Eland Oil & Gas : Final Audited Results

Eland Oil & Gas PLC

31 May 2016

Eland Oil & Gas PLC

('Eland' or the 'Company' and, together with its subsidiaries, the 'Group')

Final Audited Results for the Year ended 31 December 2015

Eland Oil & Gas PLC (AIM: ELA), an oil & gas development and exploration company operating in West Africa with an initial focus on Nigeria, is today pleased to announce its audited results for the year ended 31 December 2015.

George Maxwell, CEO of Eland, commented:

'We are pleased to announce our Full Year results for 2015, which showoil productionfrom OML 40 in Nigeria almost trebling, and the Group in excellent shape. In early 2016, we have successfully completed an $18.5 million equity raise at a premium to the prevailing share price, and combined with forward sales to our offtake partner, this gives us a current cash position of $25m. With the recently announced success of the Opuama-3 work-over in OML 40, which delivered exceptional flow-rates of over 10,500 bopd, we believe that Eland is well positioned to benefit from its strong asset base and fully funded work programme throughout 2016, which should lead to further material gains in production once the Forcados terminal reopens.'

The highlights are:

Operational Highlights

· Total lifting of 340,809 bbls of crude oil in 2015, an increase of 195% compared to the previous year.

· Successful work-over on the Opuama-1 well in November, leading to a 50% increase in gross production from OML 40 and a year-end gross exit rate of 4,400 bopd.

· Record facilities and pipeline uptime on OML 40 of 84%.

· Gross 83.2 mmbbl of 2P reservesand 41.2 mmbbl of 2C resources on OML 40.

Financial Highlights

· Cash and cash equivalents balance of $8.5 million at 31 December 2015.

· In 2015 the Group sold 341,000 bbls of crude oil, generating revenue of $18.1 million for the year (2014: $11.7m).

· The consolidated loss after tax for the year was $6.8 million compared with $16.3 million for 2014.

· In 2015 Eland embarked upon a cost reduction programme in response to lower oil prices, leading to a 24% reduction in adjusted operating expenses in 2015* and a 28% reduction in G&A.

· $15m of the Reserve Based Lending ('RBL') facility with Standard Chartered Bank had been drawn down by 31 December 2015. The available facility is currently capped at $25.4 million and will be re-determined on 30 June 2016.

· Elcrest continues to benefit from Pioneer Tax status in respect of OML 40. Elcrest is exempt from paying Petroleum Profits Tax for an initial three year term until 30 April 2017 which can then be extended by a further two years on successful application.

*Operating expenses excluding royalties and adjusting for release of provisions (see Financial Statements, Note 5)

Outlook

· Elcrest successfully worked over the Opuama-3 well in April 2016, achieving a combined initial flow-rate from two separate horizons of over 10,500 bopd under three separate tests. Ultimately this is expected to contribute material additional production to the Opuama field. The well initiated production from the D1000 Upper and D2000 reservoirs for the first time, as well as providing valuable field data for future workover and development activities.

· We continue to evaluate the re-entry, completion and production of the Gbetiokun-1 well on OML 40 and are targeting a well in H2-2016. We believe that this could contribute an initial gross 7,800 bopd to OML production and produce 10.8 mmbbl of oil over the life of field.

· Following the publication of the Ubima CPR in April 2016, we plan to accelerate the development of this asset, and we intend to achieve early production by re-entering, completing and producing well Ubima-1.

· Expected 2016 year-end production exit rate of 7,800-10,000 bopd (net to Eland), which will be driven by the phasing of, and flow rates from Gbetiokun-1 and Ubima-1.

· H1-2016 production since February has been adversely affected by the shut-in of Forcados terminal but we are expecting a material increase in H2 once Forcados re-opens.

