UK Oil & Gas plc (UKOG) has signed a conditional binding term sheet for a farm-in with Pennpetro Energy plc for the Horse Hill oil field, 2km north of Gatwick airport in Sussex.
PARTNERS
The transaction, with the company’s subsidiaries UKOG Ltd (85.635%) and Horse Hill Developments Ltd (HHDL) (77.9%), will be on an incremental production basis via funding the acquisition of 3D seismic and drilling the next infill production well.
UKOG holds an 85.635% net interest in Horse Hill and the surrounding 142.9 km² PEDL137 and PEDL246 licences.
As of mid-March 2023, continuing oil production from HH-1 totalled an aggregate of more than 185,000 barrels of 35˚- 41˚ API sweet crude, according to the company.
Founded in 2016, Pennpetro primarily focuses on oil and gas production and development in Texas. The company’s headquarters are in London.
Investor Alba Mineral Resources plc, with an 11.765% holding, said it looked forward to discussing the proposed transaction and considering its merits.
TERMS
Pennpetro will fund 100% of new crestal infill production well Horse Hill-3 (HH-3).
The well will spud after completion of a Pennpetro-funded 12km2 high-definition 3D seismic survey, targeted for H1 2023, subject to an aggregate cap of £4.6 million.
Following completion of the farm-out programme, Pennpetro will earn a 49% share of any oil production from HH-3.
The company will also earn an aggregate 49% non-operated licences interest, comprised of an initial 7% on 3D seismic completion and a further 42% interest upon HH-3 completion.
UKOG and HHDL will retain 100% ownership and rights to all oil production and revenues from Horse Hill-1 (HH-1). UKOG will remain Horse Hill and licences operator.
Subject to completion of the farm-out, UKOG’s interest in HH-1 production will remain at 85.635% and its net interest in any HH-3 production and the licences will be 43.67%.
The transaction requires a formal agreement as well as shareholder and regulatory approval.
UKOG said that planning and environmental consents remained in place for a further four production wells at Horse Hill.
“This mutually advantageous transaction will inject new activity into Horse Hill, aiming squarely to deliver increased production and revenues from the oil field,” added chief executive Stephen Sanderson.
“The farm-out enables UKOG to move this asset forwards without the need to raise capital, enabling our resources to be firmly focused upon the appraisal and development of the Loxley gas discovery, our most material petroleum asset.”