TIDMUOG
RNS Number : 5492I
United Oil & Gas PLC
02 April 2020
United Oil & Gas PLC / Index: AIM / Epic: UOG / Sector: Oil
& Gas
2 April 2020
United Oil & Gas PLC
("United" or the "Company")
Operational & Corporate Update
United Oil & Gas Plc (AIM: "UOG"), the AIM listed oil and
gas exploration, development and production company, is pleased to
provide an operational and corporate update to shareholders
including the commencement of gas production at the Al Jahraa Field
in the Company's 22%-owned Abu Sennan concession, onshore Egypt,
and measures taken in response to the COVID-19 pandemic and ongoing
oil-price volatility.
Overview
Egypt Update
-- Completion of low capital expenditure gas pipeline project at Al Jahraa
-- Production of gas and elimination of flaring increases gross
production in Egypt to c. 8,400 boepd (c. 1,850 boepd net) - more
than doubling the production compared to 12 months ago
-- All Egyptian production, including new gas supply, has
positive operational cashflow, even at current low market
prices
o Low operating costs at Abu Sennan of around $6.5/bbl provide
solid operating margins even at low price levels
o The Company's pre-payment facility with BP provides downside
price protection by effectively hedging 6,600 bbls of oil per month
at $60/bbl for the next 30 months
o c. 20% of United's net production is gas which is sold under a
fixed contract that is relatively insensitive to oil-price
changes
-- Drilling operations are continuing at the El Salmiyah 5
infill well within the El Salmiyah field
Response to Market Conditions
-- Proactive measures taken by United and its partners to reduce
near-term Capex commitments during current oil-price uncertainty
and the impact of Covid-19
o Deferral of Italian Capex improves cash flow and moves
expected first gas slightly to H1 2021
o Deferral of Egyptian Capex reduces 2020 infill campaign from 4
to 2 wells, significantly reducing gross 2020 Capex estimates.
Further optimisation of the Capex and Opex budgets is being
considered.
o Completion of post-Egyptian-acquisition licence review sees
divestment plans for selected non-core assets in the Wessex Basin
and a decision not to exercise the farm-in option in Benin
o Substantial cut in administrative expenditure resulting in
further cost savings
-- Measures taken to minimise the impact of oil-price
uncertainty and Covid-19 will help safeguard the company during the
current industry challenges, with the aim of putting it in a
position to take advantage of future opportunities
Brian Larkin CEO, United Oil and Gas
I am delighted that production in Egypt continues to rise,
helping to compensate for the lower oil prices. Since the effective
date of the acquisition, gross production at Abu Sennan has now
more than doubled to c. 8,400boepd which, thanks to low operating
costs, remains profitable at today's oil prices. The completion of
the gas pipeline at Al Jahraa was achieved at low cost and based on
current projections, will pay for itself within months. The
associated reduction in flaring has also improved the environmental
performance of the licence. We are currently drilling the
El-Salmiya 5 infill well and we look forward to updating our
shareholders on progress shortly.
"Post completion of the Egyptian acquisition, we indicated our
intention to review our portfolio and to optimise our investment
strategy. The economic and political uncertainty created by
Covid-19 and the current low oil prices have created considerable
challenges for our industry. United's leadership team have reviewed
our business in-depth and have mapped out what we believe is a
sensible course through the months ahead. We are focussing on
investment which we believe will deliver the most immediate return
for our business. Where expenditure can be deferred with limited
impact, we are doing so. Where expenditure or indeed where licences
offer a more uncertain or marginal return, we are being prudent and
stepping away.
"United's goal is to focus expenditure where it can deliver
immediate benefit, maintain cashflow and emerge from this period of
uncertainty in a position of strength, relative to the industry. We
believe that this strategy can achieve that. We will continue to
keep shareholders briefed on developments as they happen."
Egypt
Al Jahraa Gas Pipeline and Production Update
The construction of a 10km gas pipeline, linking the Al Jahraa
Field, which lies within the Abu Sennan concession, to the
neighbouring KPC facility has been completed. The project made use
of existing facilities, and total gross costs were kept to below
$350k. Gas was brought onstream through the pipeline on the 22(nd)
March, and since then the rate has increased to over 650 boepd (143
boepd net to United's 22% working interest).