· Continue to focus on cost reductions in the current low oil price environment

· In April 2016 the Group announced that it had successfully undertaken an equity placing which raised $18.5m at a price of 34p/share. A total of 37,352,941 Placing Shares were placed, comprising 36,442,441 voting ordinary shares of 10 pence each, and 910,500 non-voting right ordinary shares of 10 pence each. Eland's enlarged ordinary share capital immediately following the issue of the Placing Shares was 186,319,340 voting ordinary shares and 6,296,815 non-voting right ordinary shares.

· In May, the Group made forward sales to its offtake partner for $3m, in part to cover any further potential interruptions at the Forcados Terminal.

The Company's audited 2015 Annual Report & Accounts have been posted on the Company's website www.elandoilandgas.com.

For further information:

Cautionary statement regarding forward-looking statements

This Results Statement may contain forward-looking statements which are made in good faith and are based on current expectations or beliefs, as well as assumptions about future events. You can sometimes, but not always, identify these statements by the use of a date in the future or such words as 'will', 'anticipate', 'estimate', 'expect', 'project', 'forecast', 'intend', 'plan', 'should', 'may', 'assume' and other similar words. By their nature, forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to events, and depend on circumstances that will occur in the future. You should not place undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to factors that could cause actual results to differ materially from those expressed or implied by these statements. The Company undertakes no obligation to update any forward-looking statements contained in this Results Statement, whether as a result of new information, future events or otherwise.

CHAIRMAN'S STATEMENT

The oil price continued to fall last year and the industry remains under intense pressure, yet we increased oil production in 2015 to a record level from our flagship asset OML 40 in the Niger Delta. I continue to believe that we have the understanding and expertise within Eland to deliver continued growth and positive returns for shareholders.

Last year proved difficult for the oil and gas industry globally, as oil prices fell to levels not seen in a decade. By the end of 2015 Brent was trading at $37 per barrel compared to $57 per barrel at the start of the year. Strong supply from US shale oil, and continued resilience on the part of OPEC in maintaining production levels were exacerbated by a reduction in global oil demand, largely driven by a slowing Chinese economy. This resulted in growing levels of oil stocks globally, with the IEA claiming that OECD stocks reached over 3 billion barrels by the end of 2015, the highest ever. Unsurprisingly this resulted in a global slowdown in exploration and development activity. The Nigerian oil industry has not been immune to these challenging conditions. As the oil industry represents the most important sector in the country, 2015 saw a sharp slowdown in economic growth and a weakening of the Nigerian currency, the naira.

Within the context of these largely negative conditions I believe that Eland performed commendably. The year will be remembered as the one when the Company really started to deliver as a producer, with total gross liftings from OML 40 almost trebling compared to 2014. A workover on the Opuama field in November saw gross production increase by 50% to 4,400 barrels of oil per day, a record high for the Company. This was accompanied by an impressive 84% uptime for the field during the year. Since year-end the Company has enjoyed further success, following a workover on the Opuama-3 well with the well testing at rates in excess of 10,500 bopd indicating the potential to double year end daily production. I believe that this is testament to the amount of technical work that has been completed in conjunction with our partner on OML 40 and that this bodes well for the future with further workover opportunities under evaluation. We also continued to progress our Gbetiokun discovery on OML40 and are currently evaluating the re-entry, completion and production of the Gbetiokun-1 well, which has the potential to again double daily production. This is planned for later in 2016. During the year we also continued to work on the Ubima field in OML 17 with a view to capitalising on this highly accretive asset, with a well re-entry planned later in the year. Again this has the potential to substantially increase production whilst appraising further upside in the field. In the context of the proposed work program the Company is acutely conscious of the current oil price environment and the necessity to manage its resources and meet challenges such as the recent shut-down of the Forcados Terminal which has adversely affected our H1 2016 production, and has instituted a robust cost cutting program which will continue to be implemented while not prejudicing its ability to execute the value enhancing program.

