US Oil & Gas (USOPY)

[Sionica]

Operational Update (23 December, 2016)

U.S. Oil & Gas Plc, the oil and gas exploration company with assets in Nevada, makes the following announcement:

Highlights:

Preliminary Baker Hughes International (BHI) Structural Modelling Report received
BHI has identified four upside possible hydrocarbon-bearing structures and potential stratigraphic traps, and two Palaeozoic structures within range of an Eblana #1 sidetrack
Of the four Tertiary zones identified, two correspond to zones from which Eblana #1 flowed oil
Distances to potential Tertiary upside target structures currently estimated between 1000ft and 4000ft
Multiple structures and stratigraphic traps can be penetrated in a single drill
Regional interpretation of the 2D seismic data correlates well with the VSP data
Revised oil-in-place estimates not yet available
Background
From the beginning of its exploration programme in Hot Creek Valley, US Oil and Gas recognised both the potential for major discoveries and the special difficulties associated with Nevada geology. Complex faulted structures, complex lithology, unusual fluid relations, unconventional reservoir rocks and difficult downhole conditions made for a challenging operational area. The Company’s approach to these challenges has been systematically to reduce exploration risk by carrying out multiple surveys and applying advanced technologies. Most recently, the Company contracted Halliburton to carry out a Vertical Seismic Profile (VSP) survey based on US Oil’s Eblana #1 discovery well, and Baker Hughes Inc. (BHI) to carry out structural modelling based on all the available data including VSP. The purpose of the structural modelling is to reduce risk as far as possible before the Company carries out its plan to re-enter the Eblana #1 well and sidetrack to identified targets. The ultimate objective is to reduce the drilling risk, flow the well and raise the Company’s Contingent Resources to Proved Reserves.

BHI Structural Modelling
A preliminary progress report was received from Baker Hughes dated December 16, 2016. Work is ongoing and a final report, including revised oil-in-place estimates, is expected early January 2017. All the results presented thus far are of a preliminary nature and may be subject to changes and/or corrections.

Datasets
The following datasets were analysed and integrated:

VSP
2D Seismic
Well logs
Gravity
Geochemical
Passive seismic
Short angle data (integrated with AVO)
AVO and anisotropy results.
Preliminary conclusions
BHI has identified four possible hydrocarbon-bearing upside Tertiary structures and stratigraphic traps, all of which are potential side-track targets. Two correspond with zones from which Eblana #1 flowed oil in 2013. The Company currently estimates that all four of the identified structures can be penetrated in a single drilling operation.

The Tertiary structures correspond to a faulted anticline, and/or stratigraphic traps, that deepens toward the W-SW and grows in the E-S direction. Most of the Tertiary faults identified are of extensional character with a strong compressional influence and an overall orientation NW-SE, N-S and N-SW. It is thought that other fault systems exist, possibly of minor size and oriented in an opposite direction. The structural closure of the Tertiary reservoirs may be represented by a stratigraphic factor (facies variation) or the seal of the current seismic interpreted faults, as well as unidentified minor faults and sets of fractures typical of this type of basin.

In addition, BHI identified two possible hydrocarbon-bearing upside deep Palaeozoic structures: a faulted anticline in the Centre-East of the Block that apparently constitutes the upside structure that surrounds the Eblana-1 well and a second anticline structure in the East that has a clear structural closure. The shallower Tertiary reservoirs are identified and defined with a higher confidence level than these deeper Palaeozoic horizons. The lateral and vertical oil migration path has been identified from North and South Basins toward the structural high within the US Oil block.

Regional interpretation of the 2D seismic data correlates well with the VSP data. The depth structural model interpreted with the seismic data honours the geologic and tectonic setting of the Hot Creek Valley Basin.

Target distances
Potential target distances (horizontal) from Eblana #1 to the structures of interest range from 1,000ft to 4,000ft. These are preliminary results, and estimates will be refined with further analysis.

AVO and anisotropy
Due to geologic and geophysical complexity, AVO anisotropy analysis was inconclusive and may not generate any findings regarding fluid characterization.

Drill planning
Detailed planning of drilling operations must await the final BHI report and the outcome of negotiations with potential drilling contractors. Given the highly compartmentalised nature of the geology in the target area, the Company is considering deploying a rotary steerable well-drilling system to maximise precision and further reduce drilling risk. Whether such a system is deployed will, however, depend on costs and the budgetary resources available.

Work plan

Fundraising efforts will continue with the primary aim of maximising resources for drilling operations and to fund a stock market listing;
The BHI report, including oil-in-place estimates, will be finalised;
The US Oil technical team will develop a detailed drill plan;
Negotiations with drilling companies will be completed and drill dates agreed;
A study will be carried out to determine potentially multiple well locations targeting additional shallow Tertiary and deep Palaeozoic targets on the current structure.

CEO Brian McDonnell said:
“I am pleased to report solid progress on all fronts. We have always said the complexity of the Nevada geology demands a careful and systematic process of reducing risk. Our policy was to deploy the latest in technology and the most sophisticated analytical methods. The Company’s studies with Halliburton and Baker Hughes embody that approach. The results are, we believe, greatly reducing risk and significantly increasing our chances of success in what is potentially one of the most exciting new resource plays on the continental United States.“