Petroceltic International PLC : Preliminary Results Announcement

Dublin

22 April 2013

Petroceltic International plc

Preliminary Results Announcement

Petroceltic International plc ("Petroceltic" or "the Company" or "the Group'), the upstream 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 preliminary results for the year ended 31 December 2012.

Highlights

Overview

·     A transformational year combines the long term stability of revenues, the start of an exciting development in Algeria and potentially high impact exploration in the near future.

·     Group funded to progress existing discoveries towards production while maintaining a consistent exploration programme.

·     On schedule for a premium listing on the main market of the London and Irish stock exchanges by late June 2013

·     On a consolidated enlarged group basis, full year pro-forma production rate of 28.4Mboepd

Exploration and Development

·     Reserves of 304MMboe booked at Ain Tsila, a major milestone demonstrating long term value

·     Detailed planning underway for awarding of major Ain Tsila development contracts in 2014

·     Black Sea assets offer strong production and potentially material exploration leads

·     Exploration and development wells planned throughout the year and the Kamchia well currently drilling offshore Bulgaria

·     Two high impact wells in the Kurdistan Region of Iraq commencing this year target prospects in excess of 500MMbbl

·     New acreage awards in Egypt and Italy added to portfolio

Results

·     Consolidation of Melrose results from Oct 10th increased revenues from $0.42m to $59.4m (annualised $254m)

·     Profit from operating activities before exploration costs was $4m compared with a loss of $6.4m in 2011

·     Once off merger related costs, exploration write offs and finance expenses resulted in a pre-tax loss of $6.7m compared with $8.2m in the previous year.

·     Net debt at year end of $209 million

Robert Adair, Chairman of Petroceltic commented

"Petroceltic has fundamentally transformed its business over the past year. The merger with Melrose in October 2012 has created a significant, regionally focussed, full cycle, independent oil and gas company. This combination has produced a company with stable finances and excellent growth prospects. Petroceltic has the technical expertise and ambition to develop further over the next 12 months while the recent announcement of our new $500 million financing facility represents a strong technical and financial endorsement of the quality of our producing assets and longer term growth ambitions of the Group.

All key objectives set out at the end of last year have been met or exceeded. The Declaration of Commerciality, announced in December 2012, is a significant milestone in the development of our Algerian asset, this has allowed us to book reserves for the Ain Tsila asset for the first time. Looking forward, we have an exciting programme of exploration and appraisal planned over the coming 18 months with a minimum of 9 wells planned across our portfolio in North Africa, the Black Sea and the Kurdistan Region of Iraq".

For further information, please contact:

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

Philip Dennis/Rollo Crichton-Stuart,

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

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

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

2012 Annual Report

Chairman's Statement

Dear Shareholder,

2012 was a year of significant operational progress and major corporate change for Petroceltic. As a result, the Group has an outstanding opportunity to pursue a strategy of active growth in 2013 and beyond. The most significant event of the year was the merger of Petroceltic with Melrose which completed in October 2012. The merger has created a regionally focused oil and gas business with many distinctive qualities which I believe will enable it to provide attractive returns to shareholders.

Long term production growth

A combination of established near term production in Egypt and Bulgaria provides a strong foundation to support investment in the long term potential of the world class Ain Tsila development in Algeria. This provides a clear production profile for the Group which extends beyond 2030.

Transformational exploration

We will use the cash flow from our existing production to invest in territories such as the Kurdistan Region of Iraq, Romania and Italy, all of which have the potential to yield transformational discoveries with outstanding long term value potential.

Stable financing

We have a strong group of bank partners who understand and support our regional growth strategy. The presence of the International Finance Corporation ("IFC"), a member of the World Bank, in particular, confirms their commitment to the future growth and development strategy of our business. This gives us the confidence to invest for the long term, while our recently concluded refinancing supports current expenditures, planned developments and potential acquisition activity.

Quality team

We have been fortunate to retain a majority of the senior management of both Petroceltic and Melrose following the merger. I believe the combination of skills and experience within the business is remarkable for a company of our scale and creates a very real competitive advantage. This collective expertise can fully support Petroceltic's continuing development as a full cycle oil and gas company.

Strategic focus

Through years of investment and experience, our team has developed a deep technical, commercial and operational understanding of the challenges and opportunities which exist in North Africa and the surrounding regions. Our strategy of operating our assets wherever possible ensures optimal deployment of the skills and experience of our team and control over the execution of our programmes. We have good relationships with Governments, supportive partnerships with our co-venturers and a proven track record of being a safe operator and a good neighbour. Each of these attributes makes us attractive as a licence applicant, joint venture partner or potential corporate investor.

