UK Oil & Gas Investments PLC Most recognised and significant players in the UK onshore sector

UK Oil & Gas Investments PLC (LON:UKOG) announced today its audited results for the year ended 30 September 2016. The full results will shortly be posted to shareholders and made available on the Company’s website.

HIGHLIGHTS FOR THE YEAR

· The Horse Hill-1 oil discovery was the first ever to flow substantial oil from the Kimmeridge Limestones (“KL”). It achieved an aggregate stabilised natural flow rate of 1,365 barrels of oil per day (“bopd”) from two KL reservoirs (KL3 and KL4), a record rate for any UK onshore discovery well.

· Via two acquisitions, UKOG became the largest licence holder in the south-east of the UK, holding 942 gross km², a 113% increase from the previous reporting period.

· UKOG’s acreage interests are independently calculated to contain approximately 20% of the Kimmeridge oil in place (“OIP”) over the entire Weald Basin, with a gross P50 Kimmeridge OIP within Company licences of 17.12 billion barrels

· We acquired regulatory permissions to drill two new KL wells in 2017, Broadford Bridge-1 and Holmwood-1. Both are HH-1 geological look-alikes.

TARGETS FOR THE COMING YEAR

· Demonstrate commercial production from one, possibly two, wells at Horse Hill by end 2018

· Demonstrate that Horse Hill results can be replicated in three other locations across the Weald Basin (two wells in 2017: Broadford Bridge-1, Holmwood-1, one further in the first half of 2018)

· Deliver production from each well as early as permitting allows

· Further consolidate our holdings, where possible, and acquire further prospective acreage

· Planning permissions are in place for the two 2017 wells, and we expect to receive the necessary consents for the planned Horse Hill production testing and drilling activities by the end of July this year.

· We are firmly on track to meet our end 2018 first production oil target.
STATEMENT FROM THE CHAIRMAN

UK Oil & Gas Investments PLC is an oil and gas investment company which specialises in finding and producing oil from previously unrecognised naturally-fractured rocks in the Weald Basin of southern England. Our prime focus is upon a new type of oil deposit within Kimmeridge Limestone rocks which we are pushing towards commercial production.

In the three years since UKOG re-listed on AIM, chiefly boosted by the success of our Kimmeridge Limestone oil results at Horse Hill, we have become one of the most recognised and significant players in the UK onshore sector.

Listed on London’s Alternative Investment Market (AIM) and NEX Exchange Growth Market (formerly the ISDX Growth Market), we have a portfolio of direct and indirect investments in 12 UK onshore exploration, appraisal, development and production assets. We are the largest acreage holder in the south-east of England, with assets covering 942 gross km² in the Weald and Purbeck-Wight Basins. Our portfolio includes five undeveloped conventional oil fields that we are moving towards near-term production. We generate investment cash from our interests in two producing oil fields in the region, Horndean and Avington.

At the heart of all that we do is minimising the impact of our activities on local communities and having total respect for the environment in which we live. We are determined to provide energy for Britain while preserving the way of life and rural beauty of our licence areas.

We believe that fully understanding our assets is fundamental to our success. That is why we engage with global experts, such as Nutech, Schlumberger and Xodus Group, together with internationally recognised academic institutions such as Imperial College, London, to provide us with the best advice to help turn our innovative ideas and oil discoveries into economic reality.

Our interests in the new Kimmeridge Limestone oil play have the potential for exceptional growth in the near and foreseeable future. Our portfolio also provides a solid underpinning of undeveloped oil discoveries, which along with our Kimmeridge Limestone projects, are economically robust at current Brent crude prices. We have a clear business plan, and the technical and operational expertise to make UKOG into a significant onshore producing oil company by end 2018.

The key highlights of 2016 include:

· The Horse Hill-1 (“HH-1”) oil discovery was the first ever to flow substantial oil from the Kimmeridge Limestones (“KL”). It achieved an aggregate stabilised natural flow rate of 1,365 barrels of oil per day (“bopd”) from two KL reservoirs (KL3 and KL4), a record rate for any UK onshore discovery well.

· Additionally, the HH-1 Portland reservoir flowed at a stabilised pumped rate of 323 bopd, the highest rate recorded from any UK Portland well. This rate was constrained by the pump’s capacity.

· Via two acquistions, UKOG became the largest licence holder in the south-east of the UK, holding 942 gross km², a 113% increase from the previous reporting period.

