17 Aug 2016
Skipper Well Update Good Quality Oil Samples Successfully RetrievedIndependent Oil and Gas plc ("IOG" or the "Company"), the development and production focused Oil and Gas Company, is pleased to provide the following update on the drilling of the appraisal well on the Skipper oil discovery which lies in Block 9/21a in licence P1609 in the Northern North Sea, of which IOG is 100% owner and operator.
- Skipper well has been successfully drilled, with no safety incidents to 3,860 ft.
- Primary well objective achieved with good quality reservoir condition oil samples retrieved from the Skipper field that will allow the optimisation of the Skipper field development plan.
- Oil viscosity of the samples appears likely to be within the 50cP - 150cP range expected by the IOG management, much better than CPR estimates.
- Testing of the samples is due to complete in September 2016.
- Drilling has commenced down to the two exploration prospects in the Lower Dornoch and the Maureen formations beneath the Skipper oil field in which the CPR author has mapped structures which together may contain 46 MMBbls of oil in place.
The oil viscosity appears likely to be within the 50cP - 150cP range expected by the IOG management, which is significantly better than the viscosity assumed in the Competent Persons Report ("CPR") published by AGR Tracs in September 2013. If these oil properties are confirmed in the laboratory tests, which should be completed in September 2016, the development will require fewer wells than previous assumptions in the CPR thereby reducing the base case development costs.
After spudding on 23 July 2016, the well experienced some operational challenges, which were unrelated to the reservoir. This required an early re-spud of the well and therefore an increased overall well duration. In addition to this, in early August we experienced a force 10 gale at the well location which caused a suspension of operations for almost two and a half days for safety reasons. These delays have resulted in an estimated increase in the operational phase of the well by approximately 13 days, the cost of which will be met in the short term by the existing London Oil and Gas loan facilities. Other costs are being deferred until the end of 2017, as previously announced.
The next step of the current well program is to drill the exploration prospects in the Lower Dornoch and the Maureen formations beneath the Skipper oil field in which the CPR author has mapped structures which together may contain 46 MMBbls of oil in place. Initial results of this exploration drilling phase of the well are expected to be available before the end of August.
Mark Routh, CEO of IOG commented:
The initial data acquired from the Skipper well, our first operated well, is an excellent result for IOG and operations proceed without any reported safety incidents.
By retrieving the oil samples, the primary well objectives have been fulfilled and we have proved that the oil is moving in the Skipper reservoir. This is a significant step for IOG towards achieving the target of being a company with 100 MMBOE heading for development, in assets 100% owned as operator. I am immensely proud of the IOG team and extremely grateful for the co-operation and support from all of the contractors involved. The support of our financial backers is of course crucial and it is very satisfying to achieve our preliminary objectives which in turn repays their trust in the management team and our strategy.
We now move on to drill the exploration prospects, where any further oil discoveries would provide additional upside and look forward to analysing the results in order to progress the Skipper field development plan as soon as possible, in parallel with our exciting gas assets in the Southern North Sea.
Exercise of Options
Former non-Executive Director of IOG Paul Murray has exercised his final tranche of 1p share options and has accordingly been issued 103,462 new ordinary shares in the capital of the Company (the "New Ordinary Shares") at that price. The options were granted in lieu of cash compensation for his duties, calculated on the volume weighted average share price for the relevant period. The options were granted without any discount or uplift. The Company has applied to the London Stock Exchange for admission of the New Ordinary Shares to trading on AIM ("Admission"). Admission is expected to occur on 22 August 2016. Following Admission there will be 102,690,072 Ordinary Shares in issue. Accordingly, this number may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company under the FCA's Disclosure and Transparency Rules.
The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
About Independent Oil and Gas:
IOG is an oil and gas company with established assets in the UK North Sea. The company's strategy is to deliver near term development and production assets in North West Europe, through its extensive technical and commercial expertise, whilst maintaining some exposure to exploration upside. The company is looking to grow both organically and through acquisition. Following the Blythe acquisition, the Company's combined estimate of 2P reserves in Blythe and 2C resources in Skipper net to IOG are 40.2 MMBoe.
Upon completion of the Cronx acquisition IOG will have five licences in the North Sea. All of these licences will be owned 100% and operated by IOG.
Further information can be found on www.independentoilandgas.com
The Blythe gas discovery in the Rotliegendes Leman formation straddles Blocks 48/22b and 48/23a in the Southern North Sea in licence P1736. The Blythe Leman needs no further appraisal and has independently verified 2P reserves of 34.3 BCF (6.1 MMBoe). (Source: ERC Equipoise Competent Person's Report ("CPR") dated September 2013.)