In April 2016, Eland successfully completed an equity placing to raise funds of $18.5 million at a price of 34 pence per share. Initially the company set out to raise $15 million but such was the demand from investors, the decision was taken to increase the size of the raise. It is very encouraging to find such support from existing and new institutional investors. The funds will be used to accelerate the first phase development of Gbetiokun, as well as to bring forward additional production from within the Company's asset base. In 2015 the Group sold 341,000 bbls of crude oil, generating revenue of $18.1 million for the year as compared to $11.7 million for 2014. As a result of this higher production and reductions in both operating and administrative expenses, the Group's adjusted EBITDA has improved from a loss of $19.5 million in 2014 to a loss of $2.5 million in 2015. During 2015 the Group also drew down $15m from its reserves based loan from Standard Chartered Bank with cash at the year-end of $8.5 million.

At the end of 2015 there were a number of changes to the board as part of a periodic refreshment. Both Harry Wilson and Bob Lambert retired after a more than three years involvement and we wish them well and thank them for their contribution during the formative years of the company. In addition to my assuming the role of Non-Executive Chairman, Gregory Stoupnitzky was appointed as Non-Executive Director bringing with him a wealth of market and banking experience, additive to the skill set on the board. More recently in May 2016 Olivier Serra was appointed Chief Financial Officer designate. He will take over from Louis Castro who retires from this role after the publication of this report. Eland has adjusted to the current oil price and the planned 2016 work program provides a step change in production volumes through work-overs and re-entries which will minimise capital expenditure whilst driving the company forward to develop the potential of OML 40, something that is not in question. I look forward to reporting the progress that I am confident the company can make during 2016.

Russell Harvey

Chairman

CHIEF EXECUTIVE OFFICER'S REPORT

2015 has been a milestone year in our short history. We have successfully implemented a lowcost well re-entry strategy and retained our focus on maintaining high levels of productivity from our facilities. Overall gross liftings increased by 195% to 341,000 bbls per annum with daily gross production ending the year at 4,400 bopd.

Eland began 2015 with the focus on increasing production and maintaining high productivity rates from its facilities. The workover strategy increased production almost threefold and productive uptime for the full year resulted in a record 84% for 2015. Since the end of the full year, although uptime has been negatively affected by the shutdown at Forcados, potential production rates have seen a further doubling again after a very successful workover of the Opuama-3 well.

Opuama Well Re-entry Strategy and Production Increase

Late in 2014 we reviewed our Opuama well inventory in an attempt to capture low cost and low risk oil barrels through re-entry opportunities. We identified a total of six near field re-entry opportunities, of which we have completed three. Opuama-5 was completed in mid-2015 and did not perform as well as expected due to high watercut. However, in line with our plans we will utilise this well as a future water disposal well. Opuama-1 was completed in November 2015 and delivered an additional 1,500 bopd at a cost of just over $1.0 million (gross). The next re-entry well, Opuama-3, was completed in April 2016 and tested at over 10,500 bopd (9,500 bopd incremental) at a cost of below $2.0 million (gross).

Production Efficiency & Operating Cost Reductions

During 2015 we have made a number of improvements to the flow station. Many of these related to improving the efficiency, reliability and the safety within the station. Modifications were made to the instrumentation system to allow this to be operated on compressed air rather than produced gas. The diesel generator was converted to dual fuel allowing this to run on produced gas, with greater efficiency and lower cost than purchased diesel. Refurbishment of accommodation has been ongoing and is due to complete this quarter, allowing the current house boat to be released with significant Opex savings for 2016. We have released the barge and tug held on standby for line issue failures, thanks to the excellent performance of the export line during 2015. The pipeline integrity for our section of the line was 100% in 2015. In addition to the productive uptime improvement these actions have also contributed to a reduction in adjusted operating expenses of 24% (see page 20). When combined with our G&A savings of 27% the overall cost base has reduced by 25% year on year (excluding DD&A the reduction year on year is 41%). These cost reductions include personnel cost reductions for all senior staff and contractors. The overall impact of the cost reductions and the forecast increase in production from Opuama-3 provides for opex per barrel declining to $11 for OML 40 in the second half of 2016.