· Acquisition of the 300 km² PEDL234 licence made UKOG the largest acreage holder within the KL play, with 672 gross km² licenced within the basin’s “sweet spot”.

· UKOG’s acreage interests are independently calculated to contain approximately 20% of the Kimmeridge oil in place (“OIP”) over the entire Weald Basin, with a gross P50 Kimmeridge OIP within Company licences of 17.12 billion barrels

· We acquired regulatory permissions to drill two new KL wells in 2017, Broadford Bridge-1 and Holmwood-1. Both are HH-1 geological look-alikes.

· UKOG consolidated and increased its interests in Horse Hill (PEDL137/246) and Holmwood (PEDL143)

· We submitted planning applications for two extensive appraisal and development projects at Horse Hill and Markwells Wood.

· Contingent Resources from our conventional portfolio increased to over 14 million barrels (“MMbbl”) recoverable (excludes any recoverable resources in the KL and the PEDL234 Godley Bridge Portland gas discovery). UKOG’s net resources have scope for significant growth via future inclusion of the KL.

The past year’s activities and results are part of our goal to deliver, by the end of 2018, at least one, but potentially three, producing wells from the KL, plus production from the Horse Hill Portland. The forward plan also aims to deliver, by the end of 2019, oil production from Markwells Wood and Arreton, plus KL oil and Portland natural gas from the Godley Bridge discovery. If successful, the Company is therefore poised to generate significant cash flow in the short to medium-term.

Sadly, there was one event that marred UKOG’s past year. In November 2016, Jason Berry, our Commercial Director, died suddenly. He was only 47. Jason was instrumental in securing the solid financial footing that enabled us to deliver such a positive performance. He was heavily involved in the Company’s £4 million share placing (May 2016). He will be missed. The most fitting tribute we can pay to him is to build further upon the momentum and success he helped to achieve. Our thoughts remain with his family.

Strategy

UKOG’s overall exploration and appraisal strategy is geared towards oil extraction from previously unrecognised naturally-fractured rocks within the Weald and the Purbeck-Wight Basins of southern England. We have built a portfolio that has the potential to generate significant returns for the Company and its shareholders. It includes low-risk oil & gas production, appraisal and development assets as well as high upside exploration assets.

The key to this strategy is the Kimmeridge Limestone oil play, which will continue to be our flagship for the foreseeable future. Our aim is to demonstrate that the play can generate economic returns and is repeatable over the entirety of our 672 gross km² licence holding in the basin’s “sweet spot”. Whilst it is still early days, our goals are simple, and we aim to:

· Demonstrate commercial production from one, possibly two, wells at Horse Hill by end 2018

· Demonstrate that Horse Hill results can be replicated in three other locations across the Weald Basin (two wells in 2017: Broadford Bridge-1, Holmwood-1, one further in the first half of 2018)

· Deliver production from each well as early as permitting allows

· Further consolidate our holdings, where possible, and acquire further prospective acreage

Planning permissions are in place for the two 2017 wells, and we expect to receive the necessary consents for the planned Horse Hill production testing and drilling activities by the end of July this year. We are firmly on track to meet our end 2018 first production oil target.

OPERATIONAL REVIEW AND OUTLOOK

Horse Hill

Onshore licences PEDL137 (99.3 km², net interest 31.2%) and PEDL246 (43.6 km², net interest 31.2%) contain the Horse Hill Portland and KL light oil discoveries. Long term production testing is planned for 2017, to be followed by two further appraisal/development wells in 2018.

Much of the Company’s effort over the past year was focused on the highly successful well tests at HH-1, and numerous follow-up analyses. Although we had expected to encounter moveable light oil in the Kimmeridge, the overall stabilised flow rate from the two uppermost limestones (KL3 and KL4), which aggregated 1,365 bopd of 40 API gravity dry oil, were beyond our highest expectations. These rates undeniably proved that the limestones could produce at initial commercial rates. No evidence of depletion was indicated from the test data analyses.

We followed up the flow tests with the acquisition of Angus Energy’s and Flowermay Limited’s interests in the licences and the submission of an extensive planning application to undertake long-term production testing and drill further wells at Horse Hill. By agreement with Surrey County Council, the determination of the planning application will take place by the end of July following Surrey’s May 4th local council elections. The timing is in line with our expectations to commence testing in 2017 and our future projected first-oil target. The testing will last for approximately six months.

