AMYT.L Regulatory News (AMYT)

18 August 2014

Fastnet Oil & Gas plc

("Fastnet", the "Company" or the "Group")

Final Results for the year ended 31 March 2014

Fastnet (AIM: FAST, ESM: FOI), the UK and Irish listed E&P company focussed on near-term exploration and appraisal acreage in Morocco and the Celtic Sea, announces its audited results for the year ended 31 March 2014.

Operational Highlights

· Fully funded to meet all current licensing phase commitments and obligations, including a non-obligatory drilling programme onshore Morocco

· Successful entry into onshore Morocco (Tendrara Lakbir), with a material drilling programme scheduled for H1 CY2015 contingent upon completion of a successful farm-out

· Significant acreage position (25,192km2) under licence with primary exploration and appraisal prospects matured for drilling

· 1,910 km2 of 3D seismic acquired in the Celtic Sea, the largest 3D seismic survey ever in the area

· The total cost to Fastnet from licence acquisition through prospect portfolio development to the completion of FA-1 is less than US$2.75m

· Celtic Sea farm out process underway with interest from major industry players, progress in line with preferred timing of new investment in exploration drilling targeted for 2016

Financial and Corporate Highlights

· Strong balance sheet with US$17.4m cash reserves at 31 March 2014 and US$19.9m at 31 July 2014 following the completion of the Foum Assaka farm-out to SK Innovation

· Oversubscribed share placing in November 2013 raising £10m (US$16.7m)

· Net loss for the year of US$2.6m reflects the low operating costs incurred by utilising external consultants and advisors for specific value adding projects only

· Prudent management of cash resources to satisfy all current work programme commitments

· Risk management of the asset portfolio through ongoing farm-down discussions for carries in drilling and past costs

Post-year Highlights

· First Foum Assaka exploration well (FA-1) drilled, spudded March 2014 and completed May 2014, management of risk and financial exposure mitigated by the completion of a farm-out to SK Innovation which included the receipt of US$20.4m in back costs

· FA-1 encountered live oil shows in a pre-well target that was only partially penetrated by FA-1. Results currently being evaluated by Kosmos, BP, SK Innovation and Fastnet with a view to re-ranking the extensive prospect portfolio

· Foum Assaka farm-out to SK Innovation completed in April 2014 for a carried interest in the FA-1 well and a potential carried interest in a second well

· Improved terms and option extension secured on Tendrara Lakbir in June 2014 and on Deep Kinsale in August 2014

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Chairman's Statement

It has been an active year for Fastnet as we continue to execute on our strategy of taking high working interests in exploration and appraisal assets, de-risking them through further geological work and then farming-down for a carry. This strategy has worked well on our interest in Foum Assaka licence, following the encouraging results of the FA-1 well, where we remain carried for the next well on the basis that SK Innovation elects to participate in a further exploration well.

The FA-1 well was drilled under budget and without any safety or environmental incidents. Despite the well not proving commercially extractable volumes of hydrocarbons it did find live oil and evidence of reservoir in the Lower Cretaceous, which was our primary target. Given that the well was testing a new play concept offshore Morocco the technical success of the FA-1 well has validated our model and significantly de-risked the next well. The JV Partnership are currently analysing the well data and re-ranking the extensive prospect portfolio in the Foum Assaka Licence. Fastnet's share of costs of a future follow-up well will be carried by SK Innovation, up to a gross cap of US$100m upon agreement of the JV Partnership on a second well location. The cost of deepwater drilling is being reduced as rig rates are beginning to soften; consequently the value of the cap is potentially enhanced.

The Foum Assaka farm-out to SK Innovation was completed in what has been a difficult year for the small cap oil and gas sector as a whole. Even though the UK economy has generally seen a recovery, overall the market remains risk adverse and as a result oil and gas exploration and appraisal companies are being widely overlooked by the investment community. This sentiment is reflected in our share price and the board strongly believe that the market is not recognising the potential of our asset portfolio. However, we have a strong balance sheet and are well funded for our planned activities. Furthermore a large number of the major industry players continue to be attracted by our well-balanced asset portfolio and high calibre joint venture partnerships. We have worked during the year to mature and de-risk a large number of attractive drilling targets with emphasis on lower capex shallow water and onshore material prospects as the industry re-focuses on traditional lower cost drilling environments. Fastnet's management team followed its "first mover" strategy to position ourselves ahead of this change in industry emphasis. 