Ubima Development

In August 2014 we acquired a 40% interest in the Ubima field, located onshore in the Niger Delta, just north of Port Harcourt within OML 17. We began some work in the field late in 2014 and continued this into 2015. This work involved confirming the Ubima 1 well integrity and maintenance on the wellhead, which was key to our strategy of re-entry and Early Production System (EPS) design. The Ubima-1 re-entry and Early Production System is included in our 2016 work programme. Its commerciality was further confirmed as robust by the economics in the recent CPR published in April 2016. Production from the Ubima Field will diversify the Eland portfolio, bringing in a secondary cash flow stream while appraising the larger upside on the block, and is a hugely exciting opportunity for the Company this year.

Funding for Operations

Like many oil producers the reduction in commodity prices has had an impact on our potential borrowing base. During 2015 we have seen the availability of our initial committed $35 million debt facility (with Standard Chartered bank) reduced to $25 million. The reduction was due to a combination of lower oil prices, market factors impacting bank lending and postponement of our infill drilling programme as we continued to work with our partner NPDC on our low cost workover strategy. The facility will be reviewed in June 2016 to include the results of Opuama-3's successful and very value accretive recompletion. We remained sufficiently funded throughout 2015 for the revised lower capex work programme and as the success of this programme increased our produced volumes in conjunction with the cost reductions, we entered into 2016 with the borrowing base at $25 million and $15 million drawn. In April 2016, we embarked upon our first secondary fund raise since listing the Company in 2012. This was primarily to fund the Gbetiokun-1 workover, and the oversubscribed raise was successfully completed and placed at a premium to the prevailing share price. In total we raised $18.5 million, accepting a portion of the oversubscription to allow the Company to accelerate the Ubima 1 re-entry. With the 2016 work programme underway and the equity raise completed, we remain fully funded for our 2016 work programme.

2015/2016 Work Programme and Budget

The Work Programme and Budget for 2015 had originally focused on the infill drilling of Opuama, combined with re-entry opportunities in Opuama-5 and Opuama-7. The infill drilling was due to commence in Q3 of 2015 directly following the re-entry programme. A review of the work programme took place in Q1 of 2015 to evaluate opportunities to increase production without engaging a drilling rig, and thereby greatly reducing the cost. Of the initial re-entry candidates reviewed (Opuama-4, Opuama-5 and Opuama-7), only Opuama-5 could be completed rigless. We embarked on this project in Q2 of last year and delivered Opuama-5 in July. While Opuama-5 produced with high watercut, we converted this well into a water disposal well. Moreover the success in the field operation provided key experiences in working with our partner (NPDC) and the operating environment with Opuama. Thereafter we developed further cased hole re-entries that could significantly increase production for a very low capital investment. Opuama-1 and Opuama-3 became the next two key production targets utilising this approach, with Opuama-1 delivering incremental gross production of over 1,500 bopd in November. A successful re-entry of Opuama-3 followed in April of 2016, with incremental production on initial flow rates of 9,500 bopd.

Health, Safety, Environment and Social Responsibility

In conjunction with all our partners we have worked closely again this year with our host communities. This year, through Elcrest, we have taken the lead in a number of community projects within OML 40 and Ubima. Eland/Elcrest directly built and funded a new wharf in Opuama, and constructed a walkway within the Tsekelewu community within OML 40. This establishes a series of connected walkways to allow the residents movement during the wet season when the land becomes more saturated making travel difficult. In Ubima community we set up a series of medical clinics for general health and eye sight checks. This was also very well received by the community. We continue to support community contractors ensuring work is allocated to them wherever possible so that as we continue with our work programme our host communities also continue to benefit from these activities. We completed a number of safety improvements during 2015 as mentioned earlier. We have not experienced any incident within OML 40 or Ubima resulting in lost time due to accidents in 2015. The planning we invest into our operations is the key to having this continued success.

