Cabot Energy Regulatory News (CAB)

Northern Petroleum Plc

("Northern Petroleum", "the Group" or "the Company")

Drilling update

Interim Results for six months ended 30 June 2014

Northern Petroleum, the AIM quoted oil company focusing on production led growth, provides the following update on drilling in Canada and announces its unaudited interim results for the six months ended 30 June 2014.

Drilling update

§ First two wells of current three well programme in Canada drilled to target depth with liner cemented across reservoir sections

§ Drilling rig will now move to third well and spud towards the end of the month

§ Service rig expected on site at the first well shortly to perforate and test

§ All three wells will be perforated and tested in succession by the service rig

§ Production test results expected for all three wells in the second half of October

Interim highlights

Canadian operations

§ Successful proof of redevelopment concept in the Virgo field, Alberta, leading to the start up of Canadian production

§ Increase of mineral lease acreage for the Keg River formation in north west Alberta from 9,300 to over 30,000 acres

§ Virgo field redevelopment programme initiated with two new wells and a well re-entry

§ All three wells brought into production by May

§ Follow up three well campaign started in August

Other operations

· Two new permits awarded in Italy; one onshore in eastern Piedmont and one adjacent to an existing permit in the Sicily channel

· Political changes are providing an improved business environment in Italy giving more confidence that the Group will be able to make progress with the southern Adriatic permits within 2014

· Sale of UK assets to UK Oil & Gas Investments PLC announced in July

Finance

· Total oil production for the first six months of the year of 13,629 barrels generating revenue of $1.1 million (2013: $0.4 million)

· Cash of $22.0m as at 30 June 2014 (31 December 2013: $35.8m) - the reduction mainly reflecting investment in Canada

· Following the development in Alberta and subsequent to sale of The Netherlands, the Group's functional and reporting currency has been changed to US dollars

Organisation

· Board strengthened with the appointment of Iain Lanaghan as Non-executive Director and Audit Committee chair

· Graham Heard, Exploration and Technical Director, to retire at the end of the year and Paul Lafferty appointed to the senior management team as Chief Operating Officer

Keith Bush, Chief Executive Officer, commented:

"The Company has made considerable progress over the first half of the year during which the strategy of production led growth has been actively pursued. The three wells currently being drilled in Alberta will add to the production potential of the field and give us further confidence in our Keg River redevelopment play."

For further information please contact:

Northern Petroleum Plc Tel: +44 (0)20 7469 2900

Keith Bush, Chief Executive Officer

Nick Morgan, Finance Director

Westhouse Securities Limited (Nomad and Joint Broker) Tel: +44 (0)20 7601 6100

Alastair Stratton

Robert Finlay

FirstEnergy Capital LLP (Joint Broker) Tel: +44 (0)20 7448 0200

Jonathan Wright

Camarco Tel: +44 (0)20 3757 4980

Billy Clegg

Georgia Mann

Interim Report Management Statement

The first six months of 2014 provided the first opportunity to embark upon the Group's strategy of production led growth following the significant changes that occurred during the latter half of 2013. Investment in the Group's Canadian redevelopment project increased and operations began with three wells being brought into production. Further lease acquisitions were made and the Virgo land position was consolidated to bring the Group's total lease holdings above 30,000 acres. A follow up drilling campaign of three new wells started in August and the first two wells have been drilled and a liner cemented in place already. The drilling rig will now move to drill the third well and a service rig will be on location shortly to production test all the wells in succession with results expected to be available in the second half of October.

The Canadian redevelopment project has now reached a critical mass in both size and potential to provide valuable production and cashflow for the Group over the short and medium term, which the board is confident will translate into core value growth for the business.

The Group's other main area of focus is the exploration and appraisal assets in Italy and, after a hiatus of more than a year, progress has been and is continuing to be made to advance the Group's position there. Political change is having a positive impact on the business environment in Italy as evidenced by applications and projects being sanctioned in the exploration and production sector, as well as other industries. In July, the Group was awarded two exploration permits. Both permit applications had been outstanding for more than five years, and the fact that they have now been granted shows that the new Italian administration is starting to work towards its stated plan of growing the country's domestic energy supply.

The Group is now more confident of receiving ministerial approval for the environmental impact assessment of the southern Adriatic 3D seismic acquisition within 2014, allowing progress to be made on both the Cygnus exploration prospect and the Giove discovery.