In April 2014, we jointly hosted an invitation-only Celtic Sea workshop with the other licence holders in the region. The workshop was attended by over twenty major and super-major international oil companies who heard presentations from not only the existing licence holders but also from the government and support services that operate in the Celtic Sea. We were very encouraged by the response that we had from the top tier of the oil and gas industry and have subsequently engaged in farm-out discussions with a large proportion of the companies that attended the workshop. These companies are actively assessing the potential of our Celtic Sea licences and we hope to reach a deal with one of them this calendar year. The improved terms and option extension secured in August 2014 on Deep Kinsale has given the Company added flexibility in the process to secure a suitable partner. During the year, BP and SK Innovation, the fourth largest Asian refiner, have been added to Fastnet's existing Joint Venture partnerships with companies such as PETRONAS. This is a reflection of Fastnet's ability to build key relationships to help develop its asset portfolio. We expect this trend to be continued during the next 12 months.

In parallel with the Celtic Sea farm-out process we are running a process to find a partner for our onshore Morocco Tendrara Lakbir Project ("Tendrara Project"). Our ability to find a suitable farm-in partner for the Tendrara Project has been significantly strengthened following the revision of the terms of agreement with Oil and Gas Investments Funds ("OGIF"). The revised agreement increased Fastnet's net equity interest to 50%, reduced the carry to a maximum of two wells, extended the option term to 31 December 2014 and removed the bank guarantee of US$2.75m. The eight Exploration Blocks comprising the Tendrara Lakbir Petroleum Agreement (the "Tendrara Licence") contains what we believe is a large gas discovery with a CPR-supported range of gross recoverable gas in the TE-5 gas structure alone of 311 to 892 BCF. At over 14,500km2 the licence is very large and contains multiple prospects in addition to the existing discovery. Interest is already being received from major industry players who, in addition to the conventional gas targets, are also interested in the substantial, but as yet unexplored, shale gas potential. The key risk centres around establishing that commercial rates can be achieved but all analysis that has been performed to date suggests to us that this is achievable, particularly following accessing published data for the Meskala Field in Morocco, which produces from the same reservoir west of the Tendrara Licence and has been producing since 1987. The asset has always had the technical and geographical merits, due to the ability to access a gas pipeline to Europe that passes through Morocco, to be of interest to international oil companies and now the changes to the option agreement have provided us with the time and equity that we need to secure a farm-in partner ahead of exercising the option. An extensive work programme has been undertaken during the year to confirm the materiality of the opportunity and to de-risk legacy issues regarding reservoir quality and the execution of drilling operations. As a result of the success of these studies Fastnet has embarked upon a strategy to bring in a joint venture partner capable of accelerating the appraisal and development of this substantial gas asset to create a near-term opportunity for early monetisation. We believe that with the new equity level Fastnet can maintain a substantive interest in the opportunity whilst continuing to prudently maintain its high level of cash resources. We believe in the current climate this is entirely consistent with our shareholders' aspirations.

In May 2014 Will Holland was appointed to the Board of Directors as Chief Financial Officer. His financial experience, combined with an in-depth knowledge of the industry and technical understanding will prove invaluable to the Company as it continues to develop and monetise its portfolio of assets.

The Board's continuing strategy is to build a portfolio of high impact exploration and appraisal assets and de-risk these assets by seeking farm-in partners for a carry while retaining material interests in the licences. In accordance with our strategy we expect to secure farm-in partners in both the Celtic Sea and onshore Morocco this calendar year, despite the difficult climate at present for the oil and gas exploration sector. Fastnet has established a farm-out track record with the farm-out of the Foum Assaka licence and has proven that we can manage risk and maintain healthy cash balances. Following the conclusion of a successful farm-out process we will be looking to prove commercial rates can be produced from the Tendrara TE-5 gas structure and given the size of the asset the year ahead has the potential to be transformational for Fastnet.

