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UK Oil & Gas: I love the smell of burning share portfolios in the morning - timber!

By Tom Winnifrith | Wednesday 11 October 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Please do not tell me that there is no insider dealing on AIM. Shares in Uk Oil & Gas (UKOG) were up and down like a whores drawers yesterday but it was more down than up. Then at 5.18 it announced an "operational update." It was and is bad news however lyin' Steve Sanderson tries to polish the turd..

Proven liar Sanderson started by saying that he was "pleased" that UK has "recovered measurable volumes of light oil and solution hydrocarbon gas to surface from the Kimmeridge reservoir section during well clean-up operations, at its 100% owned Broadford Bridge-1z ("BB-1z") exploration well, located in licence PEDL234. The well has also free flowed for short periods during the well clean-up sequence in which spent completion fluids mixed with hydrocarbons were returned to surface. "

Well that is all jolly good but "measurable" does not mean "significant" and it certainly does not come anywhere close to meaning "commercial." For a well that has been hy[es so massively that is not a good start.

Lyin' Steve continues:

To ensure that the flow testing of Kimmeridge reservoir zones is fully optimised, the Company will proceed ahead to workover the well and implement a revised testing programme. The well clean-up operation will continue, then the current multi-zone completion assembly will be retrieved, the well worked over and flow tested sequentially over multiple, individual reservoir zones. Additional perforated zones will be added to the existing 1064 ft aggregate perforated section.

The decision to workover the well follows receipt of two independent cement-bond analyses by Premier Oilfield Laboratories in Houston, USA and Xodus in the UK. These analyses, together with the Company's own internal evaluation, demonstrate that the quality of the cement-bond over some of the reservoir zones within the current BB-1z well is less than optimal. The findings conclude that, due to the cement-bond condition over segments of the reservoir section, the current completion programme has not effectively connected the wellbore to much of the best open natural fractures. Therefore, the testing to date has not properly evaluated the full flow potential of the overall Kimmeridge reservoir sequence.


Oh bollocks. "Not properly evaluated the full potential." Bollocks I say again. One expert I contacted told me:

The logs used to measure the quality of the cement have a problem because they are trying to detect the cement through the steel wall of the casing. In general if the bond is very good that is usually pretty clear, and if there is no cement present at all one can usually see that, but anything in-between is very hard to assess. There only needs to be a small channel or micro-annulus for flow to be possible between zones which are meant to be isolated, which complicates the test interpretation.


In other words the problems with the cement mean that all data so far may be meaningless.

Lyin' Steve is not deterred insisting

"Rectifying poor cement bonding in a wellbore is standard oilfield practice and is carried out by squeezing further fresh cement slurry through new or existing perforations in the well's heavy-gauge steel casing. Consequently, following the removal of the current BB-1z well completion assembly, the Company plans to carry out a short sequence of cement-squeezes through the 7-inch casing to rectify sections of the reservoir zone's cement-bond."


So it is only a minor delay then. Not a problem at all. Er...back to the expert.

"Cement squeeze jobs to repair a bad bond are generally fraught with problems. They are certainly not standard operations and I don't think I was ever involved with one with Shell. The fact that the well is needing to have a complete workover is a major setback which normally involves getting the rig back on site, although they don't explicitly mention that."


Lyin Steve is quoted as saying:

"The recovery of free, mobile light oil and solution gas to surface is significant and encouraging news and testament to the Kimmeridge Limestone reservoir's ability to deliver hydrocarbons even from a less than optimal completion. The periods of good natural flow and identification of additional prospective reservoir zones to flow test add further positive outcomes."


Bollocks. This is a material setback and the lack of data on flow rates tells you everything. If Lyin' Steve had even modestly good news he'd be shouting about it from the rooftops. The fact is that this well could be commercial but that is already more than priced in. At 6.3p the company is valued at a stonking £230 million. That is - as I explained here with clear analysis - just far too high. Sell.

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