Outside of the two key areas of production and development in Canada and exploration and appraisal in Italy, the Group is managing its assets to limit investment in time and capital and maximise financial return. The sale of the UK assets for £1.5 million announced in July was part of the strategic decision to focus resources where a meaningful return could be realised in a reasonable timeframe. The limited position in the UK sector meant that the time and investment required to progress the assets were disproportionately large when compared to the potential upside. The same strategic view is being applied to the Group's other assets offshore French Guiana and Australia, both of which represent early stage exploration opportunities with good potential value.

The licence area offshore French Guiana is currently being evaluated by the operator and joint venture partners to consider the next steps in the work programme. In Australia, the first year work programme of seismic re-processing has been completed and discussions are ongoing with industry partners for a potential farm out of the Group's interest there. The uncertainty around the timing of value growth for shareholders from these assets means only limited resource will be applied to their development and possible opportunities to realise value in the short term will be prioritised.

Early in the year, the board was further strengthened with the appointment of Iain Lanaghan as a Non-executive Director and Audit Committee chair. This brought the board up to a complement of six directors, four fewer than in the prior year, and with clear synergies and complementary skills and experience between the executive and non-executive directors. In September Graham Heard, the Exploration and Technical Director, announced his retirement and will step down from the board at the end of the year, while it was also announced that Paul Lafferty will join the Group's senior management as Chief Operating Officer, where he will bring a wealth of experience and skill to focus on building the production business in Canada. Significant improvements in corporate governance have been made in relation to the running of the business and the board will continue to ensure that the appropriate levels of governance are maintained.

A concerted effort has been made following last year's changes to promote the Group's production led growth strategy to the investment community. Even in today's volatile markets, where the small cap exploration and production sector remains out of favour, the response has been positive. However, building a broader investor base to support the growth of the business is not a quick process and one that requires the consistent delivery of successful results. New shareholders are joining the register and considerable efforts will continue to be made to advance this goal. The Group has appointed a joint broker today to complement the existing retained adviser and broker and increase the breadth and depth of investor access, including into Canada.

The aim of the Group is to deliver share price growth through good operational results, communicating a clear strategy for the business and building trust that the management team can successfully execute on that strategy. The second half of the year will provide further opportunity for the Group to execute operations in Canada to help achieve this aim.

Financial overview

Following the successful testing of the redevelopment project in Alberta and subsequent to the sale of the Group's operating subsidiary in The Netherlands, the Group's functional and reporting currency has been changed to US dollars.

The Condensed Consolidated Statement of Profit or Loss for the first six months of 2014 reflects the early stage production from the three wells in Canada, which were brought into production in April and May. Ongoing administrative expenses have been significantly reduced on a cash basis when compared with last year, following a concerted drive to reduce general and administrative costs. However a number of one off items relating to a staff redundancy programme, the sublet of office space and the lower allocation of staff costs to production activities or capitalised to projects, all undertaken during the first half of the year, means the administrative expense in the profit or loss does not reflect this actual cash reduction.

The intangible assets on the balance sheet continue to include 100% of the French Guiana investment following the consolidation of the investment as a subsidiary at the end of last year. The costs relating to the establishment of the three wells in Canada have been capitalised under property, plant and equipment, in line with the Group's full cost accounting policy. The decrease in cash from $35.8 million to $22.0 million at the end of June comprises mainly the drilling programme and increased land position in Canada, the paying of the remaining costs from the prior year drilling programme in French Guiana, and the Group's general and administrative costs. Revenue from Canadian production in May and June was received after the half year and the capital expenditure planned for the second half of 2014 will be further offset by six months of operating income from ongoing production. The increase in both receivables and payables reflects the expansion of operations in Canada.

Summary and outlook

With the operational achievements in Canada, the business has successfully moved to a production led growth strategy during the first six months of 2014. The importance given to cash conservation has led to a reduction of the cost base and with the sale of the UK assets, the business is continuing to focus more on assets which support the strategy of maximising value in an appropriate timeframe and with an appropriate level of risk. The potential for progress in Italy in the second half of the year is encouraging and should enhance investor interest in the Group with opportunity for considerable upside in addition to the lower risk growth in Canadian production and development.

Condensed Consolidated Statement of Profit or Loss

 for the six months ended 30 June 2014

As the Group is loss making, there is no dilution of earnings from potential ordinary shares and diluted earnings per share has not been presented.

\* The comparative results for 2013 have been restated to show continuing and discontinued operations and reflect the change in functional currency. The overall loss for the period is unchanged. See notes 1 and 2 for further information.

