The field and surrounding licence is operated by UKOG's subsidiary company Horse Hill Developments Ltd (“HHDL”) in which UKOG has 77.9% ownership. The Licensees are HHDL (65% interest) and UKOG (137/246) Ltd (35% interest).
The reporting period has seen an unprecedented level of operational activity at Horse Hill including drilling, continuous test production and several well intervention operations, including during the Covid-19 restrictions. It is testament to the team that these operational activities have been planned and executed successfully on budget and without compromises in terms of health, safety, environmental impact and quality (“HSEQ”). In addition to these operational activities, key regulatory approvals have been obtained for long term production.
At the beginning of the reporting period, drilling operations for the new Horse Hill-2/2z (“HH-2/2z”) Portland well commenced with the British Drilling & Freezing 28 drilling rig spudding HH-2 on 29th September 2019. HH-2/2z, in the field's Portland oil pool, was designed to take Portland core and then be retained as a future horizontal production well. Planning consent for long term oil production over 25 years was granted by Surrey County Council on 27th September 2019.
We continued with a significant amount of activity leading up to Christmas 2019. October 2019 saw simultaneous drilling and test production operations at Horse Hill with continuous Kimmeridge oil production from HH-1 maintained during the HH-2/2z horizontal drilling campaign.
In order to optimise the placement of the HH-2z horizontal section, the near vertical HH-2 borehole successfully acquired 241ft of Portland core and electric logs. Following completion of HH-2 operations the well was successfully sidetracked and a 2,433ft long 6” horizontal section was drilled within the Portland reservoir.
The horizontal drilling of the Portland HH-2z was completed in November 2019, with the length of the horizontal curtailed by the intersection with natural fractures in the reservoir and the onset of drilling mud losses at the toe of the well. All technical well construction, operational and HSEQ objectives of the HH2/2z drilling campaign were successfully achieved.
Clean up and flow testing of HH-2z was conducted from December 2019 through to October 2020. Initial flow tests were encouraging with established rates up to 1087 bpd and oil cuts up to 60%. Unfortunately, as the test progressed the formation water cut significantly increased to over 70% rendering production of the well technically and commercially challenging. A decision was made to undertake a water shut-off at the toe of the horizontal section.
In early March, following the identification of the water ingress source via production logging, a plug was set over a zone of open natural fractures clustered at the deepest part or "toe" of the wellbore. Initial testing of HH-2z demonstrated a continuous flow of dry oil to surface, confirming that the plug had eliminated underlying formation water ingress into HH-2z. Testing continued but over time HH-2z oil production rates continued to be lower than expectations coinciding with rapidly increasing water cuts, thought to be from natural fractures along the wellbore.
UKOG has now determined that the most commercial future usage for HH-2z is to utilise it as a water injector in the field rather than as a producer. This will both remove the need for expensive off-site water disposal via tanker and also help maximise oil reserves recovery by supporting reservoir pressure
Operations continued at Horse Hill under Covid-19 restrictions with essential personnel only. No cases of Covid-19 have been reported within the company’s operations.
Also in March, the Oil and Gas Authority (“OGA”) approved the revised Horse Hill Field Development Plan and consented to the start of long-term production from the field, a significant milestone for Horse Hill. An addendum to the Field Development Plan for the conversion of HH-2z to a water injector has been submitted. Other regulatory consents for water injection are underway, with permissions currently forecast for some time in Q2 2021, subject to any pandemic related delays.
In July, agreement was reached to purchase key surface facilities deployed at the Horse Hill site from facility owner PW Well Test. This acquisition allowed the rental contract to be terminated and operating costs per barrel to be significantly reduced by up to $4/bbl. Whilst some further facility addition and automation will be required over a period of time for long term production in line with Control Of Major Accident Hazards regulations, the acquisition allows Horse Hill to control this process, own and operate its equipment, manage maintenance and procedures and direct hire field personnel. In addition, the acquisition provides production continuity and negates having to shut down the field for an extended period to design, build and commission new facilities.
At the end of the accounting period, further well intervention operations on HH-1 were safely completed, optimising oil flow by isolating the Kimmeridge perforations, by reperforating the full Portland oil producing section, by insertion of a new simplified production tubing string and by setting the downhole pump at a deeper level to increase pumping efficiency. These improvements set HH-1 up for long term continuous and optimised oil production from the Portland. Water injection plus further infill development of both Portland (HH-3 well) and Kimmeridge (HH-4 well) offer upside for the Horse Hill field.
Post-period the intervention was immediately followed by an ongoing series of multi-week production optimisation trials to achieve an optimum balance between oil revenues and water handling and other operational costs. Trials include well-cycling (i.e., shutting in the well for a set period each day to reduce water inflow) and pump fill optimisation. The trials continued for several months. Early results are encouraging, with stable oil and water influx levels achieved by early 2021.
As of end-February, over 137,000 bbl of Brent quality crude had been produced and exported from the Kimmeridge and Portland pools.
In line with the challenging oil price environment, significant further efforts have also been made in managing and reducing operational costs. From January 2020 to January 2021 our total operating costs have reduced by 66%. The savings will help place Horse Hill in a good position to take advantage of the strengthening Brent crude prices seen in the past month.
It is expected that further HH-3 Portland and HH-4 Kimmeridge infill wells will be planned in detail and drilled at Horse Hill.