Petroceltic International PLC : Interim Results and Operational Update

Dublin

9 September 2013

PETROCELTIC INTERNATIONAL PLC

Interim Results and Operational Update

Petroceltic International plc ("Petroceltic" or "the Company" or "the Group"), the independent oil and gas exploration development and production company focused on the Middle East North Africa ("MENA"), the Mediterranean and the Black Sea regions today announces its results for the six month period ended 30 June 2013.

Highlights:

·     High impact  drilling campaigns in Kurdistan and Romania recently commenced

·     $500 million debt refinancing

·     Agreement of commercial terms of second stage farmout in Algeria

·     Four new licences added to the portfolio in core geographic area

·     $26.9 million contingent Algerian farm-out payment received from Enel

·     Revenue of $104 million

·     First half working interest production of 24,500 boepd; currently producing 26,000 boepd

·     2013 full year production expected to be 24,500-25,500 boepd

Brian O'Cathain, Chief Executive of Petroceltic, commented:

"The first half of 2013 has been a period of solid operational delivery and significant financial and corporate progress. In particular, the successful conclusion of our refinancing and negotiation of a second farm-out for the Ain Tsila asset in Algeria clearly demonstrates the strength of the Group's funding position and the quality of our asset base. We are now entering a period of potentially transformational exploration activity with high impact drilling campaigns in Kurdistan and Romania".

For further information, please contact:

Brian O' Cathain/Tom Hickey, Petroceltic International          Tel: +353 (1) 421 8300

Philip Dennis/Rollo Crichton-Stuart,

Bell Pottinger- Pelham                                                             Tel: +44 (20) 7861 3919

Joe Murray/Joe Heron, Murray Consultants                            Tel: +353 (1) 498 0300

John Frain/Roland French,  Davy                                            Tel: +353 (1) 679 6363

Chairman and Chief Executive's Statement

We are pleased to present Petroceltic's Interim Report for the six months ended 30 June 2013. Following the merger of Petroceltic and Melrose Resources plc in October 2012, the first half of the year saw a high level of integration, refinancing and corporate activity.  

From an operational perspective, the business performed largely in line with expectations, despite occasionally challenging conditions and political transition in some of our areas of operation. Although there has been no consistent or on-going disruption to the business, a number of separate factors caused Egyptian production to be slightly below anticipated levels in the first half and consequently working interest production guidance for the full year is expected to be between 24,500 and 25,500 boepd. Current production, all of which Petroceltic operates, is approximately 26,000 boepd.

Exploration drilling activity during the period was limited to the unsuccessful Kamchia well in Bulgaria and the Mesaha-1 well in Egypt. However, the second half of the year will see a significant acceleration of activity, with the drilling of some of our most important high-impact prospects in the Kurdistan Region of Iraq and Romania.

Operations Update

Algeria

The approval by the Algerian authorities in late 2012 of the Declaration of Commerciality and associated plan of development for Ain Tsila has meant that the project has entered a new and exciting phase in 2013. The Declaration of Commerciality was also the trigger for the finalisation of the contingent amount due from Enel under the 2011 farmout agreement; this amount was determined at $26.9 million and was received in August 2013.

In January 2013, Petroceltic announced the appointment of a Project Director, Geoff Stevenson, who has extensive experience of operating in Algeria, having had direct responsibility for the BHP Ohanet project from 1997 to 2003. The initiation of development activities means that operations are now governed by a separate joint operating organisation, known as Groupement Isarene, which will be responsible for all aspects of development planning, contracting, supervision and execution. The formal constitutional documents for the Groupement were approved in June and signed in early July. Senior appointments have already been made to the operations team and office premises have been secured in Algiers.

The next major event for the project will be the award of the FEED (Front End Engineering and Design) contracts, anticipated in early 2014. Development work is scheduled to commence in 2014 and first gas is planned for the second half of 2017, initially from an estimated 18 vertical wells produced through a new gas processing plant at an annual average wet gas plateau rate of 355 million standard cubic feet/day (10.0 million standard cubic metres/day). The plateau length is currently expected to be 14 years and an additional 106 development wells are estimated to be required during the period to maintain this production plateau.

As part of its overall strategy to manage exposure to the project and the related capital expenditure obligations, Petroceltic has been engaged in a second farm-out campaign in respect of an 18.375% interest in Ain Tsila. This process is very well advanced and we anticipate providing a further update in the coming weeks.

Egypt

Egypt has been subject to significant civil unrest and political disruption during 2013. To date, this has had a limited impact on Petroceltic's activities, however we will continue to monitor the situation closely to ensure the continued safety of our people and to understand the likely impact on the operating, payment and investment environment for oil and gas companies such as Petroceltic.