Official Listing on London and Irish Stock Exchanges

Petroceltic believes that a main market listing on the London and Irish Stock Exchanges will create additional liquidity and investor interest in the business and broaden the range of funds and investors who can hold the Company's shares. In conjunction with the announcement of the merger, Petroceltic announced its plans to seek admission to the main market lists of the London and Irish Stock Exchanges. This process has commenced and is on schedule for completion by late June 2013. In addition, consideration is being given to undertaking a consolidation of the Company's shares in conjunction with the admission process which should enhance the attractiveness of our shares to all investors, but particularly institutional investors.

Effective governance

Our Board has a strong balance of technical, financial, industry, market and regional expertise which enables us to make effective and informed decisions. The dialogue at Board meetings is wide ranging, considered and insightful. Our Board Committees have the benefit of relevant experience and quality advice. Of course, none of these elements alone is a guarantee of success. However I believe the Board provides both valuable support and an appropriate challenge to executive management and that in the long term this should benefit all shareholders.

Following the merger, a new Board was appointed to reflect the combination and provide an effective governance and management framework for the enlarged business. Brian O'Cathain remained as Chief Executive, David Thomas was appointed as Chief Operating Officer and Tom Hickey as Chief Financial Officer. I was appointed as Chairman and Hugh McCutcheon as Deputy Chairman. In addition, the Group now has four other Non-executive Directors, two from each of the Petroceltic and Melrose Boards. David Archer (Operations Director of Melrose) stepped down from the Board but remained with the Group in a senior management role. Diane Fraser (Finance Director of Melrose) also stepped down from the Board and remained with the Group for a six month period to support the integration and refinancing processes.

Andy Bostock (who was a Non-executive Director of Petroceltic), Ahmed Kebaili, Anthony Richmond-Watson and William Wyatt (who were Non-executive Directors of Melrose) resigned from their respective Boards. In addition, Alan McGettigan resigned from the Board of Petroceltic in August 2012.  On behalf of all shareholders and the Board, I thank them for their valuable contribution and wish them very well for the future.

Outlook

The Oil and Gas business is growing ever more competitive and challenging. However, I believe that the Petroceltic portfolio is well positioned to meet these challenges and deliver superior performance. The coming 18 months will deliver an exciting programme of exploration, development and production, with a minimum of 9 wells planned in Kurdistan, Egypt, Romania and Bulgaria. I believe that Melrose could not have found a better merger partner than Petroceltic and that we have laid important and valuable foundations during 2012. I am delighted to remain involved as Chairman and look forward to working in 2013 and beyond to create a business we can all be proud of and which is capable of delivering attractive and consistent returns to you as shareholders.

Robert Adair

Chairman

Chief Executive's Review

2012 was a year of unprecedented activity across all parts of our business.

In August, Petroceltic announced a recommended merger with Melrose, a UK listed Oil and Gas company, and the transaction was approved by the shareholders of both companies in September 2012. The enlarged business combines the proven and valuable near term production and cash flow generation from Egypt and Bulgaria and the material scale and longer term stability of revenues from Algeria, with the excitement and transformational value potential of high impact exploration programmes in the Kurdistan Region of Iraq, Romania and Italy. Furthermore, by combining the development and production skills of the Melrose team with the exploration and business development expertise of the Petroceltic business, it will be possible to pursue a wider range of new venture opportunities than either company could previously have achieved independently, to drive further growth.

From an operational perspective, 2012 saw the Company demonstrate its technical capability and integrated commercial skills in completing the Final Discovery Report in respect of the Ain Tsila project, while simultaneously negotiating a binding gas sales agreement with Sonatrach. Each of these events represented a major milestone for Petroceltic and has enabled the Ain Tsila partnership to commence detailed planning ahead of major project contract awards in 2014.  An immediate impact of this development was that we have booked reserves in Algeria for the first time.  This added to the reserves in Egypt and Bulgaria has transformed the proven and probable assets of the Company from where they were 12 months ago. 

