Caspian Sunrise Regulatory News (CASP)

Caspian Sunrise plc

("Caspian" or the "Company")

Interim Results for the period ended 30 June 2017

Caspian Sunrise, formerly Roxi Petroleum plc, the Central Asian oil and gas company with a focus on Kazakhstan, announces its unaudited results for the six-month period ended 30 June 2017.

Highlights

In the period under review

Corporate / Financial

· Completion of the merger with Baverstock GmbH, following which we now own 99% of our flagship BNG asset

· Conversion of $10.1 million debt to equity at 10p per share

Operational - shallow wells

· Continued strong performance from the MJF structure

Subsequently

Financial

· Income from test production now sufficient to cover all G&A and shallow drilling costs

· Retention payment from the Galaz disposal recovered

· Several of the oil trader funding arrangements have been repaid

Operational

· Well 145 on the MJF structure was drilled to its planned Total Depth of 2,500 meters meters and is testing at the rate of 490 bopd

· Aggregate production capacity is now in excess of 3,400 bopd

· The planned side-track at Deep Well A5 from 4,082 meters is well underway

· Deep Well 801 demonstrates periodic oil flows under natural pressure

· Success at new intervals at Well 54 is expected to have a meaningful impact on South Yelemes reserves

Enquiries:

Caspian Sunrise PLC  +7 727 375 0202 

Clive Carver, Chairman 

WH Ireland Limited +44 (0) 207 220 1666 

James Joyce / James Bavister 

Yellow Jersey PR +44 (0) 203 735 8825 Tim Thompson

Qualified Person

Mr. Nurlybek Ospanov, Caspian Sunrise's senior geologist who is a member of the Society of Petroleum Engineers ("SPE"), has reviewed and approved the technical disclosures in this announcement. 

The information contained within this announcement is deemed by the Company to constitute inside information under Market Abuse Regulation (EU) No 596/2014

Introduction

I am pleased to present this interim statement covering the six-month period ended 30 June 2017. This is the first such report since the change of name from Roxi Petroleum PLC to Caspian Sunrise PLC.

BNG

At our principal asset BNG we are fortunate to have both excellent shallow and promising deep prospects, either of which would provide the foundation for a commercially successful oil production company. Together they represent a rare opportunity to develop a meaningful mid-cap oil company.

Approach to developing BNG

Our approach to the development of BNG, the Group's principal asset, is to seek to maximise reserves with minimum shareholder dilution before the expected upgrade of the current exploration to a full production licence in July 2018.

We plan to seek a full production licence to run for either 25 or 49 years as permitted under Kazakh law depending on the reserve position at that time. Under a full production licence we will be permitted to export and sell the majority of oil produced at world prices in comparison with the current obligation to sell any oil produced at only domestic prices, which are significantly lower.

Our longer-term objective is to prove significant reserves from our shallow and deep drilling at BNG. Such an outcome would we believe constitute a very significant value enhancement for the Company.

While we have reported strong progress with our shallow wells, in particular with the MJF structure, we have yet to match this success with our three deep wells, where continuous flow testing has been constrained by very high pressure. Nevertheless we remain committed to maximising the value of both the shallow and the deep prospects at BNG.

Operational review

Shallow & Deep Well economics

The BNG geology makes commercial success at our shallow wells easier to achieve with wells typically costing between $1.5 million and $2.0 million and sustained production rates at our best wells of up to 700 bopd.

Our shallow wells typically take 2 months to drill and a further month to prepare for testing. This makes the payback period less than 12 months for a typical shallow well, even with the oil produced sold at domestic prices.

By contrast a deep well typically takes 6 months to drill and prepare for testing at a cost of some $10 million. Drilling is commonly through a salt layer, which is both difficult in itself and makes the interpretation of the seismic data below the salt layer less certain.

The attraction of the Deep Wells is that if successful the quantity of oil, as demonstrated in reserve calculations and production figures, is typically many times that from a shallow well. For example we would be disappointed if once flowing any of the deep wells drilled produced less than 2,500 bopd each.

MJF structure

So far we have five successful wells on the MJF structure with another one expected before the end of the year. The MJF structure is currently capable of producing in aggregate approximately 3,220 bopd and the size of the structure is at least 10 km2.