Cathal Friel

Executive Chairman

18 August 2014

Operations Review

Over the past year and subsequent to year end we have delivered five major performance objectives, namely:

· completed an extensive 3D seismic programme over Deep Kinsale Prospect and Mizzen area in the Celtic Sea;

· completed the farm-out of our Foum Assaka licence offshore Morocco to SK Innovation;

· drilled the FA-1 well on time and under budget with no safety or environmental events and discovered live oil in the Lower Cretaceous section;

· extended and improved the commercial terms on the Tendrara Lakbir option agreement; and

· extended and improved the commercial terms on the Deep Kinsale option agreement.

Operational - Celtic Sea

In March 2013 the Company committed to undertake an extensive 3D seismic survey on Deep Kinsale and the Mizzen Basin to establish for the first time a modern 3D seismic database in our area of interest. We anticipate that the completion of 3D seismic survey will significantly enhance our ability to attract larger oil companies to partner with us to help unlock the potential of our materially significant prospects and leads.

Over Deep Kinsale the 3D seismic has confirmed five possible reservoir targets with potential for substantial in-place oil based on structural size, up to 120 km2. It has also confirmed potential for reservoir development and has significantly reduced the risk of reservoir compartmentalisation, two legacy issues that have previously held back farm-out efforts, which were based only on limited 2D seismic coverage.

Over Mizzen the 3D seismic has confirmed the potential for a new frontier exploration basin that is the conjugate margin equivalent of the Flemish Pass and Jeanne d'Arc Basins of Eastern Canada, which hold large hydrocarbon fields and recent discoveries. The seismic survey has defined new amplitude-supported potential gas structures and large stratigraphic traps, multiple prospects and leads with potential for multi-Trillion Cubic Feet ("TCF") in-place gas in addition to potential oil traps.

In April 2014, Fastnet hosted a one-day workshop on the Celtic Sea highlighting the hydrocarbon potential and the favourable business, infrastructure and regulatory environment for the oil and gas industry in Ireland. The workshop was very well attended by over twenty of the world's largest oil and gas companies who heard presentations on, amongst other things, the licensing and fiscal regime in the Celtic Sea, exploration and production-history, planned exploration and appraisal opportunities, regional infrastructure and shore based facilities. In addition, the companies had the opportunity to have one-on-one sessions with Fastnet's technical team. The workshop generated significant interest and we have now begun a two-stage farm-out process that we hope to conclude over the course of this calendar year. In August 2014 the Company secured improved commercial terms on Deep Kinsale which the Company believes will enhance the prospects of securing a partner on the project.

Operational - Morocco

Morocco Offshore

The farm-out of half of our interest in Foum Assaka to Korean-listed SK Innovation further demonstrated our ability to execute on our strategy to reduce our financial exposure whilst retaining material interest in high impact, moderate risk, exploration prospects. As part of the agreement with SK Innovation the Company received a two-well carry comprising of a carry in the first exploration well (FA-1) and first appraisal well or, at SK Innovation's discretion, a carry in a second exploration well. The carry for each well is capped at US$100 million gross. In addition, SK Innovation reimbursed past costs of US$3.2 million for the period to 30 September 2013 and made an additional payment of 100 per cent of Fastnet's back costs relating to the 12.5% interest acquired in the period from 1 October 2013 to the completion date in April 2014. Total back costs reimbursed to Fastnet were US$20.4 million which the Company received during April 2014. Following the receipt of the back costs the Company had US$19.9 million in cash balances at 31 July 2014. The total cost to Fastnet from licence acquisition through prospect portfolio development to the completion of FA-1 is less than US$2.75m. This was a good deal and has provided Fastnet with a very low cost opportunity to participate in the drilling of a high profile well in an area with matured drilling targets that continue to attract sustained farm-in interest from major industry players. Now that the FA-1 well has been drilled we retain, at SK Innovation's discretion, a carry on the next exploration well.