Outlook

Although we have seen some recovery in the oil price since the start of 2016, we remain focused on retaining the cost savings that we identified and implemented during 2015. The technical work that we completed in 2015 and early 2016, in particular with regard to Opuama-3, delivered levels of technical performance in planning and execution that were world class. Coupled with our experience in Opuama-1, this continues to pay dividends as we pursue the plan for re-entry of Gbetiokun-1 under a similar pattern. The CPR for Gbetiokun-1 indicates that it will initially produce at 7,800 bopd gross. We are fully funded for this re-entry, and expect production to commence in the second half of the year. The combination of our recent successes and the planned GB-1 and Ubima-1 re-entries should increase gross production to around 20,000 bopd in 2016, with 10,000 bopd net to Eland. There remain some challenges ahead. We have reviewed and improved our security plan and will ensure that we maintain safe operations of our personnel, partners and communities. Forcados, the current export terminal for OML 40 has been shut down since mid-February due to sabotage. Operators have been advised by Shell that the terminal will re-open in June. However, to alleviate our single export route option, Eland has identified two supplementary export routes: one route involves a tie-in point on the Benin River for barging and another involves a 6 km pipeline into the Escravos Terminal directly linked from the OML 40 JV's export pipeline. Both have been added to our 2016 programme and we are looking forward to providing Eland with these multiple export routes in the future. Eland has completed a milestone year in 2015 and continued this success into the first half of 2016. We have almost trebled expected production rates and completed the funding for a programme of a further two well re-entries and supplementary export routes over the remainder of 2016. We have positioned the Company for continued growth, which will allow us to push on with field development activity on Opuama, Gbetiokun and Ubima into 2017. The future for 2016 and beyond remains positive and should allow Eland to close the valuation gap with peers and deliver superior returns to shareholders. We expect 2016 to build on the success of 2015, and provide truly exciting results by the end of the year.

George Maxwell

Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REVIEW

Key Strengths

· Technical and operational capability to increase production significantly through lower capex workovers

· Extensive reserves and resources which will produce further capacity to fund the future development of the Group's assets

· Supportive shareholder base

· Strong banking and offtake relationships

Key Financial Highlights

· Cash and cash equivalent balance of $8.5 million at 31 December 2015

· In 2015 the Group sold 341,000 bbls of crude oil, generating revenue of $18.1 million for the year (2014: $11.7 million)

· The consolidated loss before tax for the year was $9.6 million compared with $16.3 million for 2014.

· During 2015 Eland embarked upon a cost reduction programme in response to lower oil prices, leading to a 24% reduction in adjusted operating expenses compared to 2015.

· $15 million of the Reserve Based Lending facility with Standard Chartered Bank had been drawn down by 31 December 2015.

· Elcrest continues to benefit from Pioneer Tax status in respect of OML 40. Elcrest is exempt from paying Petroleum Profits Tax for an initial three year term until 30 April 2017 which can then be extended by a further two years on successful application

Review of 2015

Revenue for the year was $18.1 million, up from $11.7 million, reflecting a full year of production with enhanced uptime. Operating expenses of $18.0 million (2014: $18.2m) include the release of a provision of $2.3 million (2014: $6.0 million release) for amounts due to a service provider for logistical and general support services for which no invoices have been received by the Group since 2011. After adjusting for the release of the $2.3 million and $6.0 million in 2015 and 2014 respectively, and excluding royalties of $3.3 million in 2015 ($1.8 million in 2014), operating expenses have fallen by 24% during 2015. Based on consolidated operating expenses and after adjusting for the release of $2.3 million noted above, excluding DD&A and royalties, and based on production for 2015 of 328,689 barrels, the opex per barrel for 2015 was $34/bbl compared with $181/bbl for 2014. As we continue to increase production through further interventions and drilling in 2016, we expect this opex per barrel to reduce significantly. Administrative expenses of $6.4 million during 2015 were down by some 27% compared with the $8.8 million incurred in 2014 and we have continued to target further savings in 2016.

