Cabot Energy Regulatory News (CAB)

Northern Petroleum Plc

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

Operational update

Interim Results for six months ended 30 June 2015

Northern Petroleum, the AIM quoted oil company focusing on production led growth, provides the following update on operations and announces its unaudited interim results for the six months ended 30 June 2015.

Operational update

Italy

§ Environmental submission being prepared for an appraisal well on the 26 million barrel ("mmbbls") 2C, 100 per cent owned Giove oil discovery, which is planned to be drilled in the next 12 to 18 months

§ Planning underway to acquire 3D seismic in Q3 2016 over the permits in the southern Adriatic, including the Cygnus prospect which is estimated to contain 446 mmbbls of mean prospective resource

§ Exploration programme started on the Shell operated Cascina Alberto permit onshore northern Italy, which contains the Gattinara prospect, previously interpreted by Enterprise and ENI to contain 300 mmbbls of prospective resource

§ Work to start on five new contiguous exploration permits in the southern Adriatic following final decree by Ministry of Economic Development

§ Joint subsurface study in the Sicily Channel with Schlumberger and GEPlan almost complete - a farm out of the Vesta prospect, which contains two large prospective horizons analogous to the nearby producing Vega oil field, is now being instigated

Canada

§ 100/16-19 well production being managed to maintain a stabilised water cut of approximately 20 per cent - net oil production of approximately 25 barrels of oil per day

§ Awaiting the results of a further pipeline survey by local infrastructure operator before production can commence on the high rate 102/15-23 well

§ Subsurface review based on production data and previous drilling programmes being finalised to define future development

§ Acquisitions under consideration to expand the production base and reduce the operating cost of existing production

Keith Bush, Chief Executive Officer, commented:

"As the industry continues to go through a very challenging period, we have taken the necessary steps to best manage the business during this time. The current oil price environment also presents opportunities as operating costs reduce and innovative solutions to finance some of the larger capital expenditure contracts are developed.

"Now is the time to build and execute a work programme across our Italian exploration and appraisal assets. Any one of Giove, Cygnus, Cascina Alberto and Vesta will provide significant upside for shareholders upon success. The Canadian development and production acreage can provide funding for the Company and, in the medium term, has the ability to grow core value in its own right, especially if combined with other assets to create operating synergies.

"While the outlook for the industry in the short term remains difficult, with the portfolio available to the Company the medium and long term outlook is positive and exciting for Northern Petroleum."

Interim Highlights

Operations

§ Continued record of no accidents or incidents

§ 102/11-30 well drilled, completed and tested

§ Production shut in to evaluate potential to reduce operating costs

§ 100/16-19 production restarted in June

§ Subsurface technical review initiated to establish future development plan

§ Re-start of production on 102/15-23 well awaiting remedial work on pipeline spur by local infrastructure operator

§ Farmed out 80% of the onshore Cascina Alberto permit to Shell Italia

§ EIA approval for Italian 3D seismic acquisition in the southern Adriatic

§ Five exploration application EIAs approved in the southern Adriatic

§ Initiated a joint technical study with Schlumberger and GEPlan in the Sicily Channel

Corporate and Financial

§ Further cost review and office relocation

§ Reduction in staff and board

§ Reduction in general and administrative costs undertaken during the period

§ $850,000 received from the farm out of Cascina Alberto in northern Italy

§ Revenue ($0.2 million) and operating costs ($0.6 million) reflect the limited production during the period

§ Cash on the balance sheet at the period end was $3.0 million (31 December 2014 $12.1 million)

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 (Nominated Adviser 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

David van Erp

Interim Report Management Statement

During the first six months of 2015, the macro environment for the upstream oil and gas industry has remained extremely challenging. The West Texas Intermediate ("WTI") benchmark crude oil spot price averaged approximately US$53 per barrel, nearly 50 per cent less than the equivalent period for 2014. The collapse in the oil price has been driven by the influence of many global factors on both the supply and demand side of the industry, and the near term forecast remains volatile. As a result of this macro environment the Group has taken a series of steps to reduce the cost base at both an operational and corporate level.

Canada

Production from the Group's existing wells was shut in towards the end of January. The wells were being produced using expensive rental equipment and production was being trucked, making production only marginally economic ahead of being tied into local infrastructure. With the drop in oil price, only one of the wells was tied in as the capital payback period on the investment required to tie in the other wells had significantly increased. Following the temporary halting of production, the rental equipment was removed from the remaining wells and the ongoing running cost of the operations in the field was reduced to as low as possible.

Subsequent to shutting these wells in, the operator of the infrastructure detected a problem with part of their pipeline network, requiring 102/15-23 to be shut in as well. This meant that for the majority of the period, the Group had no production. Following a detailed review of all options, economic production was restarted in June from the 100/16-19 well, enabled by the purchase of a low cost production vessel that removed the need for high cost rental equipment. Production from the 102/15-23 well was expected to restart during the third quarter, however the operator of the local infrastructure is undertaking a wider review of the pipeline network following initial repairs and the restart of production will occur after the infrastructure operator makes the necessary repairs or the Group implements an alternative offtake solution.