The planned production tests are specifically designed to prove access to a commercial volume of oil in place (“OIP”). Consequently, we expect to be able to make a declaration of commerciality for the Kimmeridge and Portland following these test results.

Analysis of the HH flow test data clearly demonstrates that natural fracturing is the key parameter that enabled high natural flow rates. We have learnt a great deal about the origin and pattern of this natural fracture system and plan to collect core and image log data from our new wells to help further this understanding.

The HH-1 well test data also indicate that the fractures in KL3 and KL4 could be vertically connected. Consequently, we believe that the well may have connected to a much larger fractured-reservoir “tank” than the the two individual limestones tested. It is, therefore, possible that natural fractures within the shale may also have directly contributed to measured oil flow. This observation has important and positive implications for the quantity of oil that could be recovered from a Kimmeridge well. We will, of course, know more after the upcoming long-term tests.

Following the production tests, we plan to drill a further deviated KL wellbore, HH-1z, from the existing HH-1 wellbore, and then a new well, HH-2, designed to access the Portland in both the Horse Hill and Collendean Farm fault blocks. We may use the opportunity to drill a HH-2 pilot hole down through the Kimmeridge to take key core and image log data. These wells are designed to be completed as future permanent oil producers, with first oil planned towards the end of 2018, subject to the necessary regulatory approvals and field development consent.

We also note with interest that, after the period, the nearby Brockham field re-entry well, BR-X1z (UKOG indirect interest 1.41%) recorded oil and gas shows throughout the Kimmeridge section. The same observations were made throughout the Kimmeridge at HH-1.

Should the BR-X1z well encounter natural-fracturing and flow oil from the Kimmeridge at commercial rates, it will provide further support that the Horse Hill results can be replicated elsewhere, and that the Horse Hill oil deposit likely extends to the north across the 99.3 km² of PEDL137 to Brockham (PL235 8.9 km²). Furthermore, a good Kimmeridge result would have strong positive implications for our Holmwood well, only 8 km west of HH-1. UKOG, with its extensive 672 km² acreage holding in the Weald’s “sweet-spot”, is well-positioned to exploit this wider oil deposit.

The HH-1 Portland oil discovery’s importance was further boosted by Xodus’ report which determined that the P50 OIP had increased to 32 MMbbl, an increase of 53% from the 21 MMbbl reported prior to 2016 flow testing. Gross Contingent Resources rose to 1.5 MMbbl (0.5 MMbbl net to UKOG) with a further 1.7-6.6 MMbbl gross recoverable ( 0.5-2.1 MMbbl net UKOG) being possible via implementation of a water re-injection scheme.

Other Horse Hill-related Activity Highlights

· Xodus’ conceptual Weald Kimmeridge Limestone oil development study, pubished in October 2015, showed a low visual impact site could be achieved via wellheads and pumps below ground level. Controlled production could minimise HGV impact on local road infrastructure.

· Nutech calculated a total Horse Hill licence Kimmeridge P50 OIP of 5,198 MMbbl, of which 960 MMbbl is contained in the KL2, KL3 and KL4 (October 2015).

· EY’s report, published in April 2016, assessed the potential impact of a Weald-wide KL oil production success case on the UK economy. The report concludes that KL oil production could provide up to 27% of future UK daily oil demand, a gross value-add to the UK economy of up to £53 billion and generate significant jobs.

· The Oil and Gas Authority granted licence extensions to PEDL137 and PEDL246 via the creation of “Retention Areas” over the entirety of both licences.

Broadford Bridge

Onshore licence PEDL234 (300 km², net interest 100%) contains multiple look-alike geological features to the Horse Hill KL oil discoveries. The licence also contains an eastern extension of the Godley Bridge-1 Portland gas discovery. The Broadford Bridge-1 well is planned for 2017.

During the period, utilising the knowledge gained from the HH-1 flow tests, UKOG acquired PEDL234, significantly increasing its acreage holding within the KL play’s prime prospective area, or “sweet spot”. The licence is operated by Kimmeridge Oil & Gas Limited (“KOGL”), a wholly-owned subsidiary of UKOG.

The licence is one of the UK’s largest, covering 300 km², three times the size of our Horse Hill licence PEDL137. It straddles both the northern and southern flanks of the Weald Basin and, more crucially, the basin centre, where the Kimmeridge is interpreted to contain significant volumes of in-situ generated oil. Nutech’s calculated Kimmeridge P50 OIP figures of 7,100 MMbbl within PEDL234, of which 1,700 MMbbl lie within the limestones, gives comfort to this viewpoint.

