Operational update

19 October 2022

IOG plc

Operational update

IOG plc ("IOG", or "the Company"), (AIM: IOG.L), the Net Zero UK gas and infrastructure operator focused on high return projects, provides a Phase 1 operational update.

Headlines:

• Drilling fluid losses at Southwark A1 well have continued in the Bunter Shale Formation
• A1 has been suspended to enable A2 well stimulation operations to proceed as planned for First Gas in Q4, before resuming A1  
• Saturn Banks to be shut-in for a total of four weeks, including depressurising the line ahead of the Bacton terminal shutdown, to enable the final subsea connection to Southwark
• Average 2H 2022 production to date of 28.6 mmscf/d, constrained by aqueous liquids production at Blythe, at an average realised price of 258 p/therm
• Blythe H1 well ultimate recoverable gas volumes estimated at 29 BCF and Elgood at 7.5 BCF - options to optimise recovery are being evaluated
• 2H 2022 production guidance revised from 30-50 mmscf/d to 22-28 mmscf/d

Southwark Drilling

After extensive drilling fluid losses in the 12-1/4" section in the Bunter Sandstone Formation, the Southwark A1 well progressed into the Bunter Shale Formation, where further fluid losses have been encountered on drilling out of the 9-5/8" casing shoe. This has no bearing on the Southwark reservoir itself which lies well below this section.

The losses have not yet been sufficiently cured to drill ahead safely and the resulting delays have reduced the time available before the scheduled arrival of the hydraulic stimulation vessel. After careful consideration of the options with the relevant contractors, IOG has therefore decided to securely suspend the A1 well in order to proceed with hydraulic stimulation and commissioning of A2 to deliver Southwark first gas in Q4 as planned. Based on the current schedule and subject to further operational risks, this would be achievable by mid-December.

In parallel, several options to mitigate fluid losses and drill ahead at A1 are being worked through in preparation for completing and producing the well after bringing on A2.

Southwark Subsea, Hook-up and Commissioning

The Seven Atlantic Diving Support Vessel has been operating offshore to connect the outer section of the Saturn Banks Pipeline System (SBPS) from the 24" manifold to the Southwark platform, to prepare for the introduction of gas from Southwark. Due to a defective 6" offshore valve the SBPS will need to be depressurised in order to connect the outer section safely to the manifold. Saturn Banks production will therefore be suspended in late October for approximately four weeks, including the November Bacton terminal annual shutdown.

Blythe Field 

Blythe production has been constrained by liquids handling capacity at the Bacton terminal and the need for offsite storage, processing and disposal of saline aqueous liquids being produced from the H1 well. H1 was drilled into the field's southeast high, which was considered the optimal route to drain the field. Latest analysis of production and reservoir pressure data from the first six months of H1 production indicates that the well is located in a reservoir compartment which is materially baffled from the central and northwest areas of the field and will ultimately recover an estimated 29 billion cubic feet (BCF), compared to the management estimated reserves of 1P/2P/3P 25.4/42.5/55.8 BCF. The Company is evaluating options to further optimise recovery.

Elgood Field

Production and reservoir pressure data from the six months since First Gas at Elgood has also been technically assessed. The Elgood production rate recently fell below 10 mmscf/d and is expected to decline further by year end. The decline in flow rate has been faster than anticipated given the pre-production estimated reserves range of 1P/2P/3P 9.7/14.1/18.3 BCF. The latest analysis indicates that gas is not flowing across the NW-SE oriented intra-field fault to the wellbore as expected. As a result, the most likely ultimate recovery from the field is now assessed to be 7.5 BCF, of which approximately 4 BCF has been produced to date.

Combined flow rates from Blythe and Elgood over 2H 2022 to date have averaged 28.6 mmscf/d, at a volume weighted average price of 258 p/therm. Based on this, and noting the upcoming four-week outage, the expected average gross production rate over 2H 2022 has therefore been revised from 30-50 mmscf/d to 22-28 mmscf/d.

Andrew Hockey, CEO of IOG, commented:

"Drilling the Southwark A1 well has continued to be very challenging with further fluid losses at the base of the Bunter Shale. To preserve the opportunity to deliver first gas in this quarter, we have decided to suspend operations on A1 in order to ensure that A2 stimulation work proceeds in the scheduled window. We plan to resume, complete and produce A1 after bringing A2 onstream.

Final connection of the Saturn Banks Pipeline System to Southwark has been affected by a defective 6" valve at the offshore 24" manifold. To enable safe connection, the line will be depressurised ahead of the Bacton terminal November shutdown, requiring an expected overall outage of four weeks.

Over 2H 2022 to date, Saturn Banks production rates have been constrained to 28.6 mmscf/d by limits on aqueous liquids storage, processing and disposal routes, which we continue to work up several options to resolve. Latest analysis indicates that the Blythe H1 well will ultimately recover 29 BCF, given limited connectivity to other parts of the field and that Elgood is a smaller structure than previously estimated, with projected ultimate recovery of 7.5 BCF. In this context, we have reforecast 2H 2022 production guidance to 22-28 mmscf/d."

Competent Person's Statement

In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG discloses that Andrew Hockey, IOG's CEO, is the qualified person that has reviewed the technical information contained in this document.  Andrew Hockey has an MSc in Petroleum Geology and has been a member of the Petroleum Exploration Society of Great Britain since 1983.  He has over 40 years' operating experience in the upstream oil and gas industry.  Andrew Hockey consents to the inclusion of the information in the form and context in which it appears.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

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About IOG:

IOG is a Net Zero UK gas and infrastructure operator focused on high-return projects. The Company's operations are currently concentrated around its offshore and onshore Saturn Banks infrastructure in the UK Southern North Sea. Phase 1 of its Saturn Banks Project, which started production in March 2022, entails the commercialisation of the Blythe, Elgood and Southwark gas fields through this infrastructure. Phase 2 of the Saturn Banks Project entails the Nailsworth, Goddard and Elland gas discoveries, which are subject to future investment decisions and expected to be commercialised through the same export infrastructure. The Company also holds further licences with additional resources including the Abbeydale, Panther and Grafton gas discoveries, the Kelham North, Kelham Central, Thornbridge and Thornbridge Deep prospects, and part of the Orrell gas discovery. Currently, all IOG's licences are held 50:50 with its joint venture partner CalEnergy Resources (UK) Limited and operated by IOG. In addition, the Company continually evaluates further opportunities for accretive portfolio additions to help generate additional shareholder returns. Further details are available at www.iog.co.uk.

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