Jersey Oil and Gas : Final Results for the year ended 31 December 2016

Final Results for the year ended 31 December 2016

Released : 20/04/2017

RNS Number : 7983C Jersey Oil and Gas PLC 20 April 2017

("Jersey Oil & Gas", "JOG" or the "Company")

Jersey Oil & Gas (AIM: JOG), an independent upstream oil and gas company focused on the UK Continental Shelf region of the North Sea, is pleased to announce its audited results for the year ended 31 December 2016.

• Successful, high impact, promoted farm­out of interest in Licence P.2170, Blocks 20/5b & 21/1d ("Licence P.2170") to Statoil (U.K.) Limited ("Statoil"), which contains the material Verbier prospect

  • Retained an 18% equity interest with Statoil to fund all costs up to US$25 million in respect of the first exploration well

  • US$540,000 received by JOG after payment made to the Athena Consortium Partners

  • JOG benefits from an additional 10% carry from co­venturer CIECO Exploration and Production (UK) Limited ("CIECO")

  • Site survey completed on Verbier prospect

  • Firm well commitment made to the Oil & Gas Authority

• Successful farm­out of JOG's 50% interest in Licence P.1989, Blocks 14/11, 12 & 16, to Azinor Catalyst Limited ("Azinor") in return for contingent payments of up to US$4 million

• Interests in Licence P.1610, Block 13/23a ("Liberator"), Licence P.1666, Block 30/11c ("Romeo") and Licence P.1889, Blocks 12/26b & 27 ("Niobe") relinquished, with Niobe relinquishment effective 31 December 2015

• A very active year for JOG engaged in pursuing multiple asset acquisition opportunities

• Oversubscribed equity placing of £1.6m (gross) in November 2016 to new and existing shareholders

• Cash at 31 December 2016 of £1.9m

• Arden Partners plc appointed as Broker

  Post period end

• The Company has conducted further technical studies to improve and update it's understanding of the Verbier prospect

• Independent assessment of resource estimates in relation to Licence P.2170 and its associated prospects (Verbier and Cortina), has been completed by ERC Equipoise Ltd ("ERCE")

  • Mean Prospective Resources attributed to Licence P.2170 for Verbier increased to 162 Million barrels of oil equivalent ("MMboe") from 118 MMboe and the chance of success increased to 29% from 26%

  • Contingent Resources attributed to Verbier for discovery well 20/5a­10Y

  • Mean Prospective Resources attributed to Licence P.2170 for the Cortina prospect increased to 124 MMboe from 91 MMboe with a chance of success of 19%

• Statoil has awarded a contract to Transocean Drilling UK Limited for the semisubmersible rig, Transocean Spitsbergen

• Azinor has stated its intention to drill an exploration well to test the Partridge prospect (previously named Homer) on Licence P.1989, Blocks 14/11, 12 &16 later this year

• BMO Capital Markets appointed as Joint Broker

  Outlook

• Exploration well to be drilled on Verbier prospect in Summer 2017

• Discussions continue with a major bank and other funding partners, who remain keen to support JOG as possible providers of capital for acquired production assets

• The Group continues to work actively on several acquisition opportunities, with the aim of securing UK producing oil and gas assets

"2016 has been another transformational year for Jersey Oil and Gas, during which we have achieved what we believe to be the first promoted farm­out of an exploration licence in the UK North Sea in over two years. With a rig contract announced post period end, Verbier is now expected to be drilled during Summer 2017 and we eagerly await the results."

"We continue to be involved in multiple sales processes and are confident that we are well placed to deliver further shareholder value through our production focused acquisition strategy. I am particularly grateful to JOG's management team and employees who have adeptly demonstrated that good people can lead to great achievements. We have only recently started on JOG's journey and I believe that our team, supported by our shareholders, is capable of developing the Company much further from where we are today."

Tel: 020 3757 4983

Tel: 020 7409 3494

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Tel: 020 7236 1010

Georgia Edmonds James Crothers

Tel: 020 3757 4983

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

Jersey Oil and Gas is a UK E&P Company focused on the North Sea. The company owns an 18% interest in the P.2170 licence, Blocks 20/5b & 21/1d, Inner Moray Firth, where it is participating in a Statoil funded and operated exploration well on the Verbier prospect in summer 2017. A recent Competent Persons Report, carried out by ERC Equipoise Ltd attributes 162 MMboe gross mean prospective resources to the Verbier prospect. The licence also contains the Cortina prospect (124 MMboe gross mean prospective resources) and Meribel lead which are both Upper Jurassic targets like Verbier.

The Company plans to potentially build a major production portfolio via acquisitions coinciding with the cyclical recovery in the oil price and the opportune buying market available in the North Sea. The Company is involved in multiple sales processes and intends to draw on its management team's experience, knowledge and expertise to deliver shareholder value from its stated production acquisition strategy.