The latest successful well at the MJF structure is Well 145, which was spudded in July 2017 and is situated some 0.95 kilometres from Well 143. This well reached its total depth without incident and is currently testing. Production volumes at Well 145 have been steadily increasing and have reached approximately 490 bopd, which forms part of the aggregate 3,220 bopd referred to above. Our expectation based on the performance of similar wells is that the production from Well 145 will peak at approximately 700 bopd, which would take the aggregate production capable of the 5 successful wells at the MJF structure to more than 3,400 bopd.

Before the end of the year we plan to drill Well 146, a similar well to Well 145 targeting the same Jurassic Callovian sands at a depth of 2,200 meters with a secondary objective in the Cretaceous Valinginian limestone at a depth of 1,900 meters.

South Yelemes structure

The South Yelemes structure was first identified as an oil producing structure during the Soviet era. During the Group's involvement with BNG three new shallow wells (805, 806 & 807) have been drilled and continue to produce at the rate of approximately 150 bopd in aggregate.

We have at Well 54 (an old Soviet Well previously shut-in) discovered a new higher interval between 1,961 and 1,971 meters, which we believe may extend across the extent of the whole Yelemes structure.

Currently production from this interval is only approximately 14 bopd. However the hoped for extensive nature of the interval would lend itself to horizontal drilling, which, if successful, would we hope materially increase the daily production across this structure.

It could also have a material bearing on any revised reserve estimates as the wells already drilled on the South Yelemes structure covers a surface area of 6 km2.

Aggregate production from the South Yelemes structure is 164 bopd.

Potential New structure

As previously announced with Well 808 we have explored a potential new structure targeting Cretaceous Jurassic and possible Triassic horizons. The well was spudded in January 2017 and drilled to a depth of 3,200 meters in March 2017 without incident and six intervals of interest identified.

We also previously announced the intervals tested between 3,038 - 3030 meters and between 3,014 and 3,008 meters contained shows of oil films but tested water with gas.

The well continues to produce gas and water. It is not yet clear to us whether the water inflow encountered is the result of a leak in the casing or an indication that the well is not commercial. Once this has been established we will decide how best to proceed with this well and the potential structure as a whole.

However, given our successes with the MJF structure detailed above, we do not now plan to drill any further wells on this potential new structure before the expected BNG licence renewal in July 2018.

Deep Well summary

To date we have been frustrated at each of our three deep wells A5, A6 and 801.

The common issue being that the extremely high temperature and pressure in the wells has resulted in them becoming blocked, principally with the drilling fluids, which have over time set solid. These drilling fluids were used to control the pressure and minimise the risk of blow-outs during the drilling phase.

This is not an unusual problem to encounter with high pressure and high temperature wells and we remain confident that we will soon bring one or more of these wells into production. What is difficult to predict is exactly when.

Deep Well A5

The first opportunity to bring a deep well into production is with Deep Well A5. Our chosen approach here is to drill a side-track to the existing well at a 15 degree angle from a depth of 4,082 meters to a new target depth of 4,450 meters

Following clean up work in the well drilling commenced and to date has progressed well leaving only a further 250 meters to complete. The pace of drilling has been slow so far resulting from the subsurface conditions encountered but no material issues have been encountered. We anticipate the pace of drilling picking up for the remainder of the process as subsurface conditions improve.

It should not therefore be long before we know whether the side track will result in the first of our deep wells flowing without stimulation and without Deep Well interruption.

Deep Well 801

Once the rig on A5 can be released it will move to Deep Well 801, which continues to show encouraging signs of oil, with regular leakages to the surface under the wells natural pressure.

As previously reported we have a number of drilling pipes stuck in the well. One option open to us is to attempt to commence production from Deep Well 801 with the stuck pipes in place. Given the high pressures in the well and the oil shows to date this may be possible with minimal intervention and if successful would provide a significant increase in production volumes and income.

However, with the stuck pipes in place it is unlikely that we would be able to include much by way of reserves for the area around the well as our independent experts may not be able to isolate the intervals from which the oil is flowing, which is a requirement to support meaningful reserve estimates.