Major progress in Algeria

Petroceltic has been active in Algeria since 2004 and managed all phases of licence application, seismic acquisition, and successful exploration and appraisal drilling. During 2012, all of this historic progress and technical understanding culminated in the preparation of a Final Discovery Report in respect of the Ain Tsila asset. This report and the associated gas sales arrangements together supported the formal Declaration of Commerciality in respect of the Ain Tsila Field, which was submitted to the competent authorities in Algeria in August and approved in December 2012. The approval of the Declaration of Commerciality has enabled the project to move into its 30 year development phase and allowed the booking of commercial reserves by Petroceltic, both critical milestones in demonstrating the long term value of the project.

The Ain Tsila project, with its 14 year production plateau and strong cash flow characteristics, is a world class asset and an outstanding foundation on which to build the long term strategy and growth plans of the business. We are currently continuing to make good progress in a farm-out process to introduce a new participant to the asset, but we remain committed to continuing as operator of the development and retaining a material participation in the field for the long term.

Valuable position in Bulgaria

Petroceltic's position in Bulgaria's energy industry is unique. Since its discovery in 1993 and the commencement of production in 2004, the Galata field has provided the majority of Bulgaria's indigenous gas production and over 17% of domestic demand. Since then, the initial infrastructure has been consistently enhanced through subsequent discoveries such as Kaliakra, Kavarna and Kavarna East. The key to the discovery of each of these fields has been the application of 3D seismic, which has also allowed Petroceltic to build up a near field prospective resource inventory of over 130 Bcf in the vicinity of the Galata field. The latest exploration well in the region, Kamchia (which spudded in April), if successful, could be rapidly developed through existing infrastructure, contributing high value despite its relatively modest volume. This material long term potential combined with the strong cashflow generation of existing production and broader regional exposure in the Black Sea makes Bulgaria a core asset.

Long term commitment to Egypt

Egypt is a proven oil and gas province which provides Petroceltic with a high quality production base, a steady stream of exploration and development drilling activity and a wide range of opportunities to pursue organic and acquisition-led growth. Although the country continues to experience a high degree of political uncertainty, any impact on Petroceltic's day to day business has been limited and 2012 saw a significant reduction in the receivable position from EGPC.  We continue to invest in Egypt and important projects such as the West Dikirnis LPG plant expansion and West Khilala compression project will enhance production and create value for many years to come. We also seek to expand our current asset base as evidenced by the award of the El Qa'a Plain licence in November 2012 and the recent award of the onshore South Idku and offshore North Thekah blocks as part of the 2012 EGAS Licencing Round. In the longer term, we also believe that the fundamentals of supply and domestic demand for gas in Egypt has the potential to create opportunities and value for committed local producers such as Petroceltic. 

Exciting potential in Kurdistan Region of Iraq

Since 2005, the Kurdistan Region of Iraq has become one of the most active exploration locations worldwide and delivered an unparalleled record of major discoveries. It has also become a very important new territory for major oil and gas companies, with strong transaction values for exploration acreage, appraisal assets and developed oil and gas discoveries. Petroceltic has devoted significant time and effort to developing an independent technical perspective on the prospectivity of the region and, in 2011, was successful in securing exploration licences in respect of the Shakrok and Dinarta blocks, each in partnership with Hess Corporation. During 2012, the joint venture successfully acquired over 458 kilometres of 2D seismic data and undertook detailed fieldwork to rank prospectivity and develop drilling plans for each block. This work has clearly demonstrated the material resource potential of both Dinarta and Shakrok, with a number of prospects assessed to contain prospective resources in excess of 500 MMbbl. The joint venture plans to commence drilling two of these high impact prospects in the second half of 2013 with rig contracting for two rigs and civil works for both locations on track to meet this schedule.

Steady progress in Italy

Petroceltic's portfolio in Italy comprises both onshore and offshore prospects of transformational value potential. During 2012, a number of very encouraging developments occurred within Italian energy policy which emphasised the importance of oil and gas to the future of the Italian economy.  Most notably, the Growth Decree passed in August 2012 has established a supportive legislative framework for future permitting and identified a number of regions of clear priority with respect to hydrocarbon resources. As a result of this, Petroceltic has resumed its planning for an appraisal well on the Elsa discovery offshore Abruzzo, which was one of the priority areas identified by the Growth Decree.  Progress has also been made in relation to the award of a number of central Adriatic licences, outboard of the Elsa discovery and plans are in progress for a potential 3D seismic campaign in 2013/14. Indeed, Petroceltic was recently awarded the Central Adriatic permit B.R272.EL and anticipates the award of additional licences in this area in the near term. Moving onshore, steady progress has been made on permitting for the Carpignano Sesia well in the western Po Valley and we remain hopeful that it may be possible to drill this high impact prospect over the coming 12 months. The recent passing into law of the National Energy Strategy, in March 2013, with its objective of doubling indigenous Italian oil and gas production is a very positive sign for the future continued development of the Italian exploration and production industry.