Although the FA-1 exploration well failed to discover commercial volumes of hydrocarbons we were encouraged by the results as live oil was found in the Lower Cretaceous. The well has proved that all aspects of the petroleum system exist with the exception of reservoir thickness and quality. Given that the FA-1 was testing a new play concept in the region, although not ideal, this is a good result and with the data from FA-1 and Cairn's FD-1 Foum Draa well this allows us to better target the main reservoir fairways. Our in-house post well studies are encouraging for continued evaluation of the hydrocarbon prospectivity of the block and FA-1 has provided valuable information to support and enhance the ongoing evaluation of the licence. Pre-stack depth migration can now be constrained and calibrated by actual well velocities and the well results which will be integrated into Kosmos's petroleum system analysis. In addition the seismic model can now be better calibrated based on actual well data tied to a better understanding of seismic sequence stratigraphy. The Cretaceous remains an important target in Foum Assaka based on analogies with the Moroccan conjugate margin equivalent of Nova Scotia, where this interval is the main focus of attention for the oil majors, including BP, our joint venture partner in Foum Assaka. We are proud that the well was successfully drilled with no health, safety or environmental incidents and total depth was reached under budget.

Morocco Onshore

At our onshore project, Tendrara Lakbir, we have secured improved commercial terms from those previously announced during May 2013. The option agreement has now been extended to 31 December 2014 and Fastnet's net equity interest increased from 37.5% to 50%. In addition the drilling commitment has been reduced from carrying our partner, OGIF, for three wells to carrying them for two wells, the second of which is at Fastnet's election. The deadline to drill the first well has been extended to 21 April 2015 and the time in between exercising the option agreement and the drilling deadline allows Fastnet to acquire its net equity interest in the Tendrara Licence and Association Contract prior to commencing the drilling programme as the designated operator. These revised terms significantly reduce Fastnet's financial exposure and provide us with even better project economics. We are now in the process of seeking an additional partner and expect that the new commercial terms and project economics will prove attractive to a major partner. We believe that the Tendrara Lakbir project is highly attractive to a potential strategic gas partner given the existing TE-5 gas discovery with near term development potential, based on a gas-to-power or an export option through nearby infrastructure, and the additional prospectivity of multiple play types within the large licence area, which provides significant potential upside.

Operationally we have also been very active on Tendrara and have completed reservoir engineering studies and the new pre-stack depth migrations are being interpreted to select final drilling locations which will determine the final well design. Well planning is well underway with rig selection process in place and environmental impact studies ongoing, all of which we expect to complete during this calendar year. The drilling programme will look to prove that commercial rates are achievable from the TE-5 structure, where gas has already been discovered and best estimate resources are 311 Billion Cubic Feet ("BCF") with a high estimate of 892 BCF. Discussions with suitably qualified potential partners, who have all expressed an interest in participating in a potential gas development, are underway and are expected to conclude in H2 CY2014.

Financial

Strong financial stewardship is a key consideration for the board and helps drive our strategy and decision making. Given the current state of the capital markets we have been focussed on preserving our cash balance whilst continuing to develop our projects. Our balance sheet is strong with US$17.4m cash as of March 2014 and our general and administration costs are amongst the lowest of our peers at US$2.5m per year. Post the period end, in April 2014, Fastnet received payment of back costs by SK Innovation in relation to the Foum Assaka farm-in agreement consequently the Company had US$19.9m of cash as at the end of July 2014. Going forward we will continue to keep costs down and are fully funded for the planned work programmes in Morocco and Ireland. We retain a second well carry in Foum Assaka, subject to US$100m cap, on the basis that SK Innovation elects to participate in a second exploration well.

In addition we are in the process of seeking a farm-in partner for our Celtic Sea assets and expect to receive past costs as part of a successful first stage farm-out. These costs currently stand at US$21.9m.