Our plan then is to use the rig currently at Deep Well A5 to attempt to remove the stuck pipes before attempting to bring the well into production.

Should the stuck pipes not be recoverable we still have the option to attempt to flow the well with them in place and use the proceeds of any oil produced to help fund Deep Well A8 and 802.

Deep Well A6

At Deep Well A6 we re-perforated a 60-meter section of the 100-meter oil bearing interval discovered in 2016. To date oil had not flowed from these re-perforations and we now believe the well may need re-completing closing possible gaps in the casing at the bottom of the well before additional perforation work at the lower interval of interest is re performed.

The timing of this work will depend on the outcome of the work taking place and planned at Deep Wells A5 and 801, as drilling pipes in use there will be required at A6. However, there should be no delay waiting for a rig to become available as we plan to use a lighter rig at Deep Well A6 than are being used at the other deep wells.

Other assets

Munaily

The Munaily field is located in the Atyrau Oblast approximately 70 kilometres southeast of the town of Kulsary. The field was discovered in the 1940s and produced from 12 reservoirs in the Cretaceous through to the Triassic. Roxi acquired 58.41 per cent interest of the 0.67 square kilometers rehabilitation block in 2008 and funded two wells and one well re-entry. Following the completion of the Baverstock Merger our interest in the Munaily Contract Area is now 99.0%

The only well producing at Munaily is doing so at the rate of 50 bopd. Sales of oil from Munaily are at export prices as the field has a full production licence, which does not expire until 2025.

As previously announced we entered a joint venture agreement with a Chinese contractor for it to re-enter up to 20 wells drilled in the Soviet era, at the expense of the Chinese contractor, with sales of any oil produced split on a 50:50 basis.

We no longer believe this arrangement will result in Munaily becoming a meaningful part of the Group's producing assets and would sell our interest in this Contract Area on receipt of an acceptable offer is received. In the meantime we will continue to sell the oil produced.

Beibars

In 2007, Roxi acquired a 50 per cent interest in Beibars Munai LLP, which operates the 167 square kilometer Beibars Contract Area on the Caspian shoreline south of the city of Aktau. 

While acquiring 3D seismic in 2008, the licence was put under Force Majeure when the acreage was allocated as a military exercise area (Polygon), by the Ministry of Defence. Since then no operations have been carried out, and Roxi operates a care and maintenance administrative budget on the project. 

Given our successes at BNG we have decided that the development from scratch of a new Contract Area of the size of Beibars would not be the best use of shareholders funds and have relinquished our interest in the asset. As Beibars has for many years been carried at zero value in the Group's there is no impact to our financial position other than the future saving of care and maintenance expenditure.

Aggregate Production

Aggregate shallow `production is running at the rate of approximately 3,434 bopd, consisting of:

· the MJF structure with the capacity to produce at the rate of approximately 3,220 bopd.

· the South Yelemes structure with the capacity to produce at the rate of 164 bopd

· Munaily with the capacity to produce at the rate of some 50 bopd

BNG Licence upgrade

In July 2018 we have the opportunity at BNG to move from an appraisal licence, where oil produced must be sold at domestic prices - currently some $16 - 19 per barrel - to a production licence, where the majority of oil produced may be sold at world prices.

Based on current world prices we would increase the net price received after all applicable taxes and charges by up to £10 per barrel on any production sold under a full production licence.

The licence at Munaily is already a full production licence.

Reserve update

On 2 September 2016, we published a reserves update from Gaffney Cline & Associates, derived solely from our shallow fields, which based on an 100% economic interest is:

(P90) Proved reserves of 18.3 million barrels

(P50) Proved and Probable of 29.3 million barrels

(P10) Proved, Probable & Possible reserves 45.0 million barrels

These shallow reserves were based on drilling to 31 December 2015. Since then, a further four wells have been drilled and are producing on the MJF structure, with a fifth planned for before the end of the year..

Wells 145 and 146 are outside the already stated MJF structure surface area of 10 km2. Therefore with Wells 145 already a success we expect the surface area of the MJF structure to increase.

Following Well 146 we intend to ask Gaffney Cline to revisit our shallow reserve estimates. However, should Well 808 on the Potential New Structure become commercial, we would look to include this in the scope of work for Gaffney Cline.