Planned drilling in Romania

While offshore Romania is historically underexplored, recent discoveries have confirmed the exciting potential of this emerging hydrocarbon province. Petroceltic has a deep technical understanding and long term interest in this region and, in 2011, was awarded the Muridava and Est Cobalcescu Blocks as part of the 10th Licensing Round. During 2012, 1,930 square kilometres of high quality 3D seismic was acquired over the acreage and subsequent processing has indicated the presence of a variety of potentially material exploration leads and prospects at a number of different geological horizons across both blocks. Two of these prospects will be drilled in 2013 as part of a wider Black Sea campaign, with a further four wells scheduled in 2014. In addition to the on-going technical evaluation and ranking of the prospects, Petroceltic has been successful in introducing new partners into each of the licences to reduce the overall financial risks of the exploration programme.

Meeting production targets

The Group exceeded its production target in 2012, having guided an average production per day of 28 Mboepd, the full year pro-forma rate was 28.4 Mboepd. This stable production has allowed the Group to pay down debt and continue to finance both exploration and production activity and support reinvestment in our existing facilities whilst ensuring the efficient management of our oil and gas reserves.

Strong and stable finances

The financial position of the Company has been significantly strengthened by cashflow from Melrose's existing oil and gas fields in Egypt and Bulgaria, which are currently producing approximately 27 Mboepd. Only post merger production is included in the accounts for 2012, and thus the accounts do not fully reflect the underlying financial performance and positive cash generation of the enlarged group for the full year.

In April 2013, the Company successfully refinanced its existing debt facility with a $500m secured facility of up to seven years term. The facility is backed by a syndicate of international banks including HSBC and IFC. It comprises two tranches, Tranche A being a revolving facility based on the producing assets of the group and Tranche B a development tranche with availability progressively based on the achievement of milestones in the Ain Tsila asset. The new facilities, coupled with a further Algeria farm-out, will provide a significant step towards the provision of funding required for the development of the AinTsila field.

Successfully executed merger

The Company acquired Melrose in a share for share offer with a value of $222m on 10 October 2012. On completion of the merger ("Completion"), Petroceltic shareholders owned 54% of the enlarged group and Petroceltic is therefore the deemed acquirer in the transaction, for the purpose of acquisition accounting under IFRS. The process thus triggered a legal change of control for Melrose but not for Petroceltic. The allocation of the fair value of acquired assets and liabilities was principally determined using risked future discounted cash flows. The Directors believe that the fair values attributed to the acquired assets represented a favourable valuation for the relevant producing interests and other tangible and intangible assets and liabilities associated with the transaction. Following Completion an active programme of integration of systems, roles and processes has been undertaken and has benefitted from the support of staff at all levels.

Growth

The Group's immediate growth plans are principally focussed on exploration and development opportunities within our existing asset base. In the medium term, however, we also believe that significant opportunities exist for growth through the acquisition of both assets and companies. We aim to maintain balance sheet strength and flexibility to allow us to take advantage of growth opportunities which are value additive and accretive within our core areas of focus.

Active investor relations programme

Since Completion, the management team has conducted numerous meetings with institutional and retail investors and research coverage has been initiated or resumed by nine analysts, with more anticipated over the coming months. In February 2013, the Company hosted a Capital Markets day in London which was very well attended by institutional investors, analysts and other stakeholders. The objective of the day was to introduce the enlarged business and management team, demonstrate the progress which has been made on integration and outline the strategy and key milestones for the remainder of 2013. Feedback to date has been very positive and we look forward to future events of this nature.  The audio presentation can be accessed on our website ().

Fundamental importance of Health, Safety, Environmental and Social

The Health, Safety, Environmental and Social ("HSES") policy of Petroceltic is at the core of what we do as a responsible oil and gas operator. Our management system is in line with international best practice and regulatory compliance and is reviewed annually to ensure that it effectively identifies, controls, and monitors relevant operational risks. Petroceltic was pleased to attain ISO and OHSAS accreditations for its international safety and environmental management system in Bulgaria during 2012. This follows similar accreditation in our Egyptian operations in 2010. Petroceltic has also sought to be progressive in its approach to HSES and this has led to it commissioning innovative waste management and water retention projects in its production facilities in Bulgaria and Egypt.