Not only has the completion of the pipeline reduced the amount
of flaring on the asset, it has also increased the overall gross
production levels from the Abu Sennan concession to c. 8,400 boepd
on a gross basis (1,850 boepd net to United's working interest).
The current production levels are more than double where they were
12 months ago, and this has in part been driven by the recent
success at the ASH-2 Well, which continues to produce at over 3,000
bopd. Plans to further develop this field are still being
progressed.
Current Drilling Operations
The El Salmiyah 5 drilling operations continue. This is an
infill well targeting multiple undrained reservoirs within the El
Salmiyah field. The well is making good progress and we look
forward to updating the markets on this well in due course.
2020 Drilling Schedule
Kuwait Energy Egypt (KEE), the operator of the Abu Sennan
concession, has indicated that due to the current low oil price,
they plan to reduce the 2020 Capex costs on the licence
significantly. This will include deferring at least two of the four
planned 2020 infill wells.
United are fully supportive of this approach, which will enable
the asset to remain cash-flow positive in the current low oil-price
environment. It is worth re-stating that the operating costs on the
Abu Sennan concession are low, at around $6.5/bbl, providing solid
operating margins even at low price levels.
Italy
In Italy, although Selva is continuing to progress through the
approval process, this process has understandably slowed with the
Government's critical focus on fighting the Covid 19 epidemic, and
the target for first gas from the field is now H1 2021.
Although the Company had previously been keen to expedite this
development programme, and we would wish the circumstances were
otherwise, the delay and associated Capex deferral ($0.5m net) will
help sustain cash reserves in the current low-price
environment.
Jamaica
Markets will be aware that the licence operator, Tullow Oil plc
has written down the value of the Walton Morant licence in their
most recent Preliminary Results schedule.
United has indicated to the Jamaican authorities that it wishes
to explore options for continuing to progress what United believe
to be a transformative licence. Discussions have been initiated
with the Government, and we will update the market in due
course.
Review of Licences
Following completion of the Egyptian acquisition, United is now
a full-cycle E&P company with net production of over 1,800
boepd. The Company had stated its intention to review the asset
base and against the backdrop of uncertainty created by Covid 19
and low oil prices, is taking decisive action to rebalance the
portfolio.
United will therefore not be continuing its option on Benin.
Furthermore, when market conditions improve, United will be looking
to divest its Wessex Basin portfolio. While the Company sees value
in both of these licences, the Directors do not believe that they
offer the best return for United at this time.
At completion of this process United will have strong production
in Egypt, with short term production gains to be added in Italy.
This is augmented by excellent development opportunities across
Italy and Egypt, the low-risk Zeta prospect in the UK North Sea,
and exceptional exploration potential in Jamaica.
United will continue to evaluate new venture opportunities
during the current industry challenges, with the aim of putting the
company in a position to move quickly should conditions
improve.
Financial Update
United adopts a conservative financial strategy as evidenced by
both the commodity price hedging and the mix of the capital
structure. The Company's pre-payment facility with BP is based on a
floor price of $60/bbl for c.6,600 bbls of crude oil production per
month for the next thirty months . This provides downside price
protection by effectively hedging this portion of production.
Coupled with this, c. 20% of United's net production is gas which
is sold under a fixed contract that is relatively insensitive to
oil-price changes.
The Company has worked with the Operators of its key assets to
reduce and defer capital programmes. The Company has also made
significant decisions around the cost base of the Company and has
implemented some significant changes which are expected to realise
approximately $0.5m of annualised savings.
Under the terms of the Crown SPA, and subject to FDP approval,
United expects a further $2.85m of net payments during 2020 from
the sale of this asset.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
ENDS
United Oil & Gas Plc (Company)
Brian Larkin, CEO brian.larkin@uogplc.com
Beaumont Cornish Limited (Nominated
Adviser)
Roland Cornish and Felicity Geidt +44 (0) 20 7628 3396
Optiva Securities Limited (Joint
Broker)
Christian Dennis +44 (0) 20 3137 1902
Cenkos Securities Plc (Joint Broker)
Joe Nally (Corporate Broking) +44 (0) 20 7397 8900
Derrick Lee and Pete Lynch +44 (0) 131 220 6939
Murray (PR Advisor) +353 (0) 87 6909735
Joe Heron jheron@murrayconsultants.ie
St Brides Partners (Financial PR/IR)
Frank Buhagiar and Priit Piip +44 (0) 207 236 1177
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END
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