Notes 1 to 9 form an integral part of this report.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the six months ended 30 June 2014

*Following the change in functional currency, as detailed in note 1, the comparative Statement of Profit or Loss and Other Comprehensive Income has been represented in US Dollars.

Notes 1 to 9 form an integral part of this report.

Condensed Consolidated Statement of Financial Position

as at 30 June 2014

*Following the change in functional currency, as detailed in note 1, the comparative Statement of Financial Position has been represented in US Dollars.

Notes 1 to 9 form an integral part of this report.

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2014

*Following the change in functional currency, as detailed in note 1, the comparative Cash Flow Statement has been represented in US Dollars.

The cash flows from discontinued operations have been disclosed in note 2.

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2014

Details of changes in presentation to the Condensed Consolidated Statement of Changes in Equity and other restatements are given in note 1.

*Increases in equity in Northpet Investments Limited.

Details of changes in presentation to the Condensed Consolidated Statement of Changes in Equity and other restatements are given in note 1.

Notes to the Condensed Consolidated Interim Financial Statements

for the six months ended 30 June 2014

1. BASIS OF PREPARATION

This unaudited condensed consolidated interim financial information has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively EU IFRSs). The principal accounting policies used in preparing the interim results are unchanged from those disclosed in the Group's Annual Report for the year ended 31 December 2013. These statutory accounts are available on the Company's website (www.northernpetroleum.com) or by application to the Company's registered office.

The financial information for the six months ended 30 June 2014 and 30 June 2013 is unaudited and does not constitute statutory financial statements of Northern Petroleum Plc and its subsidiaries. The comparative financial information for the full year ended 31 December 2013 has, however, been derived from the statutory financial statements for that period. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

Change in functional currency

Following the successful well programme completed in Canada in Q1 2014 and the change in the Group's strategy, which included the sale of the Netherlands subsidiary in Q4 2013, the Group has considered its functional currency. From the start of 2014 the majority of the Group's underlying transactions will be denominated in or heavily influenced by the US Dollar. Therefore the Directors have taken the decision to prospectively change the functional currency from 1 January 2014 in line with IAS 21, "The Effects of Changes in Foreign Exchange Rates".

The comparative figures for 2013, previously reported as Euro, have been represented in US Dollars at a rate of 1.3791 USD to 1 EUR.

Changes to Accounting policies

a) In the current period, the following new and revised standards and interpretations are effective and have been adopted but have had no effect on the amounts reported in these financial statements.

IFRS 10 - Consolidated Financial Statements

This standard has replaced the previous accounting for subsidiaries and joint ventures, and makes limited amendments in relation to associates. IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements.

IFRS 11 - Joint Arrangements

This standard has replaced the previous accounting for subsidiaries and joint ventures, and makes limited amendments in relation to associates. All parties to a joint arrangement are within the scope of IFRS 11.

IFRS 12 - Disclosure of Interests in Other Entities

This standard has replaced the previous accounting for subsidiaries and joint ventures, and makes limited amendments in relation to associates.

IAS 27 - Separate Financial Statements

IAS 27 (2011) carries forward the existing accounting and disclosure requirements of IAS 27 for separate financial statements, with some minor clarifications.

IAS 28 - Investments in Associates and Joint Ventures

This standard was amended in 2011 and replaces IAS 28 (2008). The amendments were as follows:

· Associates and joint ventures held for sale - IFRS 5 applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment not classified as held for sale, the equity method is applied until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture.

· Changes in interests held in associates and joint ventures - IAS 28 (2011) does not require remeasurement of the retained interest in the investment upon cessation of significant influence or joint control. Previously, IAS 28 (2008) and IAS 31 would have required remeasurement of any retained interest in all cases, even if significant influence was succeeded by joint control.

b) At the date of approval of this interim report, the following standards and interpretations which have not been applied in this interim report were in issue, but not yet effective or adopted by the EU:

IFRS 11 - Joint Arrangements (amended)

The amendments to this standard require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business.

IAS 16 - Property, Plant and Equipment and IAS 38 - Intangible Assets

The amendments introduce a rebuttable presumption that the use of revenue-based amortisation methods for intangible assets is inappropriate. This presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible asset are "highly correlated", or when the intangible asset is expressed as a measure of revenue. While this is not an outright ban, it creates a high hurdle for when these methods may be used for intangible assets.

The amendments also ban the use of revenue-based amortisation for property, plant and equipment.

IAS 27 - Separate Financial Statements (amended)

The amendments allow the use of the equity method in separate financial statements, and apply to the accounting not only for associates and joint ventures, but also for subsidiaries.