The KL are shown by legacy wells and seismic to be well developed over the entire licence, as are multiple areas likely to contain natural fracturing within the Kimmeridge, similar to that seen at Horse Hill.

Importantly, the licence acquisition included the existing Broadford Bridge well pad, planning permission and EA consent to drill the Broadford Bridge-1 (“BB-1”) exploratory well.

The BB-1 well, planned for Q2 2017, will be a deviated or “slant” well, designed to penetrate the entire Kimmeridge section, targeting the four naturally-fractured Kimmeridge Limestones (KL1-KL4) to confirm that KL oil is contained within a resource or continuous oil deposit. The well will test the southern edge of the basin within a mirror-image of the Horse Hill fault block. The Kimmeridge section is planned to be drilled at an angle of approximately 45 degrees to vertical and approximately orthogonal to the predicted direction of open fractures within the Kimmeridge.

Operations will include the acquisition of an extensive coring, electric log and borehole imaging data set to provide further key information on the limestone reservoirs and natural fracturing. All pre-drill tenders have been issued and a drilling rig chosen. We expect that the well will provide UKOG with a quantum leap in knowledge of these unique KL reservoirs.

Our planning permission also includes the ability to flow test the well for up to 14 weeks. If successful, and provided the tests are encouraging, KOGL would aim to apply for permanent production status from BB-1 by the end of 2018.

Due to our 100% ownership, if BB-1 is a discovery of similar nature to HH-1, it could result in three times the overall net oil production impact to the Company compared to Horse Hill. Furthermore, should BB-1 ultimately prove our hypothesis that KL oil lies within a wider resource deposit, the licence’s 300 km² area could hold around three times the recoverable resources of the Horse Hill licences.

Consequently, it is our viewpoint that a successful outcome from the BB-1 programme could have a highly material and transformational impact upon the Company.

Godley Bridge

Godley Bridge lies within onshore licence PEDL234, as per Broadford Bridge.

Technical studies by Xodus and UKOG show that the Godley Bridge-1 (“GB-1”) Portland gas discovery likely extends into the north of PEDL234. More importantly, Nutech’s petrophysical analysis of the GB-1 well also indicates that significant oil potential lies within the Kimmeridge underlying the Portland gas accumulation.

The Kimmeridge section encountered by the GB-1 well is thicker and more deeply buried than at Horse Hill, indicating the possibility for greater oil generation per unit volume of Kimmeridge shale than at Horse Hill. The Godley Bridge discovery also lies along a pronounced east-west faulted structural flexure, some 15 km in extent, and which is a prime candidate for the development of an associated significant fracture-network within both limestones and shales. Wet gas and oil shows were recorded throughout the Kimmeridge in GB-1 as is the case at the HH-1 discovery.

KOGL has started work on the selection of a well site and an associated planning application to drill a well in the first half of 2018. The well would both further appraise the Portland gas discovery and test the deeper KL1 -KL4.

Holmwood

Onshore licence PEDL143 (91.8 km², net interest 30%, operator Europa Oil & Gas (Holdings) plc) contains the Holmwood prospect, which is a look-alike feature to the HH-1 Portland and Kimmeridge oil discoveries, 8 km to the east. Planning permission is in place to drill the Holmwood-1 well to test the Portland and the Kimmeridge in 2017.

In November 2015, UKOG further increased its interest in the Holmwood PEDL143 licence and now holds a material 30% stake, being the largest single participant in the joint venture.

The Holmwood-1 well is an important part of our Kimmeridge oil strategy. It is one of our three planned new wells designed to demonstrate that the results of Horse Hill can be replicated across the Weald and that the Kimmeridge contains a laterally extensive oil deposit. The planned deviated well will also test a shallower Portland sandstone objective in a look-alike geological setting to the Horse Hill and Collendean Farm Portland discovery.

Markwells Wood

Onshore licence PEDL126 (11.2 km², net interest 100%) contains the Markwells Wood-1 oil discovery.

In September 2016 UKOG submitted a planning application to the South Downs National Park Authority to further appraise and develop the Markwells Wood-1 oil discovery. The planned two-phase programme would see four horizontal wells drilled within the conventional Great Oolite limestone reservoir. The discovery is a geological look-alike to the neighbouring Horndean producing oil field (UKOG net interest 10%). A planning decision is expected in Q2 2017.