The adjusted loss before interest, tax and DD&A has fallen from $19.5 million in 2014 to $2.5 million in 2015, after adjusting for the provisions set out above. Finance costs amounted to $3.3 million during 2015 ($1.5 million in 2014) reflecting the costs of our reserves based loan ('RBL') from Standard Chartered Bank ('SCB'). The Group's consolidated balance sheet shows net assets of $168.0 million (2014: $169.3 million). Within this total, non-current assets represented $198.2 million (2014: $200.3 million), current assets were $13.8 million (2014: $19.8 million), current liabilities $20.8 million (2014: $38.5 million) and non-current liabilities $23.2 million (2014: $12.3 million). Hence, net current liabilities have fallen from $18.7 million in 2014 to $7.0 million in 2015 whilst the increase in non- current liabilities of $10.9 million largely reflects the draw-down of $15 million of the RBL by the end of 2015. The Group began the year with consolidated cash and cash equivalents of $15 million and finished the year with $8.5 million having drawn down $15 million (net proceeds of $13.5 million) from the RBL facility. The cash was invested as to $7.0 million in operating activities and $13.1 million on enhancing the Group's assets through development and evaluation expenditure.

The RBL, on which SCB has committed an initial $35 million, has a maturity of four and a half years from 31 December 2014. The amount available to Eland under the RBL is subject to a cap determined by six-monthly reviews. The borrowing base amount is calculated on OML 40 production and stands currently at $25.4 million. Drawdowns to date amount to $15 million and, as such, the current available facility is $10.4 million in accordance with the terms of the RBL, with the next redetermination due at the end of June 2016.

2016 Financial Developments

The Company has recently completed a placing of $18.5 million gross with existing and new investors. The placing was done at a premium to the prevailing share price and was over-subscribed. In addition, in part to cover for any further potential interruptions at the Forcados Terminal, the Company has made forward sales to its offtake partner, Shell Western Supply and Trading Limited, which has yielded a further $3 million. Cash in hand immediately after the placing and forward sales amounted to some $25m. A part of these funds will be applied to working over the Gbetiokun-1 well in H2-2016, and also to advance plans at the Ubima field.

Louis Castro

Chief Financial Office

Reserves and Resources

The Company commissioned a reserve audit in 2015 by Netherland Sewell & Associates Inc. for the purposes of assisting with its Reserve Base Lending requirements. This audit reconfirmed the previously disclosed Gross 2P reserves in excess 80 mmbbl and 41.2 mmbbl of 2C resources on OML 40. In this audit Netherland Sewell & Associates Inc. calculated gross 1P reserves of 32.9 mmbbl, 2P reserves of 83.2 mmbbls and 3P Reserves of 106.5 mmbbls. In April 2016, the Company received an Independent Report by AGR TRACS on the UbimaField and a further report by Netherland Sewell & Associates updating onGbetiokun-1, OML 40. Further details of the Company's reserves and resources can be found in the fully audited 2015 Annual Report & Accounts.

Consolidated Income Statement

For the year ended 31 December 2015

All activities relate to continuing operations.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2015

Consolidated Balance Sheet

As at 31 December 2015

The financial statements of Eland Oil & Gas PLC, registered number SC 364753, were approved and authorised for issue by the Board of Directors on 27 May 2016.

Consolidated Cash Flow Statement

Year ended 31 December 2015

For further definitions, glossary of technical tems, and detailed accounts, please see our full audited 2015 Annual Report & Accounts which are available on the Company website: www.elandoilandgas.com.

In accordance with the guidelines of the AIM Market of the London Stock Exchange, John Downey, a geologist and Eland's Chief Technical Officer, who has a BSc from Nottingham University, an MSc from Leeds University and has over 30 years of relevant experience in the upstream oil and gas industry and who is a member of the Society of Petroleum Engineers and meets the criteria of qualified person under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.

Reserves and Resource numbers have been provided using the definitions and guidelines as set forth in the 2007 Petroleum Resources Management System ('PRMS') approved by the Society of Petroleum Engineers (SPE).