The Baverstock merger

The major non-operational success of the past few years was in June 2017 the completion of the "Baverstock Merger".

Before the merger we owned 58.41% of the BNG and Munaily assets, which were acquired as part of the 2008 acquisition of Eragon Petroleum Limited (the "Eragon Acquisition").

Under the terms of the Eragon Acquisition we were required to fund the first $100 million of the work programme costs for the Eragon Assets (BNG, Galaz and Munaily) acquired under the Eragon Acquisition.

We reached this $100 million level in Q1 2015. From which date we had an obligation to fund 58.41% of further work programme costs with Baverstock GmbH ("Baverstock"), the owner of the remaining interest in Eragon, having the obligation to fund the 41.59% balance.

As a company whose shares are publically quoted on AIM we had a far greater ability to meet these commitments than did Baverstock, which comprises four separate quota-holders, including our CEO Kuat Oraziman.

The disposal of Galaz Energy BV for a headline price of $100 million in 2015 provided approximately $34 million of funding from both ourselves and Baverstock, as we were both proportionally invested in Galaz Energy BV. However, once the net proceeds of sale had been fully utilised there was the risk that the pace of the development of BNG could be constrained by the ability of Baverstock to fund its share.

Additionally having the continuing related party issues arising from our CEO holding a significant interest in the Company's assets outside the Company provided the opportunity for confusion and suspicions of special treatment.

We were therefore delighted to be able to structure and complete a non-cash deal on precisely pro-rata terms whereby Baverstock effectively exchanged its direct interest in the remaining Eragon Assets (BNG & Munaily) for new shares in the renamed Caspian Sunrise.

Part of the arrangements involve the subsequent splitting of the shares held by Baverstock to the four separate quota-holders. Work to accomplish this is continuing. However we have already disclosed each quota-holders underlying interest.

We now have a situation where all stakeholders interests in our assets are aligned solely via their shareholding in the Company and where the ownership of the company is fully transparent.

Operating in Kazakhstan

Our focus since formation in 2006 has been Kazakhstan and in particular the Caspian basin. The territory is a proven producing region with a complete network of international pipelines with the supporting infrastructure required for success.

Our flagship asset, the BNG Contract Area is only 40 km from the world class Tengiz Contract Area on which Chevron have announced a further $37 billion investment.

Since 2016 the costs of operating in Kazakhstan have fallen significantly. This is in part due to the lower cost of rig and equipment and in part as a result of successive devaluations in the value of the Kazakh Tenge compared to the US$.

At BNG we are fortunate that we have no poisonous hydrogen sulphide issues to overcome. This has resulted in local staff being prepared to work at competitive rates.

With the vast majority of our staff being Kazakh nationals we are also well placed to understand and work in compliance of the prevailing regulations.

Financial performance

An accepted international accounting treatment for oil produced under an appraisal licence is to treat the proceeds as a by product of the Group's main activity. This means that any revenue in respect of the Group's exploration assets is recorded in the income statement but an adjustment is recorded to cost of sales to reduce the margin on such production to nil and reduce the carrying costs of the development of the Contract Area. Accordingly until we have a full production licence the full economic impact of oil sales will not be shown in the income statement.

These results show that our significant increase of operational and corporate activity has been accomplished without any material corresponding increase in administrative expenses and that the reported loss before tax has fallen compared to the prior period.

Funding

In May 2017, with the approval of independent shareholders, we converted a $10.1 million loan from Vertom International NV, a company controlled by our CEO Kuat Oraziman, into 80,804,200 Caspian Sunrise shares at a conversion price of 10p.

 Income from the success of our shallow fields is now covering the costs of all our G&A and shallow drilling activity. We recently closed out several old oil-trader funding contracts in the expectation of entering others on more favourable terms.

We have the obligation to drill a deep well, A8, as part of our existing work programme commitments at BNG, which we plan to spud in the New Year, subject to prevailing weather conditions.

We expect the costs of this deep well to be no greater than $10 million and plan to fund it from a combination of:

· Surplus income from the production from our shallow wells

· Income from any of our current deep wells coming on stream before the completion of drilling

· Advances from local oil traders

· Loans from industry participants

We have yet to make a decision about the timing of a further deep well 802.