Outlook

Over the past year we have carefully managed our risk exposures through the implementation of our business strategy and mitigated the technical and commercial challenges of our business model through farming-down our assets. We have a busy year ahead of us as we continue to drive the business forward. Over the coming year our key performance indicators will cover all aspects of our business model and will include:

· Acquire: we have a healthy pipeline of deals that we are continually assessing. Although there are no new asset deals on the immediate horizon it is very possible that we will acquire another asset in the coming year, with certain niche opportunities being reviewed in onshore East Africa

· Analyse: with the newly acquired data from the FA-1 well we will complete our analysis and with our partners determine where to drill the next well on Foum Assaka. We hope to be able to announce the well location and estimated spud date within the next year

· Farm-down: active ongoing farm-out processes running for our onshore Morocco Tendrara Project and Celtic Sea assets with hopes to conclude by the end of CY2014

· Explore: Celtic Sea - 3D seismic interpretation and prospect mapping to be completed on Deep Kinsale and Mizzen areas. Desktop and seismic reprocessing on other Celtic Sea licences. Morocco: Onshore - seismic pre-stack depth migration and remapping of TE-5 structure and continued drilling preparations, Offshore - block remapping to focus on early Cretaceous plays with possible additional 3D seismic reprocessing

· Monetise: carefully manage our financial resources and exposures whilst we remain on target to deliver farm-in partners for the Tendrara Licence and the Celtic Sea.

It will be an exciting year that we hope will result in the successful testing of the Tendrara TE-5 structure and proving commercial gas rates will provide transformational shareholder value.

18 August 2014

Notes

1 Financial Information

The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 March 2014 or the year ended 31 March 2013, but is derived from those accounts. Statutory accounts for the year ended 31 March 2013 have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and contained no statement under section 498 (2) or (3) of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 have not yet been delivered to the Registrar of Companies. The Statutory Accounts for 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on those accounts: their report was unqualified and contained no statement under section 498 (2) or (3) of the Companies Act 2006 and did not draw attention to any matters by way of emphasis.

The consolidated Financial Statements consolidate those of the Company and its subsidiaries.

2 Segmental information

In the opinion of the Directors the Group has one class of business, being oil and gas exploration.

The Group's primary reporting format is determined by the geographical segment according to the location of the exploration asset. There are currently two geographic reporting segments: UK & Ireland, and Morocco. The geographical segment UK & Ireland includes the costs of the Company head office.

Segment information of the business is presented below:

3 Loss per share - basic and diluted

The Group presents basic and diluted earnings per share ("EPS") data for its Ordinary Shares. Basic EPS is calculated by dividing the profit or loss attributable to Ordinary Shareholders of the Company by the weighted average number of Ordinary Shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to Ordinary Shareholders and the weighted average number of Ordinary Shares outstanding for the effects of all dilutive potential Ordinary Shares, which comprise warrants and share options granted by the Company.

Calculation of EPS in prior year

In the prior year the denominator in the EPS calculation is derived by separately calculating and then combining the weighted average number of shares for the period pre-acquisition (reverse acquisition of Sterling Green Group plc by Terra Energy Limited) and the weighted average number of shares for the period post acquisition.

Weighted average number of shares for the period pre-acquisition (1 April 2012 to 11 June 2012): weighted average number of shares in issue in Terra Energy Limited ("Terra") for the period pre-acquisition multiplied by the exchange ratio (32.28:1) of Sterling Green Group plc shares received by Terra shareholders as part of the acquisition and divided by the consolidation ratio (38:1) of shares in the enlarged share group. Result of calculation: 64,124,957.

Weighted average number of shares for the period post acquisition (12 June 2012 to 31 March 2013): weighted average number of shares in issue for Fastnet Oil & Gas plc for the period post acquisition. Result of calculation: 129,920,893.

The calculation of loss per share is based on the following:

Where a loss has occurred, basic and diluted EPS are the same because the outstanding share options and warrants are anti-dilutive. Accordingly, diluted EPS equals the basic EPS. The share options and warrants outstanding as at 31 March 2014 totalled 17,647,423 (31 March 2013: 15,345,628) and are potentially dilutive.

4 Exploration and evaluation assets

Completion of farm-out to SK Innovation Co. Ltd.