IFRS 9 - Financial Instruments

The new standard, which has not yet been endorsed, contains two primary measurement categories for financial assets: amortised cost and fair value. Financial assets are classified into one of these categories on initial recognition. A financial asset is measured at amortised cost if the following conditions are met:

· it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

· its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

All other financial assets are measured at fair value.

2. RESTATEMENT OF SIX MONTH PERIOD ENDED 30 JUNE 2013

In order to be consistent with the presentation and accounting treatment adopted in the audited financial statements for the year ended 31 December 2013, the results for the six month period ended 30 June 2013 have been restated as follows:

Discontinued operation

As disclosed in the Group's 2013 Annual Report and Accounts, on 11 October 2013 the Group announced that it had satisfied the terms of a binding sale and purchase agreement with Vermilion Oil & Gas Netherlands BV ("Vermilion"), a wholly owned subsidiary of Vermilion Energy Inc., for the sale of Northern Petroleum Nederland BV ("NPN"), the Company's wholly owned Netherlands operating subsidiary.

The comparative Condensed Consolidated Statement of Profit or Loss and Consolidated Statement of Other Comprehensive Income have been restated to show the discontinued operation separately from continuing operations. UK staff costs and other overhead recharges based on hours worked on Netherlands projects by UK staff of $566,000 (production) and $523,000 (administration and other) remain incontinuing costs. These costs gave rise to a tax credit of $545,000 in 2013.

Results of discontinued operation

All amounts are attributable to equity shareholders of the parent.

a) Earnings per share in respect of discontinued operations

See note 4 for details of the average number of shares in issue and the calculation of earnings per share.

As the Group is loss making, there is no dilution of earnings from potential ordinary shares and diluted earnings per share has not been presented.

b) Cash flows used in discontinued operation

3. FINANCE COSTS AND INCOME  

4. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing profit or loss for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. The calculation of the dilutive potential ordinary shares related to employee and director share option plans includes only those warrants with exercise prices below the average share trading price for each period.

At 30 June 2014 and 30 June 2013 there were no warrants with exercise prices below the average share trading price for those years, hence the number of potential dilutive ordinary shares is Nil (2013: Nil). The calculation of the diluted EPS assumes all criteria giving rise to the dilution of the EPS are achieved.

As the Group is loss making, there is no dilution of earnings from potential ordinary shares.

5. INTANGIBLE ASSETS

Additions for Canadian exploration and wells drilled in Q1 2014 of $9.4 million were subsequently transferred to property, plant and equipment. The increase in the period includes other exploration activity in Canada and Australia.

6. PROPERTY, PLANT AND EQUIPMENT

The increase in the period includes transfers in from Intangible assets for Canadian exploration and wells drilled in Q1 2014 of $9.4 million.

7. POST BALANCE SHEET EVENTS

On 24 July 2014 the Group announced that it had signed sale and purchase agreements to sell its interests in all of its UK licences and assets for £1.5 million ($2.6 million) to UK Oil & Gas Investments PLC ("UKOG"). Completion of the sale is subject to the approval of UKOG becoming an operator for certain licences by the Department of Energy and Climate Change and the completion of an intra-group transfer of certain asset interests within Northern Petroleum. The disposal group has been presented at net book value as a liability held for sale.

8. APPROVAL BY DIRECTORS

The interim results for the six months ended 30 June 2014 were approved by the Directors on 16 September 2014.

9. AVAILABILITY OF INTERIM REPORT

The Interim Report will be made available in electronic format on the Company's website, www.northernpetroleum.com. Further copies will be available on request by application to the Company Secretary at the Company's registered office, being Martin House, 5 Martin Lane, London EC4R 0DP.

In Accordance with AIM Rules - Guidance for Mining and Oil & Gas Companies, the information contained in this announcement has been reviewed and signed off by the Exploration and Technical Director of Northern Petroleum, Mr Graham Heard CGeol. FGS, who has 40 years' experience as a petroleum geologist. He has compiled, read and approved the technical disclosure in this regulatory announcement. The technical disclosure in this announcement complies with the SPE/WPC standard.

Note to Editors:

Northern Petroleum is an oil and gas company focused on production led growth. The Company is undertaking a redevelopment and production project in north west Alberta and has a broader portfolio of exploration and appraisal opportunities in countries of relatively low political risk, primarily Italy. Comprehensive information on Northern Petroleum and its oil and gas operations, including press releases, annual reports and interim reports are available from Northern Petroleum's website: www.northernpetroleum.com