Outlook

We remain convinced BNG is a very valuable asset. We have increased our daily production capacity to some 3,400 bopd, which with oil sales even at domestic prices already values the Company with a value considerably ahead of its market capitalisation.

Our expected move in July 2018 to a full production licence, which should allow oil sales at much higher prices than to date should provide a positive step change in our financial performance.

We believe the value of the Group will also be transformed to an even greater extent when the deep wells start to flow.

We are in control of our own destiny with a supportive shareholder base, good relations with the relevant authorities in Kazakhstan and sufficient funding options to meet our objectives.

Given our expected future stronger financial position an option open to the Company in due course will be the payment of dividends.

We therefore look forward to the future with increased confidence.

As ever we thank shareholders for their continued support and look forward to providing regular updates of our operational activities.

Clive Carver

Chairman

20 September 2017

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2017

For the six months ended 30 June 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

This financial information was approved and authorised for issue by the Board of Directors on 20 September 2017 and was signed on its behalf by:

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

1. STATUTORY ACCOUNTS

The interim financial results for the period ended 30 June 2017 are unaudited. The financial information contained within this report does not constitute statutory accounts as defined by Section 434(3) of the Companies Act 2006.

2. BASIS OF PREPARATION

Caspian Sunrise plc is registered and domiciled in England and Wales.

This interim financial information of the Company and its subsidiaries ("the Group") for the six months ended 30 June 2017 has been prepared on a basis consistent with the accounting policies set out in the Group's consolidated annual financial statements for the year ended 31 December 2016. It has not been audited, does not include all of the information required for full annual financial statements, and should be read in conjunction with the Group's consolidated annual financial statements for the year ended 31 December 2016. The 2016 annual report and accounts, which received an unqualified opinion from the auditors, did not draw attention to any matters by way of emphasis, except for the going concern related emphasis, and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006, have been filed with the Registrar of Companies. As permitted, the Group has chosen not to adopt IAS 34 'Interim Financial Reporting'.

The financial information is presented in US Dollars and has been prepared under the historical cost convention.

The same accounting policies, presentation and method of computation are followed in this consolidated financial information as were applied in the Group's latest annual financial statements.

In addition, the IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

Going Concern

The financial information has been prepared on a going concern basis based upon projected future cash flows and planned work programmes.

Additional funding would in the opinion of the Directors be available if required from the sale of oil produced during testing.

The Directors are confident, on the above basis, that the Group will have sufficient resources for its operational needs over the relevant period, being until September 2018. Accordingly, the Directors continue to adopt the going concern basis.

3. EARNINGS/(LOSS) PER SHARE

Basic earnings/(loss) per share is calculated by dividing the income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year including shares to be issued.

In order to calculate diluted earnings/(loss) per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares according to IAS33. Dilutive potential ordinary shares include share options granted to employees and directors where the exercise price (adjusted according to IAS33) is less than the average market price of the Company's ordinary shares during the period.

The calculation of loss per share is based on:

4. UNPROVEN OIL AND GAS ASSETS

During six months period ended June 30 2017 Company's oil and gas assets increased by US$1.1 million due to additions (2016: US$3.1 million). Also during six months period ended June 30 2017 the Company has provided advances related to its drilling operations in the amount of US$3.8 million.

5. CALLED UP SHARE CAPITAL

6. BORROWINGS

(a) Short-term loans provided by Kazakhstan based borrowers and are repayable on demand.

(b) On 29 September 2011 the Company entered into the loan facility with Vertom International NV ("Vertom") whereby Vertom agreed to lend up to US$5 million to the Company with an associated interest of 12% per annum. The Company has offered Vertom security over its investments in its operating assets in respect to this loan facility. On 30 April 2012 the Group extended the term of the loan facility arrangement with Vertom for further two years to 30 April 2014 and at the same time increased the facility amount to US$7 million. On 28 June 2013 the term of the loan facility was extended until 30 April 2016. On 26 June 2015 the term of the loan facility was extended until 30 April 2018. The loan was converted to the 80,804,199 Company's shares on June 1 2017 after the finalization of the purchase of Baverstock's interest in the share capital of Eragon (note 5 and 7).