As part of the Markwells Wood planning application, UKOG has worked with hydrogeology specialists Envireau Water, the Environment Agency and Portsmouth Water to arrive at a greatly improved understanding of the chalk aquifer that lies adjacent to the site. Future planned drilling will utilise biodegradable natural drilling fluids to present zero hazard to the area’s chalk groundwater acquifer.

Isle of Wight

Onshore licence PEDL331 (200 km², net interest 65%) and offshore licence P1916 (46.7 km², net interest 100%. PEDL331 contains the Arreton-1 and Arreton-2 oil discovery.

These licences contain the same geology as our Weald Basin licences. Our focus is on fracture-enhanced conventional limestone and sandstone reservoirs that have been missed by previous operators.

The PEDL331 licence was formally granted to UKOG by the Oil and Gas Authority in the Summer. We have selected a well site and are currently compiling a planning application to drill a deviated appraisal well in the Arreton-2 oil discovery, again with a view to achieving early oil production in the event of success.

An analysis by Xodus Group Ltd (“Xodus”) of the Arreton-2 oil discovery (“Arreton Main”) and the adjacent low-risk Arreton North and South Prospects (“Arreton Prospects”) calculated an aggregate gross P50 OIP of 219 MMbbl and net P50 Contingent Resources of 10.2 MMbbl and 6.8 MMbbl for Arreton Main, and the Arreton Prospects respectively.

Baxters Copse

Onshore licence PEDL233 (89.6 km², net interest 50%, Operator IGas Energy plc) contains the Baxters Copse-1 oil discovery – an appraisal well is planned for 2018-2019.

Horndean

Onshore licence PL211 (27.3 km², net interest 10%, operator IGas Energy plc). Horndean continued stable oil production throughout the period averaging 144 gross bopd.

Avington

Onshore licence PL070 (18.3 km², net interest 5%, operator IGas Energy plc) Avington continued stable oil production throughout the period averaging 47 gross bopd.

Brockham

The Brockham field lies in onshore licence PL235 (8.9 km², indirect net interest 1.41%, operator Angus Energy plc) and is the closest similar Portland sandstone producing oil field to the HH-1 Portland discovery.

After the reporting period, the operator conducted a well intervention programme on the Brockham discovery well BR-X1, encountering oil and gas shows in the Portland, Kimmeridge and Corallian. We understand that electric logs have been acquired and are under interpretation. We await further news of planned flow testing. As previously described, a successful Kimmeridge test would be a very positive outcome for UKOG’s Horse Hll and Holmwood interests and the overall Kimmeridge Limestone play.

Portland production has been shut in pending completion of site improvements and the BR-X1 re-entry.

A the time of writing, due to Angus Energy’s Initial Public Offering in November 2016 and other share issues, UKOG’s share ownership was diluted from 6% to 2.56%.

Lidsey

The Lidsey field lies in onshore licence PL241 (5.3 km², indirect net interest 1.28%, Operator Angus Energy plc) produces from the same Great Oolite limestone as UKOG’s Horndean and Avington oil fields and our Markwells Wood and Baxter’s Copse oil discoveries. UKOG’s interest is via our minority shareholding in Angus Energy. Lidsey production is shut-in pending an infill well in 2017.

Reserves, Resources and Oil in Place

UKOG has estimated net attributable P50 reserves of 89,983 barrels of oil (see Table 1 below). This figure is largely unchanged from last year, despite continuing production and several issues of shares by Angus Energy, diluting UKOG’s net attributable interest in Brockham and Lidsey.

At the time of writing, UKOG also has 22.2 MMbbl of net attributable P50 Contingent and Prospective Resources (see Table 2 below). Table 2 includes the recently announced net Contingent Resources for the Horse Hill Portland reservoir. However, Table 2 does not include net Contingent Resources for the PEDL234 Godley Bridge gas discovery or Prospective Resources for the Isle of Wight P1916/PEDL331 M prospect.

Gross unrisked OIP for UKOG’s licence interests are shown in Table 3. These OIP volumes are dominated by the Kimmeridge OIP estimated for the Horse Hill and Broadford Bridge/Godley Bridge licences.

Notes:

1. UKOG net share.
2. Contingent Resources.
3. Prospective Resources.
4. Contingent Resources are in barrels of oil equivalent, as they include gas.
5. Angus Energy’s rights in any future new Lidsey well are reduced by 20%, due to a transaction with Doriemus Plc.

Notes:

1. GIIP figures.