Doing business properly

Petroceltic is committed to the highest ethical standards in all aspects of business and expects the same from its employees, contractors and agents worldwide. In the conduct of its affairs, the Company follows principles and practice in line with best international standards in an open and transparent manner summarised for all staff as a Business Ethics Policy. Petroceltic ensures that all employees are aware of this policy, behave in accordance with the spirit as well as the letter of this policy and have access to safe and confidential channels for raising concerns and reporting instances of non-compliance. Each Petroceltic employee, Director or contractor is responsible for the consequences of his or her actions while conducting company business and no acts in breach of this policy will be tolerated. The policy is fully compliant with the UK Bribery Act and the Company periodically reviews and updates this policy through our own experience of conducting business and following guidance from best practice groups. A copy of the policy is available on the Company website (www.petroceltic.com).

Major activity in 2013

Following the successful completion of the merger, Petroceltic is a company with an excellent balance of production, near term development assets and high impact exploration opportunities.  2013 will see the company develop its business across each of these areas. Production will remain important in generating income to fund exploration and where appropriate to pay down debt.  Work will continue in implementing the development plan for our world class asset in Algeria. In addition to this, the company expects to drill a minimum of 9 wells in the next 18 months, an exciting exploration campaign which will include Kurdistan, Romania and Bulgaria.

Brian O'Cathain

Chief Executive

Financial Review

Highlights

·     In February 2012, receipt of the initial proceeds of over $100m from the Enel farm-out ensured Petroceltic was funded for 2013 and 2014 activity

·     In October 2012, the merger between Petroceltic and Melrose  enabled the Company to put in place a financial strategy which is capable of supporting the business for the foreseeable future

·     In December 2012, the approval of the Declaration of Commerciality in respect of the Ain Tsila field allowed the Company to commence formal planning for a major multi-year capital investment programme, to recognise commercial reserves in respect of the field and to plan a major refinancing initiative

As a result of these events, the support of the Company's bankers and shareholders and the commitment and dedication of our finance team, the business has reached a new level of operational and long term growth potential.

Overview

The financial resultsfor the year are significantly impacted by the merger between Petroceltic and Melrose. This completed on 10 October 2012, and, therefore, only the results from that date and the fair value of assets and liabilities of Melrose at that date have been consolidated. The reported financial results for the year ended 31 December 2012 are, therefore, not a true reflection of the performance and scale of the enlarged group on a full year basis. By way of comparison, had the acquisition been effected on 1 January 2012, turnover for the year would have been of the order of $254m on a pro-forma basis.

Fair value

On the dateof the merger with Melrose, 10 October 2012, 2,018,830,085 new Petroceltic shares were issued to Melrose shareholders at a closing price of Stg6.9p, giving Melrose shareholders 46% of the enlarged Company and Petroceltic shareholders 54%. A special dividend of Stg4.7p per share was also payable to Melrose shareholders upon Completion.  The assets and liabilities of Melrose at Completion have been included in the Group accounts at their fair values on that date based on the overall transaction value of $222m.

Financing activities

Prior tothe merger, Petroceltic was principally funded by Shareholders' equity and the proceeds of portfolio management including farm-outs. During 2011, the Group also concluded a $30m bridge facility with Macquarie bank to provide short term funding in advance of the receipt of funds under the Enel farm-in to the Ain Tsila asset in Algeria. This farm-in transaction completed in early 2012 and just over $100m was received in February with a further $26.9m relating to a contingent consideration invoiced in December 2012. A portion of the funds received was applied to the repayment and cancellation of the Macquarie facility, with the balance retained to fund the on-going activities of the business.

In August 2012, Melrose signed an 18 month $300m Bridge Facility with HSBC Bank in connection with the financing arrangements relating to the merger. Upon Completion in October 2012, Petroceltic acceded to this facility and it was drawn in full to repay facilities previously held by Melrose. At 31 December 2012, the Company had net debt of $209m and a net debt to equity ratio of 40%. Total loans drawn were $280m and cash in hand was $67m. There are no additional loans in place.

