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Wednesday, April 24, 2024 2:3 GMT
United Oil & Gas has provided 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.Al Jahraa Gas Pipeline and Production UpdateThe construction of a 10km gas pipeline, linking the Al Jahraa Field, which lies within the Abu Sennan concession, to the neighboring KPC facility has been completed. The project made use of existing facilities, and total gross costs were kept to below US$350,000. Gas was brought onstream through the pipeline on the 22nd 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 OperationsThe 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.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 license 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 US$6.5/bbl, providing solid operating margins even at low price levels.Review of LicensesFollowing 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 licenses, 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 UpdateUnited 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 US$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 programs. The Company has also made significant decisions around the cost base of the Company and has implemented some significant changes which are expected to realize approximately US$0.5 million of annualized savings.Under the terms of the Crown SPA, and subject to FDP approval, United expects a further US$2.85 million of net payments during 2020 from the sale of this asset.Brian Larkin CEO, United Oil and Gas said “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 license. 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 optimize 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 focusing 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 licenses 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.’