Production during the period averaged 97 mmscfd and 2,825 boepd, slightly below expectations due to a short operational interruption at the South Batra gas plant and a comprehensive well integrity review programme which required two wells to be shut-in pending routine remedial work. In general, however, production and reservoir performance is in accordance with expectations and our major facilities investment programmes at West Dikirnis and West Khilala are nearing completion.

Petroceltic is committed to long term investment in Egypt and, in partnership with Edison, was recently awarded two licences in the 2012 EGAS licensing round. The onshore South Idku block (75% operated interest) is located relatively close to our existing producing interests and the exploration programme will target similar plays and prospectivity to those already proven in our Nile Delta acreage. The offshore North Thekah block (50% non-operated interest) is a deepwater licence with identified prospects analogous to sizeable recent gas discoveries in the Levantine basin, but with modest initial financial commitment as it does not require an exploration well during the first licence period. We look forward to ratification of both blocks and commencing exploration work.

Petroceltic has continued to receive regular monthly payments from EGPC throughout 2013 to date. While our overall receivable balance increased by approximately 9% during the first six months,  the sale in early September 2013 of a part cargo on Petroceltic's behalf clearly demonstrates that we are continuing to work with EGPC to ensure that the overall target of eliminating material arrears by late 2014 is achieved.

Bulgaria

Performance in Bulgaria has been very positive with the Galata field in particular contributing strongly to overall production of 28 mmscfd, while average pricing of $8.77/mcf represented a 6% increase over the comparable period in 2012. The tie-in of the Kaliakra-1 discovery well is nearing completion with production expected to commence during September.

Exploration during the period has been less encouraging, with the Kamchia well, which was drilled in May, failing to encounter commercial hydrocarbons. Petroceltic is conducting a detailed review of the remaining prospectivity in the region and has recently applied to enter the next licence phase without committing to a firm exploration well.

Kurdistan region of Iraq

The Dinarta and Shakrok blocks are operated by Hess and the work programme commitment for the initial 3 year exploration period includes the drilling of one exploration well in each block. Petroceltic has a 16% participating interest in each licence. Operations during 2013 have principally focused on the completion and processing of 2D seismic and prospect ranking, well planning, site selection and preparatory civils work on both blocks. Two 2,000hp rigs have been contracted and the first well on the Shakrok-1 prospect, which has total P50 resource potential of 650mmbls across multiple horizons, spudded in late August. This well has a planned duration of approximately 5 months.

Our second well is planned to test the Shireen prospect on the Dinarta Block, which has total P50 resource potential of 660mmbls across multiple horizons and is scheduled to spud in October 2013.

Romania

Petroceltic has two offshore licences in Romania, in an area where there has been recent exploration success for other operators. During 2012 a high quality 3D seismic survey was undertaken on each block and a number of separate and geologically independent prospects have been identified. One well will be drilled on each licence in 2013 and drilling operations commenced in late August using the Prometeu rig which recently performed the Kaliakra tie-in in Bulgaria. The first prospect, on the Est Cobalcescu block, is targeting a total of 404 bcf across multiple horizons, with a scheduled drilling duration of two months, while the second well, on the Muridava licence, is a 169 bcf target with material adjacent prospectivity in the event of success.

Italy

Western Po Valley

During the period, Petroceltic, in conjunction with Eni as operator, has continued to progress the environmental approval process in respect of the Carpignano Sesia well in the Carisio licence. The joint venture has recently secured a temporary suspension of the licence to enable identification of a new well location and drilling plan which enables all well objectives to be achieved, whilst also recognising local stakeholder concerns with respect to distance of the well site from a nearby village. Both Petroceltic and Eni are committed to this project and we look forward to addressing these issues in a manner which will facilitate the drilling of this high value prospect.

Adriatic

Petroceltic continues to advance its plans for the drilling of the Elsa-2 well at the earliest practicable date. Activities during the period principally comprised preparations of materials to support the environmental approval process and refinement of the drilling and development plan.

Greece

In 2012 Petroceltic, in conjunction with equal partners Hellenic Petroleum and Edison submitted a bid for the offshore Patraikos block. In July 2013, the partnership was notified that this bid had been successful, subject to final ratification of the associated agreements.

The Patraikos block is located in the Gulf of Patra offshore Western Greece and covers an area of 1,892 km2 with water depths principally in the range of 100 to 300 metres. The concession is potentially oil prospective in the Jurassic, Cretaceous and Eocene formations with a working hydrocarbon system proven by the Katakolon oil discovery, which was drilled in 1982 approximately 35 km south of the block.

This award builds on Petroceltic's existing Mediterranean technical knowledge, along with the regional experience of our partners, as part of the ongoing renewal and expansion of our exploration portfolio. Petroceltic's financial commitment for the first licence period is anticipated to be of the order of $3.5 million.