Since year end, the Group has been in negotiations with a number of financial institutions, including HSBC and the IFC to secure longer term financing which will permit the Group to fulfill its exploration and development commitments and provide additional capacity for growth through acquisitions and/or the development of exploration discoveries. In April 2013, Petroceltic announced the conclusion of a seven year $500m syndicated financing facility. The facility comprises 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.

The Group's policy is to fund its operations principally through a combination of operating cashflow, available financial facilities and the proceeds of portfolio management including farm-outs. Most notably, the recently concluded financing provides Petroceltic with the financial resources required to progress existing appraised discoveries towards production and maintain a consistent exploration programme with the potential to generate significant returns for shareholders.

Loss for the year

The loss for the year was $20m (2011: $8.2m). This loss partly arose as a result of professional fees of $6.4m relating to the merger and an estimated tax charge of $7.5m relating to the remaining $26.9m contingent payment due from Enel as part of its farm-in to the Ain Tsila asset in Algeria. Had the merger occurred at 1 January 2012, we estimate that the Group would have made a profit for the year.

Dividend policy

Nodividend is proposed in respect of 2012 (2011: Nil). The principal investment focus of the Group over the coming years is likely to be centred upon the on-going development of its asset base, most notably in Algeria, however dividend policy of the Group will be regularly reviewed based on performance, investment obligations and overall shareholder value.

Financial instruments

The Group's use of financial instruments is mainly restricted to borrowings, cash deposits, short-term deposits and various items such as trade debtors and trade creditors which derive from its operations. Group policy in relation to hedging the selling price of Group production is reviewed periodically. There were no commodity or financial hedges in place as at 31 December 2012.

Financial risk management

The main risks from the Group's financial instruments are interest rate, credit, liquidity and foreign currency risk. The Group's exposure to interest rate risk derives from its borrowings which are at variable interest rates. It has been the Group's policy to borrow for short term periods, at variable interest rates, in order to allow flexibility over early repayment of borrowings. The Board regularly reviews interest rate exposure to determine whether interest rate or other equivalent hedging or derivative transactions would be in the best interests of the Group. As at 31 December 2012, the Group had no interest rate cash hedges in place.

The Group and Company earn interest from bank deposits at floating rates. The Company's deposit terms are reviewed and optimised on an on-going basis and capital is held in accordance with the terms of the company's financing arrangements.

Currency risk

Asignificant proportion of the Group's revenue is received and expenditure incurred in local currency, potentially creating currency and timing risks. Most notably, a proportion of the Group's Bulgarian receipts are received in Bulgarian Leva, which is directly linked to the Euro. In Egypt, the Company may also elect to receive payments in local currency based on the US dollar rate at the date of transfer. These receipts are utilised in country on capital expenditure, operating costs and administrative costs. The Group has no currency hedges in place but keeps all exposures under review.

Currency risk is limited to the extent that overhead costs and a proportion of capital expenditures are incurred in currencies other than US dollars. The policy with respect to hedging against foreign exchange risk arising from capital expenditures incurred in currencies other than US dollars is reviewed against the capital expenditure budget and relevant receipts on an annual basis.

Group policy requires that borrowings incurred in relation to development projects should be denominated in the currency in which future cash flows from the relevant projects will be denominated, principally US dollars. Similarly, it is Group policy that corporate borrowings should be denominated in US dollars, although this is reviewed periodically to ensure the policy reflects on-going material contracts.

Pricing risk

In Egypt, liquids realise market prices based on Western Desert pricing, which during 2012 equated to 98% of Brent. Gas production from development leases within the El Mansoura and South East El Mansoura concessions in Egypt is sold under long-term contracts in which the gas price is linked to the oil price when the oil price lies in the range of between $10 per barrel to $22 per barrel; at current oil prices the gas price is effectively fixed. In Bulgaria, the price for the majority of the gas sales is calculated based on the adjusted value of the import price, with the remainder calculated quarterly at a discount to the local quarterly consumer natural gas price, as published by Bulgargaz EAD (the state owned gas company). The quarterly consumer natural gas price has historically tracked the Russian Urals oil price with a nine month time lag. "Fixed" price Egyptian gas contributed 24% of Group revenue in 2012.

Accounting policies

The Company and Group's accounting policies and standards comply with IFRS as adopted by the EU and as required by the rules of the AIM and the ESM Markets.