The year ended 31 December 2016 saw Brent Crude oil trading at the upper end of a US$30 to US$55 per barrel price range, with companies continuing to adjust to a new pricing environment. In the UK Continental Shelf ("UKCS") region of the North Sea we are seeing some companies seeking to rationalise their portfolios. During the year, Jersey Oil and Gas Plc ("JOG" or the "Company") has been in many data rooms and evaluated in excess of 40 field interests, with a view to acquiring production assets. In so doing, we continue to apply a disciplined approach to any offers we make and seek a pragmatic treatment of field abandonment liabilities. We continue to receive strong shareholder interest and support for our production asset acquisition strategy and have indicative bank funding support.

The other part of our strategy is to rationalise and, if possible, add value to our legacy asset portfolio. In October 2016, we completed a farm­out of part of our interest in Licence P.2170, Blocks 20/5b & 21/1d ("Verbier") to Statoil. The Company retains an 18 per cent. interest in this licence area and benefits from a 10 per cent. carry funded by its co­venturer CIECO. A Competent Person's Report was completed in March 2017, which indicated a significant uplift in Mean Prospective Resources for Verbier, compared to the previously announced unaudited management estimates, together with a modest increase in the chance of success for this prospect, which was most encouraging.

We also successfully farmed out JOG's 50 per cent. interest in Licence P.1989, Blocks 14/11, 12 & 16 to Azinor in return for contingent payments of up to US$4 million. Azinor has recently announced the completion of a site survey for a prospect on this licence area in preparation for a well, intended to be drilled later in 2017. Further details of both the Statoil and Azinor farm­outs are set out in the Chief Executive Officer's Report.

Our pre­tax loss for the year amounted to £793,439, down from £1.4 million in 2015. This reflects our continuing tight control of costs, part of which involved the Directors and staff agreeing to salary cuts of up to 50% for nine months of the year. Salary levels have since been restored, although they remain low by industry norms.

We continue to operate from our offices in Jersey and plan to re­open a London office when circumstances allow.

In November 2016, the Company raised £1.6 million (before expenses) by way of a placing with new and existing shareholders at a placing price of 110 pence per share. The placing was well received by investors and was oversubscribed. As part of this placing, the directors and certain members of senior management subscribed for 120,454 shares at the placing price, raising £0.13 million (before expenses). The net proceeds are being utilised to fund technical studies and evaluation work to improve the Company's understanding of the Verbier prospect and provide additional working capital.

As at 31 December 2016, available cash amounted to approximately £1.9m.

Following completion of the placing, Arden Partners plc were appointed as broker to the Company. Subsequently, in March 2017, BMO Capital Markets were appointed as joint brokers.

We look forward to the drilling of the Verbier prospect exploration well later this year. Although we believe the prize for success may be significant, as is the case with exploration wells of this nature, success is not assured. We also have a contingent interest in the outcome of a well that Azinor has stated it plans to drill later this year. Alongside this, we will continue to pursue our production asset acquisition strategy. We have observed in the market some notable large scale asset acquisition transactions and are confident that this can be replicated by the Company at prices which yield a good return for shareholders.

On behalf of the Board, I would like to welcome the new shareholders who supported our equity placing in 2016 and to thank all of our employees who have continued to work on our exploration and production plans, which I am confident have the potential to provide long­term shareholder value.

2016 proved to be another transformational year for JOG, during which we successfully achieved what we believe to be the first promoted farm­out of an exploration licence in the UK North Sea in over two years. Statoil is now established as operator of Licence P.2170 and we eagerly await the drilling of Verbier, a material and moderately risked prospect. With a rig contract announced post period end, Verbier is now expected to be drilled during summer 2017. We continue to be involved in multiple sales processes and are confident that we are well placed to deliver further shareholder value through our production asset acquisition strategy.

Together with CIECO, we successfully farmed­out a 70% interest in Licence P.2170, Blocks 20/5b and 21/1d to Statoil and retain an 18 per cent. interest in this licence area. Against the backdrop of low oil prices and a dearth of deal flow at that time, this was a significant achievement for the Company and, we believe, demonstrates the value potential that the Verbier prospect holds for the Company.

Statoil, as the Licence's operator, has acquired the necessary site survey and has recently contracted the Transocean Spitsbergen for the drilling, this summer, of an exploration well on the Verbier prospect. JOG has conducted further technical studies to improve and update it's understanding of this prospect. Subsequently, we contracted ERCE, to review its latest geological, geophysical and petrophysical interpretations and produce a Competent Person's Report on the P.2170 licence area and its Verbier and Cortina prospects. We were pleased to report an increase in the Mean Prospective Resources attributed to Licence P.2170 for the Verbier prospect to 162 MMboe from 118 MMboe and in the chance of success from 26% from 29%. In addition, Contingent Resources relating to the historic third party discovery well 20/5a­10Y were identified. With respect to Cortina, the Mean Prospective Resources were increased to 124 MMboe from 91 MMboe with a chance of success of 19%.

Pursuant to the terms of the farm­out, Statoil is funding all costs up to US$25 million in respect of the drilling of the Verbier exploration well and following commencement of the work programme for this well, the Company is also benefiting from a 10 per cent. carry funded by CIECO in relation to the well programme's costs.