On 18 December 2013 Fastnet entered into a farm-out agreement with SK Innovation Co. Ltd. ("SK"). Under the terms of the agreement, Fastnet will receive up to a two well carry comprised of a carry in the first exploration well (FA-1) on the Eagle-1 Prospect and first appraisal well (capped at US$100 million per well) or at SK's sole discretion a carry in a second exploration well (capped at US$100 million) for a 9.375% participating interest (12.5% paying interest) in the Foum Assaka Licence Area. Completion of the farm-out was subject to the customary closing conditions and regulatory approvals. All completion conditions in relation to the farm-out were finalised in April 2014 with Fastnet receiving US$20.4 million in back costs from SK on completion. Following the receipt of the back costs the Company had US$19.9 million in cash balances at 31 July 2014.

5 Share capital

Details of ordinary shares of £0.038 each issued are in the table below:

On 11 June 2012, the Company effected a reorganisation of the existing share capital whereby each holding of 38 existing Ordinary Shares (par value £0.001), were consolidated into one new Ordinary Share (par value £0.038). This resulted in the issue of 7,991,458 new Ordinary Shares.

6 Share-based payments

The Company has issued share options as an incentive to certain key management and staff. In addition the Company has issued warrants to key consultants, advisers and suppliers in payment or part payment for services or supplies provided to the Group. Apart from the Share Appreciation Rights described below, each share option and warrant converts into one Ordinary Share of Fastnet Oil & Gas plc on exercise and are accounted for as equity-settled share-based payments. No amounts are paid or payable by the recipient and the options and warrants may be exercised at any time from the date of vesting to the date of their expiry. The equity instruments granted carry neither rights to dividends nor voting rights.

Share options and warrants in issue:

The fair value is estimated at the date of grant using the Black-Scholes pricing model, taking into account the terms and conditions attached to the grant. The following are the inputs to the model for the equity instruments granted during the current and previous year:

During the prior year a total of 10,372,121 share options exercisable at a weighted average price of £0.175 were granted. The fair value of share options granted during the year was US$1,308,000. The share options outstanding as at 31 March 2014 have a weighted remaining contractual life of 1.7 years with exercise prices ranging from £0.038 to £0.26.

During the year a total of 2,301,795 (2013: 6,797,998) warrants exercisable at a weighted average price of £0.14 were granted. The fair value of warrants granted during the year was US$219,000 (US$792,000). The warrants outstanding as at 31 March 2014 have a weighted remaining contractual life of 2.2 years with exercise prices ranging from £0.11 to £0.22.

The value of share options and warrants charged to the Statement of Comprehensive Income during the year is as follows:

In addition to the above charges, share-based payments of US$219,000 (2013: US$863,000), related to warrants, was charged to share premium in the year.

Share Appreciation Rights

The Company issued Share Appreciation Rights ("SAR") to a non-executive Director that require the Company to pay the intrinsic value of the SAR to the Director at the date of exercise. To vest, the Fastnet Oil & Gas plc share price must show at least a 25% compound annual growth from the award price (£0.052) over the three years from the grant date. Fair value of the SAR is estimated by using a Monte-Carlo simulation model, which is rerun at each Statement of Financial Position date. The fair value of the SAR at 31 March 2014 is US$149,000 (31 March 2014: US$554,000).

Inputs to the Monte-Carlo simulation are detailed below:

7 Annual Report and Annual General Meeting ("AGM")

The Annual Report for the year ended 31 March 2014 will be posted to shareholders on 21 August 2014 and will be available to download from the Company's website at www.fastnetoilandgas.com on 21 August 2014.

Notice of the AGM will be posted to shareholders on 21 August 2014. The AGM will be held at 12 noon on 15 September 2014 at InterContinental London Westminster, 22-28 Broadway, London SW1H 9JS, England.

For those based in Ireland, a shareholders' meeting will also take place at 12.30pm on 16 September 2014 in St. Stephen's suite in the Shelbourne Hotel, Dublin.

This meeting will consist of a short business presentation by Directors, following which shareholders will have the opportunity to ask questions in an informal environment. Light refreshments will be provided. Please note that this meeting is for information purposes only and that all statutory business of the AGM will be carried out at the meeting to be held in London on 15 September 2014. All proxy forms and votes will only be relevant in respect of the London meeting. Shareholders are very welcome to attend both meetings.