Gas tested to surface from three separate intervals in the Carboniferous beneath the Blythe Leman gas discovery from one of the Blythe discovery wells, 48/23-3 drilled by Arco in 1987. The maximum rate achieved was 0.9 MMcfd from an unstimulated vertical test. (Source: End of well report 48/23-3 - November 1987.) This was deemed uncommercial at the time, before the advent of horizontal multi-fracture stimulated wells. Further technical work including seismic reprocessing and remapping needs to be completed to evaluate this potential resource to refine the gas-in-place estimates which are between 70 BCF and 310 BCF. (Source: Tullow Oil 48/23a Relinquishment Report - May 2009.)
Oil has flowed to surface from the naturally fractured Zechstein Carbonates in the Hauptdolomit formation above the Blythe Leman gas discovery from two wells. Well 48/22-1 drilled by Burmah in 1966 flowed 39Â° API oil at rates up to 2,000 barrels per day (Source: Composite well log 48/22-1 - October 1966) and well 48/23-3 drilled by Arco in 1987 at flowed 38Â° API oil at a maximum rate of 1,128 barrels of oil a day. (Source: End of well report 48/23-3 - November 1987.) The extent of the structure and potential oil resources in the Hauptdolomit remains unknown. Previous estimates considered that the mapped closure was probably small. Oil-in-place has been estimated between 2 MMBbls and 4 MMBbls. (Source: Tullow Oil 48/23a Relinquishment Report - May 2009.) Further evaluation and re-mapping is now warranted now that a development will proceed on the main Blythe gas discovery.
The Skipper oil discovery is in Block 9/21a in the Northern North Sea in licence P1609. IOG owns 100% of the Skipper licence P1609 and is the Operator. Skipper needed further appraisal by drilling a well to retrieve an oil sample in order to design the optimum field development plan. The samples have now been acquired and are due to be analysed by the end of September 2016. Skipper has independently verified gross 2C resources of 26.2 MMBbls. IOG management estimates that the recoverable oil from Skipper is 34.1 MMBbls based on a recovery factor of 25%, compared to the historic CPR estimate of 19%. Successful flow tests from nearby heavy oil fields substantiate the company's estimate of a 25% recovery factor. The appraisal well also is about to target two exploration prospects directly beneath the Skipper oil discovery which together may contain oil in place of 46 MMBbls. (Source: AGR Tracs CPR dated September 2013.)
IOG has agreed to acquire 100% of Cronx (Block 48/22a, licence P1737) which is subject to completion. The Cronx gas discovery is 14km north-west of the Blythe field. Cronx was discovered in 2007 by well 48/22b-6 drilled by Perenco UK Ltd.
IOG commissioned an independent CPR by ERC Equipoise on Cronx in July 2012 which shows a base case expected gas recovery of 17.6 BCF or 3.4 MMBOE 2C resource. IOG anticipates drilling a well in 2016, subject to rig availability, the necessary permits and funding. IOG expects the well to confirm the recoverable resources, which IOG believes has the potential to be larger than the 17.6 BCF base case in the CPR. IOG is currently evaluating options for the development and export of the Cronx gas.
About Truman and Harvey:
IOG has a 100% working interest in a licence awarded in the 27th licensing round to the east of Blythe containing the Truman prospect and Harvey discovery. IOG estimates potential resources in this licence of 16 BCF or 3.1 MMBoe. These 100%-owned fields have potential resources that could be tied back to nearby infrastructure being developed for the Blythe development.
About Elgood and Hambleton:
IOG has a 100% working interest in a licence awarded in the 28th licensing round to the west of Blythe containing the Elgood discovery (Block 48/22c, licence P2260). Elgood was drilled by Enterprise Oil in 1991 and tested gas to surface at 17.6 MMcfd but was not progressed by Enterprise due to size and gas prices at that time. IOG's estimate of the recoverable reserves in Elgood is 2.1 MMBoe.
The Hambleton discovery, to the south of the same licence, was drilled by Century Exploration in 2005 but also was not progressed to development. IOG estimates that Hambleton has recoverable resources of 6 BCF (1 MMBoe). IOG believes that the reprocessing of existing 3D seismic data could increase recoverable resources up to 26 BCF.
There are prospective resources on licence P2260 of 5.3 MMBoe in the Tetley and Rebellion prospects. Reprocessing and reinterpretation of existing 3D seismic across 48/22a and 48/22c is ongoing to determine whether Elgood connects to Cronx which would boost recoverable reserves significantly. The new seismic interpretation will also determine the likely size of Hambleton. IOG is now working on the potential development plans and will commission a CPR"Ž to confirm the resources over this area.
Competent Person's Statement:
In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG discloses that Mark Routh, IOG's CEO is the qualified person that has reviewed the technical information contained in this announcement. Mark Routh has an MSc in Petroleum Engineering and has been a member of the Society of Petroleum Engineers since 1985. He has over 35 years' operating experience in the upstream oil and gas industry. Mark Routh consents to the inclusion of the information in the form and context in which it appears.