During the first quarter of the year, the 102/11-30 well was drilled into a previously developed reef. The well encountered the reservoir on prognosis, but problems experienced when cementing the liner over the reservoir section lead to difficulties in interpreting the well test. The well delivered nearly 100 barrels of oil per day during the test with 85 per cent water production, but it was not possible to determine where the water was coming from due to the cementing issue. As a result, the well was suspended pending a subsurface review to understand the water production mechanism and determine the optimum way to produce the well with minimal water production.

Italy

While progress in Canada has proven challenging, significant progress has been made in Italy. The Group farmed out an 80 per cent interest in the Cascina Alberto permit to Shell for a cash contribution of $850,000 and a carry, effectively through to the end of the drilling of any exploration well on the permit. The Group has also received the approval of six environmental impact assessments ("EIA") in the southern Adriatic, one for the proposed 3D seismic programme across the Giove oil discovery and Cygnus exploration prospect, and five others for application areas. Approval of these EIA's allows the Group to plan the seismic programme and work with the Ministry of Economic Development to turn the applications into permits thus providing the Group with one of the largest contiguous areas of exploration and appraisal acreage in the Adriatic.

Further to this, and as evidence of the general improvement in the progress of the industry in Italy, several companies have recently received EIA approvals for various upstream projects and drilling has recommenced offshore.

Corporate

At a corporate level, the Group has remained extremely focused on the running costs of the business. Further reductions in cost have been made during the first half of the year including an additional reduction in the number of staff and an office move to a much more cost effective location.

Financial

The revenue for the first six months of the year of $0.2 million reflects the shut in of all the producing wells at the end of January with one well re-starting production in June. The operating expense of $0.6 million reflects the fixed level of costs still incurred during this shut-in period, in addition to the operational cost of shutting the wells in and an element of the work undertaken to re-start the 100/16-19 well. Other income during the period represents the cash received for the farm out of the Cascina Alberto permit. The continued strengthening of the US dollar during the first half of the year contributed to the majority of the finance costs of $0.5 million and the loss of $2.3 million on the revaluation of the balance sheet as shown in the statement of Other Comprehensive Income. The Group's treasury policy is to match the currencies of the cash held with the likely currency requirements of forecast costs and cashflow.

The reduction in cash held on the balance sheet from $12.1 million as at 31 December 2014 to $3.0 million as at 30 June 2015 is mainly due to the capital expenditure on the 102/11- 30 well drilled in February and the tie-in of the 102/15-23 well, which combined totalled approximately $3.9 million. The paying down of a significant amount of mainly Canadian creditors from year end amounted to $4.0 million and ongoing general and administrative costs included some restructuring costs as the Group further reduced its staff headcount and moved its London office. With $3 million in cash on the balance sheet at the period end, a number of initiatives are actively being pursued to bring necessary further capital resources into the Group to help build future production and cashflow and fund the business.

Summary and outlook

With the outlook for crude oil prices remaining uncertain into next year, the focus of the business is on minimising the cost of development and production in order to maximise the value of each barrel produced. The Group's overhead must also be kept as low as possible without losing the resources necessary to grow both core asset groups.

The Group is looking at a number of different opportunities to grow the production base in Canada, which will strengthen the financial position of the business, and also advance the Italian assets now that the industrial climate in country has improved.

Condensed Consolidated Statement of Profit or Lossfor the six months ended 30 June 2015

All results are from continuing activities.

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.

Notes 1 to 7 form an integral part of this report.

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Incomefor the six months ended 30 June 2015

Notes 1 to 7 form an integral part of this report.

Condensed Consolidated Statement of Financial Positionat 30 June 2015 

Notes 1 to 7 form an integral part of this report.

Condensed Consolidated Cash Flow Statementfor the six months ended 30 June 2015

Condensed Consolidated Statement of Changes in Equityfor the six months ended 30 June 2015

Condensed Consolidated Statement of Changes in Equityfor the six months ended 30 June 2014 

* Increase in equity in Northpet Investments Limited.

Notes to the Condensed Consolidated Interim Financial Statementsfor the six months ended 30 June 2015 

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 2014. 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 2015 and 30 June 2014 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 2014 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.

Adoption of new and revised standards

In the current year, 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:

• IAS 19 Defined benefit Plans: Employee Contributions

• IFRS 2 Share-based Payment - Definition of vesting conditions

• IFRS 3 Business Combinations - Accounting for contingent consideration in a business combination

• IFRS 8 Operating Segments - Aggregation of operating segments

• IFRS 8 Operating Segments - Reconciliation of the total reportable segments assets to the entity's assets

• IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets - Revaluation method - proportionate restatement of accumulated depreciation/amortisation

• IAS 24 Related Party Disclosures - Key management personnel

• IFRS 13 Fair Value Measurement - Scope of paragraph 52 (portfolio exemption)

• IAS 40 Investment Property - Interrelationship between IFRS 3 and IAS 40 (ancillary services)

2. Finance costs and income

3. 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 2015 and 30 June 2014 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 (2014: 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.

4. Intangible assets

5. Property, Plant and Equipment

6. Approval by directors

The interim results for the six months ended 30 June 2015 were approved by the Directors on 29 September 2015.

7. 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 Chester House, Unit 3.01, Kennington Park, London SW9 6DE.

In Accordance with the AIM Rules - Guidance for Mining and Oil & Gas Companies, the information contained in this announcement has been reviewed and signed off by the CEO of Northern Petroleum, Mr Keith Bush, who has 24 years' experience as a petroleum engineer. He has read and approved the technical disclosures 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