on HH-1 is now underway, which aims to further optimise and increase the Portland production capability of the well.

The HH-1 Kimmeridge interval will now remain shut in for a further long duration pressure build-up test. Plans to install a dual completion to enable HH-1 to produce from both the Portland and Kimmeridge oil pools are being formulated. A future Kimmeridge appraisal/production well is also planned, once full Portland Production and positive cash flow has been established from the field.

Progress of the above Horse Hill activities will be reported in due course.

UKOG holds a controlling 85.635% interest in the Horse Hill oil field and surrounding highly prospective PEDL137 and PEDL246 licences, which are operated by UKOG's subsidiary company, Horse Hill Developments Ltd.

PEDL234 Loxley-1 Portland Gas Field Appraisal Update (UKOG 100% interest)

The OGA has granted a two-year extension to the current PEDL234 Retention Area work programme, which now requires Loxley-1 to be drilled by 31 December 2021. However, as we understand that the
Loxley-1 planning application will be heard by Surrey County Council at the end of February, if approved, the Company still plans to commence drilling as per its original schedule in the winter of 2020/21.

Acquisition of Magellan Petroleum

As announced by the Company on 11 September 2019, the Company completed the acquisition of Magellan Petroleum (UK) Investment Holdings Limited ("Magellan") from Tellurian Investments LLC for total consideration of £12 million in cash and shares in the Company (the "Acquisition"). Magellan (now known as UKOG (137/246) Ltd) holds a 35% direct interest in the Horse Hill oil field (the Company's flagship asset) and the surrounding highly prospective PEDL137 and PEDL246 licences.

The £12 million consideration is payable in three tranches:

• An £8 million initial consideration which was satisfied through the payment of £5 million in cash and the issue of an aggregate total of 275,988,960 new Ordinary Shares in the Company. The number of consideration shares issued was calculated by the payment amount divided by the 10-day average mid-price of the Company's Ordinary Shares prior to the completion date;
• A £3 million deferred payment which was satisfied through the issue of 331,125,828 new Ordinary Shares in the Company. The number of consideration shares issued was calculated by the payment amount divided by the 10-day average mid-price of the Company's Ordinary Shares prior to 31 December 2019; and
• A £1 million second deferred payment ("Second Deferred Payment") which is to be satisfied on or before 31 March 2020, either in cash or through the issue of Ordinary Shares in the Company (the Directors intend on satisfying the Second Deferred Payment through the issue of Ordinary Shares in the Company).

The Company has also raised £2 million from a single institutional investor through a placing of 235,294,117 new Ordinary Shares in the capital of the Company.

Following the successful conclusion of those arrangements detailed above and as the Second Deferred Payment must be satisfied on or before 31 March 2020, it is now necessary to update the relevant authorities of the Company in order for the Company to satisfy its obligations under the Acquisition as existing authorities have been largely utilised.

Therefore, the Board seeks approval to increase its authority to allot and issue shares so that it can act swiftly to establish Production via an ability to fund the Company's Horse Hill FDP and to ensure that the Second Deferred Payment can be satisfied.

Stephen Sanderson, UKOG's Chief Executive, commented:
"We are pleased that the necessary production logging tool equipment is now available and secured, enabling the HH-2z water shut-off intervention to proceed ahead in February.

During the past few weeks we have also re-established good Portland dry oil flow from HH-1 and have determined that both HH-1 and HH-2z can be produced from the Portland at the same time, without any detrimental effect to the reservoir's overall performance. This key finding means we can accelerate the start of up to 25 years of continuous Production via HH-1, whilst HH-2z continues to be tested.

The immediate future therefore promises to be a hive of operational activity both at HH-1 and HH-2z, with each operation geared to deliver the best possible Production stream from the field as early as possible."

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