Financial

The most important financial development during the period was the conclusion in April of a refinancing of up to $500m led by HSBC and the IFC. The new facility, which has a maximum term of seven years, refinanced the $300m 18 month facility entered into in August 2012 to effect the merger with Melrose and provides long term support for the Group's existing business, planned developments and potential acquisitions, subject to technical and related credit approvals. The success of this transaction in difficult capital markets was a major achievement and a strong vote of confidence in Petroceltic's assets, strategy and team. This facility, combined with the expected partial carry on the Algerian development expenditure obligations associated with the second Ain Tsila farm out, provides a clear foundation for the Group's long term financial planning and investment strategy.

This is the first set of Interim Results to incorporate the producing and other interests acquired as part of the merger with Melrose Resources in 2012. Consequently, the 2012 comparative figures do not provide a representative view of production, investment and other performance trends between the respective periods. Revenue for the period was $103.7m (June 2012: $0.3m) with a gross profit of $44.4m (June 2013: $0.1m); these results are primarily due to revenues from production in Egypt of $60.2m and Bulgaria of $43.1m. The loss for the period to 30 June 2013 was $16.1m, up from $3.2m in the comparable period in 2012. This is due to the write-off of exploration costs of $21.8m (June 2012: $1.2m), as a result of unsuccessful wells in Egypt and Bulgaria (including the associated fair value uplift of $6.1m recognised in 2012 on the Melrose transaction) and administrative expenses of $14.3m (June 2012: $1.8m). Finance expense amounted to $11.8m (June 2012: $0.01m)  including $3.9m (June 2012: Nil) of accelerated amortisation of fees related to the Bridge Facility repaid in May 2013 while income tax expense of $11.0m (June 2012: Nil) primarily related to Egyptian production. Administrative expenses also include costs relating to the postponed move to the Official Lists of the London and Irish Stock Exchanges.

Capital expenditure in the period amounted to $73.9m which was primarily invested in the ongoing development and exploration activity in Egypt, drilling and pipelaying work in Bulgaria and preparations for high impact exploration programmes in the second half of the year in Kurdistan and Romania. Capital expenditure will continue in the second half and overall Group capex for 2013 is estimated at $160m, a modest increase on prior guidance.

Legal Proceedings

As previously announced in July, Petroceltic issued legal proceedings in the High Court of Ireland against two parties with whom the Company's previous Board entered into service and consultancy agreements in 2004 and 2005 with respect to its North African business activities.

Petroceltic's action followed the receipt of correspondence threatening legal proceedings against the Company on behalf of one of the parties seeking payment of sums totalling $3.4 million pursuant to these agreements. The agreements also contain provisions under which the parties could make claims for further material payments from the Company.

Board Changes

On 7 July 2013, the Company announced the resignation of Con Casey from the Board of Petroceltic. Con had been a director since 2000 and provided invaluable guidance, advice and support to the Company throughout its growth and development. We wish Con every success in his future endeavours.

Following Con Casey's resignation, Dr Alan Parsley has been appointed to the role of Chairman of the Remuneration Committee.

Corporate Developments

In May 2013, the Company announced its intention to postpone its proposed move to the Official Lists of the London and Irish Stock Exchanges  ("the Listing") to allow the regulatory approvals process relating to the second farm out of Ain Tsila to proceed without a requirement for shareholder approval. At the time the decision was taken, plans for the Listing were at an advanced stage and a significant proportion of the preparatory work had been undertaken. It remains the intention of Petroceltic to seek to complete the Listing at the earliest practicable date in 2014.

At the AGM of the Company on 31 May 2013, shareholders approved, inter alia, a consolidation of the share Capital of the Company, with one new share issued in replacement of every 25 old shares. The share consolidation became effective on 10 June 2013.

Conclusions

We believe Petroceltic has a high quality portfolio, extensive experience and an outstanding opportunity to become a major player in the MENA and Mediterranean regions over the coming years. The Company has an excellent balance of established producing assets, a world class asset in development and potentially transformational exploration prospects.

To date in 2013, we have continued to invest to ensure the enlarged business is properly structured, staffed and funded to achieve our objectives, including the addition of four new exploration licences, near finalisation of our second Algerian farmout and conclusion of an important refinancing exercise.

These factors, combined with the recent commencement of exciting exploration campaigns in the Kurdistan Region of Iraq and Romania provide multiple opportunities for shareholder value creation.