Oil and Gas Reserves

At year end 2012, net entitlement reserves for Algeria and Egypt were calculated assuming a Brent oil price of $90 per barrel (flat) (2011: $90)

A conversion factor of 5,800 is used for the calculation of barrel of oil equivalents for Bulgarian and Egyptian reserves. In accordance with Algerian prescribed practice under the Isarene PSC, the conversion factor for gas is 5,349 Mcf/boe, condensate is 1.15 barrel/boe, and LPG is 1.61 bbl/boe.

The proved and probable oil reserves for Algeria include LPG of 63,320 Mbbl and 28,752 Mbbl on a working interest and net entitlement basis respectively.

The proved and probable oil reserves for Egypt include LPG of 2,379 Mbbl and 886 Mbbl on a working interest and net entitlement basis respectively.

The acquisition of reserves relates to the proved plus probable reserves acquired by the completion of the merger between Petroceltic and Melrose on 10 October 2012.

The additions to reserves reflect the recognition of the previously held contingent resources attributable to the Ain Tsila asset in Algeria, which received full development approval from the Algerian authorities in December 2012.

1. General Information

The financial information presented in this report has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as adopted by the European Union and as set out in the Group's annual financial statements in respect of the prior year ended 31 December 2011 except as noted below. The financial information herein does not include all the information and disclosures required in the annual financial statements, however the full financial statements are included within the Annual Report which will be distributed to shareholders and made available on the Company's website www.petroceltic.com in due course.  It will also be filed with the Company's Annual Return in the Companies Registration Office. 

The financial information herein for the prior year ended 31 December 2011 also represents an abbreviated version of the Group's statutory financial statements for 2011 which have been filed with the Companies Registration Office.

(a) Basis of Preparation and Accounting Policies

The financial information contained in this Preliminary Statement has been prepared in accordance with the accounting policies set out in the last annual financial statements.  New standards adopted by the Group's financial year ending on 31 December 2012 had no significant impact on the Group's accounting policies.  However, as a result of the merger with Melrose, the Group has adopted a number of new policies in 2012 that did not apply to the Group in 2011.  The critical elements of these new policies are summarised as follows:

·     Business combinations:The merger of Petroceltic and Melrose completed on 10 October 2012, with Petroceltic shares issued as consideration to Melrose shareholders.  On completion of the merger, Petroceltic shareholders owned 54% of the enlarged group with Melrose shareholders owning the remainder.  Petroceltic is the deemed acquirer in the transaction for the purposes of acquisition accounting under IFRS.  This merger is a business combination under IFRS 3 'Business Combinations' and requires the transaction to be recorded for financial reporting purposes using the acquisition method.  All identifiable assets and liabilities have been measured at fair value.  Costs related to the acquisition, other than those associated with the issue of equity securities, are expensed as incurred.

·     Depletion:Depletion of development and production assets is calculated on a field or a concession basis as appropriate. The calculation is based on proved and probable reserves using the unit of production method, any changes are recognised prospectively.

·     Impairment and ceiling test of oil and gas assets:Annual reviews for impairment indicators are carried out on development and production assets on a field or a concession basis, as appropriate. Under oil industry standard practice this impairment test is calculated by comparing the net capitalised cost with the net present value of future pre-tax cash flows which are expected to be derived from the field or concession discounted at an appropriate discount rate per annum.

New or amended standards and interpretations which have been published but not yet effective have not been applied in preparing the financial information. The application of these forthcoming requirements is not expected to have a material impact on the Group's accounting policies

(b) Estimates

The preparation of this Preliminary Statement requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.  In preparing this Preliminary Statement, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2011, with the exception of depletion, fair values at acquisition and deferred tax which did not apply in the prior year.

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 & 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 and Italy.

Glossary of Terms

Bbl                   Barrel of oil

Mbbl                 Thousand barrels of oil

MMbl                Million barrels of oil

boe                  Barrels of oil equivalent

Mboe               Thousand barrels of oil equivalent

MMboe Million barrels of oil equivalent

Mcf                  Thousand standard cubic feet

MMcf                Million standard cubic feet

BCF                 Billion cubic feet

TCF                 Trillion cubic feet

Boepd              Barrels of oil per day

Mcfpd              Thousand standard cubic feet per day

AIM                  London Stock Exchange's Alternative Investment Market

ESM                Irish Stock Exchange's Enterprise Securities Market

IAS                   International Accounting Standards

IFRIC               International Financial Reporting Interpretations Committee

IFRS               International Financial Reporting Standards

LPG                 Liquid petroleum gas

PSC                Production sharing contract