Pennpetro Energy PLC and UK Oil & Gas PLC have signed a farm-in deal to develop the Horse Hill Oil Field near Gatwick airport in the UK, which could boost the country’s oil production and revenues.
Pennpetro Energy PLC, an independent oil and gas company focusing on production and development in Texas, US, and UK Oil & Gas PLC, an energy company focused on exploration and production in the UK and international onshore sectors, have agreed to work together to develop the Horse Hill Oil Field, a promising oil discovery near Gatwick airport in the UK.
The deal, which was signed on Tuesday, March 28, 2023, is subject to the completion of a formal farm-out agreement, board and regulatory approvals, and the consent of all Horse Hill Developments Ltd (HHDL) shareholders. HHDL is a subsidiary of UK Oil & Gas that holds a 77.9% interest in the Horse Hill Oil Field and the surrounding 142.9 sq km PEDL137 and PEDL246 licences. UK Oil & Gas holds a 100% interest in HHDL through another subsidiary, UKOG (137/246) Ltd.
Under the terms of the deal, Pennpetro Energy will fund 100% of a new crestal infill production well, designated Horse Hill-3, to be spudded after the completion of a 3D seismic survey, subject to a cap of £4.6 million. Upon completion of the farm-in programme, Pennpetro Energy will earn a 49% share of any oil production from Horse Hill-3 and future wells, plus a 49% interest in the licences.
UK Oil & Gas will remain as the operator of the Horse Hill Oil Field and the licences, and will retain 100% ownership and rights to all oil production and revenues from the existing Horse Hill-1 well. UK Oil & Gas’s net interest in any Horse Hill-3 production and the licences will be reduced to 43.67%, while its interest in Horse Hill-1 production will remain at 85.635%.
The 3D seismic survey, which will be funded by Pennpetro Energy, will cover about 12 square km and is expected to start in the second half of 2023. The 3D seismic survey and the Horse Hill-3 well are aimed at increasing production and revenues from the Horse Hill Oil Field, which is located in the Weald Basin, a prospective oil and gas region in southern England.
The Horse Hill Oil Field was discovered in 2014 and has produced over 140,000 barrels of oil to date from the Horse Hill-1 well, which has flowed at rates of up to 1,688 barrels of oil per day from multiple zones. The Horse Hill Oil Field is estimated to contain 114 million barrels of oil in place, of which 12.5 million barrels are considered recoverable, according to a 2019 report by Xodus Group.
The farm-in deal with Pennpetro Energy is part of UK Oil & Gas’s strategy to monetise its assets and reduce its capital expenditure, while also pursuing new opportunities in the UK and abroad. The deal is also expected to benefit Pennpetro Energy, which will gain exposure to a proven oil field with significant upside potential and a long-term production profile.