On behalf of the Board of Directors,

Robert Adair                                                    Brian O'Cathain

Chairman                                                        Chief Executive

Responsibility Statement

Each of the Directors, whose names and functions are listed in the 2012 Annual Report, with the exception of Con Casey who resigned as a Director on 7 July 2013, confirm that, to the best of each person's knowledge and belief:

a) the condensed interim financial statements comprising the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes have been prepared in accordance with IAS 34 Interim Financial Reportingas adopted by the EU.

b) the interim management report includes a fair review of the information which would be required by:

i. Regulation 8(2) of the Transparency (Directive 2004/109/EC)Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

ii. Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Principal risks and uncertainties

Petroceltic is subject to various risks and uncertainties that may impact its business in the

remaining six months of the financial year as well as in the more distant future. The principal

risks and uncertainties faced by the Group over the remaining six months of 2013 remain substantially unchanged from the disclosures includedin the Annual Report as at 31 December 2012. The Board categorises the risks as follows:geopolitical, technical and operational, litigation, financial, and currency. A more detailed explanation of the risks can be found on pages 29, 47-48 and 58-59 of the 2012 Annual Report and Financial Statements.

Notes to the interim condensed financial statements

1. Accounting policies and basis of preparation

Petroceltic International plc is a company domiciled in the Republic of Ireland. The Condensed Consolidated Interim Financial Statements ("the Interim Financial Statements") of the Company as at and for the six months ended 30 June 2013 comprise the Company and its subsidiaries (together referred to as the "Group").

The Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The Interim Financial Statements have been prepared applying the accounting policies that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2012.  There are no new standards, amendments to standards or interpretations which are mandatory for the first time for financial periods commencing on 1 January 2013 which have a significant impact on the Group's accounting policies or on the reported results.

The comparative information provided in the Interim Financial Statements relating to the year ended 31 December 2012 does not comprise statutory financial statements.  Those statutory financial statements on which the Company's auditors gave an unqualified audit opinion, have been delivered to the Registrar of Companies.

The Interim Financial Statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2012, which are available on the Company's website, www.petroceltic.ie.

The Interim Financial Statements for the six months ended 30 June 2013 are unaudited but have been reviewed by our auditors.

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of these Interim Financial Statements. Accordingly, they continue to adopt the going concern basis in preparing the financial information.

The Interim Financial Statements were approved by the Board of Directors on 6 September 2013.

6. Capital expenditure

Capital expenditure during the period amounted to $74m, of which $52m related to Property, Plant and Equipment and $22m related to Intangible Assets. Capital expenditure related to Algeria $4.3m, Bulgaria $33.4m, Egypt $26.3m, Kurdistan $7.2m, Romania $1.5m and Italy $1.3m.

On 12 April 2013, the Group signed a financing agreement for up to $500m with a syndicate of international banks including Mandated Lead Arrangers HSBC, the IFC (a member of the World Bank Group), Nedbank and Standard Chartered Bank. This replaced the $300 million bridge facility provided exclusively by HSBC in 2012. The Financing has two tranches: Tranche A is a revolving senior Reserve Based Lending Tranche of up to $375m; Tranche B is a Development Financing Tranche of up to $125m. Both Tranches have an initial 5 year term, however are extendable by 2 years, subject to lender consent. This facility is secured over the assets of the Group and contains representations and warranties, covenants and events of default typical for a loan facility of its nature.

8. Share capital, share premium and warrants

No shares were issued during the period and no share options were exercised during the period under employee share option plans.

On 10 June 2013, the share capital of the Company was consolidated on the basis of one share for every 25 shares in issue.

9. Related party transactions

There were no related party transactions entered into by the Group during the period.

10. Commitments

The Group had capital commitments in the order of $120m at 30 June 2013 based on current licences and participating interests. The relevant cash outflows will occur over the period to December 2014.

11. Events after the reporting date

On 14 August 2013, $26.9m was received from Enel Trade SpA relating to an amount due under the 2011 Algerian farm-out agreement. This amount was included in receivables at period end.

Independent Review Report to Petroceltic International plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement.  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU.  The directors are responsible for ensuring that the condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reportingas adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entityissued by the Auditing Practices Board.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU.

David Meagher

for and on behalf of

KPMG

Chartered Accountants, Statutory Audit Firm

6 September 2013

1 Stokes Place

St. Stephen's Green

Dublin 2

Qualified Person

Dr. Dermot Corcoran, Head of Exploration, Petroceltic International plc, is the qualified person who has reviewed and approved the technical information contained in this announcement. Dr. Corcoran has a B.Sc in Geology, a M.Sc. in Geophysics, and a Masters degree in Business Administration, all from the National University of Ireland, Galway. He also holds a Ph.D in Geology from Trinity College, Dublin. Dr. Corcoran has over 20 years experience in oil and gas exploration and production, and has previously worked at ExxonMobil, the Petrofina Group, and Statoil.

Notes to Editors

Petroceltic International plc is a leading Upstream Oil and Gas Exploration and Production Company, focused on North Africa, Mediterranean and Black Sea Regions, and listed on the London Stock Exchange's AIM Market and the Irish Stock Exchange's ESM Market. The Company has production, exploration and development assets in Algeria, Egypt, Bulgaria, Romania, the Kurdistan Region of Iraq, Italy and Greece.