Over the past 18 months, JOG has significantly increased its corporate intelligence with respect to its objective of establishing a well­balanced portfolio of production assets. This knowledge base gives us a competitive strength with respect to the identification, evaluation and negotiation of potential asset acquisitions. We have also built strong relationships with potential financial partners, who have been and continue to be actively involved with JOG in multiple sales processes.

The UK government's recent initiative to set up a panel of industry experts to recommend a possible way forward regarding the transfer of tax history from vendor to purchaser, if implemented, will be of significant benefit to stimulating activity, leading to a level playing field for the application of decommissioning tax relief. We would welcome this action from the government, which we believe would greatly help the Oil & Gas Authority's committed strategy to MER (Maximise Economic Recovery) within the UK North Sea.

We have observed an acceleration of deal­flow in the last few months within the North Sea which is encouraging. Our investment criteria remains disciplined both technically and commercially. I am optimistic that we will succeed in securing acquisitions that will provide shareholders with the prospect of significant long term value creation.

Early in the first half of the year, we were pleased to announce the farm­out of our 50 per cent. interest in Licence P.1989, Blocks 14/11, 12 & 16 to Azinor which also acquired the remaining 50 per cent. interest from Norwegian Energy Company UK Limited ("Noreco") and was subsequently appointed as operator.

By way of consideration, Azinor will undertake certain firm work commitments, including a drill­or­drop obligation in respect of an exploration well, and make conditional payments of up to US$4m. Post period end, Azinor has stated its intention to drill an exploration well on the licence's Partridge prospect (previously named Homer).

We relinquished our interests in a number of licences, comprising Licence P.1610, Block 13/23a (Liberator), Licence P.1666, Block 30/11c (Romeo) and Licence P.1889 (Niobe) ­ Niobe relinquished effective 31 December 2015 as they were considered to be non­prospective and the associated licence fees were onerous.

As reported in previous years, Total E&P UK Limited ("TEPUK") has a conditional agreement to pay the Company £1m in relation to the termination of its 2013 farm­in to Licence P.2032, Blocks 21/8c, 21/9c, 21/10c, 21/14a and 21/15b. TEPUK disputes that the conditions giving rise to the obligation to pay the Company have been satisfied. We continue efforts in pursuit of our claim.

During the year, the Company's revenue­stream ceased. Previously, this was largely associated with our interest in the Athena Oil Field. As announced in July 2015, we ring­fenced our liabilities to the Athena Consortium with respect to the Athena Oil Field. The result of this was that we subsequently no longer had any real economic exposure to the field and, as a consequence, the Group no longer accounts for the income and expenses of the Athena Oil Field in its results.

Our cost of sales largely relate to ongoing work on our remaining licence interest P.2170 and our active pursuit of several production asset acquisition targets.

We were also in receipt of a small refund of just under £90,000 from our insurers in the period, as a result of a return of premiums on various policies and, in addition, the Group received a refund of prepaid well costs from the operator on the Niobe exploration well, due to the actual costs of the well having been less than had been billed. These items are shown as other income in the accounts.

The Company has taken a sharp focus on administration costs over the last couple of years and these costs were lowered further in January 2016, as is reflected in the reduction of such costs compared to the Group's 2015 results for the comparable period. There are also no exceptional items in the current year (2015 £3.3m).

In November 2016, we successfully closed a significantly oversubscribed equity placing of £1.6m (before expenses), which ensures that we have sufficient working capital through into 2018. Part of the net proceeds have been used for technical studies conducted by the Company on the Verbier prospect as we continue to enhance our knowledge of this prospect ahead of the drilling campaign. This work has provided us with a better understanding of the Verbier prospect and has led to the recent upgrade in prospective resources attributed to both Verbier and Cortina.

Overall, there was a loss of £793,439 (2015: £1,430,078) in the year and cash balances stood at £1,882,310 (2015: £862,910) at the end of December 2016.

We look forward to the drilling of the Verbier prospect set to commence this summer. Together with the nearby Cortina prospect, this holds significant potential for the Company. We continue to manage our existing cash resources prudently and in addition to the Statoil carry we are also benefiting from the CIECO carried interest with respect to the drilling of the Verbier prospect.

The market is now firmly open for M&A activity within the North Sea sector and we look forward to executing on the production side of our strategy, although it should be noted that we will continue to focus on doing the right deal for shareholders rather than executing a deal just simply to acquire production.

I am particularly grateful to JOG's management team and employees who have adeptly demonstrated that good people can lead to great achievements. We have only recently started on JOG's journey and I believe that our team is capable of developing the Company much further from where we are today.

I was very pleased with the interest we generated from our placing in November and I welcome the new shareholders to our register. We remain tightly held, with just under 10 million shares in issue. Management retains a significant shareholding and as such is closely aligned with the interests of shareholders.

Chief Executive Officer 20 April 2017

Loss per share expressed in pence per share:

Basic and diluted 12 (9.28) (29.21)