Empyrean Regulatory News (EME)

This announcement contains inside information

Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil & Gas

12 December 2017

Empyrean Energy PLC ("Empyrean" or the "Company")

Interim Results

Empyrean Energy (EME: AIM), the oil and gas development company with interests in China, Indonesia and the United States, is pleased to provide its Interim Report for the six months ended 30 September 2017.

Highlights

· Block 29/11, Pearl River Mouth Basin, China (EME 100%)

o 580km2 3D seismic survey successfully completed in August 2017

o Preliminary interpretation of onboard processed seismic data confirms structural validity of Jade and Topaz Prospects

o Third significant target identified "Pearl", located north of Topaz

o Total Preliminary Prospective Resources (Best) Estimate of 591 mmbbls from Jade, Topaz and Pearl prospects

· Duyung PSC Project, Indonesia (EME 10%)

o Secured a 10% interest in the Duyung PSC, offshore Indonesia

o Mako South-1 well completed in June 2017, reaching completion at total depth of 1,707ft

o Mako South-1 exceeds expectations encountering excellent reservoir quality, gas saturation, porosity, permeability and flow rates

o Mako South-1 well flowed at a stabilised rate of 10.9 million cubic feet of gas per day with multi Darcy permeability

· Sacramento Basin, California (EME 25-30%)

o Negotiated a 25-30% working interest in the Sacramento Basin package of projects

o Sacramento Basin package includes the 1Tcf+ potential Dempsey prospect and the 2.4Tcf+ Alvares prospect plus a Dempsey Trend AMI with multiple targets

o Dempsey 1-15 well spudded on 2 August 2017 reaching completion at total depth of 2,970 metres

o Wireline logs confirmed numerous gas zones for production testing

o Dempsey 1-15 flow testing commenced in November 2017

For further information:

Operational Review

Block 29/11, Pearl River Mouth Basin, China (EME 100%)

Block 29/11 is located in the Pearl River Mouth Basin, offshore China (approximately 200km SE of Hong Kong). Empyrean is operator with 100% of the exploration rights of the 1,800km2 permit during the exploration phase of the project. The initial contractual term is for two years with a work programme commitment of acquisition, processing and interpretation of 500km2 of 3D seismic data. In the event of a commercial discovery and subject to Empyrean first entering a Production Sharing Contract ("PSC"), the China National Offshore Oil Company ("CNOOC") will have a back in right to 51% of the permit.

Empyrean commenced a 580km2 3D seismic acquisition survey in June 2017, which included the two key prospects, Jade and Topaz, which had already been identified in 2D seismic surveys. The 3D seismic survey acquisition was completed successfully in August 2017 and exceeded the work obligation of the permit for the current Geophysical Service Agreement ("GSA") phase. The survey was completed on schedule with excellent quality 3D data acquired.

Processing and interpretation work commenced in late August and in September 2017 Empyrean announced the results of preliminary internal interpretation of the raw seismic data which confirmed the structural validity of the Jade and Topaz prospects and identified a third significant target named Pearl, located to the north of Topaz.

A summary of the internal interpretation of gross unrisked mean prospective resources for Jade, Topaz and Pearl is provided in the table below.

These estimates are expected to be revised towards the end of Q1 2018 when the comprehensive interpretation of the fully processed 3D seismic data is expected to be completed.

In addition, geological work continues during Q4 2017, focusing on migration pathways of oil in the basin. The seismic interpretation and geological work is expected to finalise the prospective resources and geological risks of the Jade, Topaz and Pearl prospects.

Duyung PSC Project, Indonesia (EME 10%)

In May 2017, Empyrean acquired from Conrad Petroleum Pte Ltd ("Conrad Petroleum") a 10% shareholding in West Natuna Exploration Ltd ("WNEL"), which holds a 100% Participating Interest in the Duyung Production Sharing Contract ("Duyung PSC") in offshore Indonesia and is the operator of the Duyung PSC. 

The Duyung PSC covers an offshore permit of approximately 1,100km2 in the prolific West Natuna Basin. The main asset in the permit is the Mako shallow gas discovery that has an independently verified 2C and 3C gas resource of between 430-650 Bcf recoverable gas, that was completed before drilling the Mako South-1 well. On the back of results from the Mako South-1 well it is expected that the operator will commission an updated independent resource assessment in due course as further data is analysed and comes to hand. In addition, numerous prospects and leads have been identified in the permit using 3D seismic data.

The appraisal well, Mako South-1, was spudded on 16 June 2017 using a jackup rig located in water depths of 308 ft. The well reached a Total Depth ("TD") of 1,707 ft on 22 June 2017.

The Mako South-1 well exceeded the Company's expectations encountering excellent reservoir quality rock with high permeability sands in the multi Darcy range with 23 feet of gas bearing reservoir. This zone flowed gas at a stabilized rate of 10.9 million cubic feet per day through a 2 inch choke. The gas is of high-quality being close to 100% methane.

Initial interpretation of the test results demonstrated that the sandstone reservoir is expected to be laterally contiguous, and has exceptional permeabilities in the multi Darcy range.

Two conventional cores were recovered successfully and further analysis is currently underway to assist with the overall assessment of results and provide a development plan.

Sacramento Basin, California (EME 25-30%)

In May 2017 Empyrean entered into an agreement with ASX listed Sacgasco Limited ("Sacgasco"), a Sacramento Basin focused natural gas developer and producer, to farm-in to a package of gas projects in the Sacramento Basin, onshore California. The package includes two mature, multi-Tcf gas prospects, Dempsey and Alvarez, and an Area of Mutual Interest (AMI) along trend from Dempsey that includes at least three already identified Dempsey style follow up prospects.

Empyrean has earned a 30% interest in the Dempsey Prospect targeting 1 Tcf of gas by paying US$2,100,000 towards the cost of drilling the Dempsey 1-15 exploration well. These drilling costs have a promoted cap of US$3,200,000 and Empyrean is paying its working interest of 30% towards any additional costs towards Dempsey 1-15, including completion costs. The Dempsey 1-15 well was spudded on 2 August 2017 and drilled to a TD of 2,970 metres (9,747 feet) in September 2017. Wireline logs confirmed numerous gas zones for production testing, which is currently underway. The deepest of these zones is being tested first and Empyrean will provide further updates as the testing programme progresses.

The Alvares structure has been mapped with 2D seismic and is interpreted by Sacgasco to hold prospective resources of over 2 Tcf of recoverable gas. A 25% working interest will be earned in the Alvares appraisal prospect, by Empyrean paying 33.33% of the costs of the next Alvares appraisal well.

Finally, the Dempsey Trend AMI, in which Empyrean will earn a 30% interest, extends to approximately 250,000 acres (including the Dempsey structure) and includes at least three large Dempsey style identified follow up prospects. Empyrean will provide technical assistance to Sacgasco to further mature prospects within the Dempsey Trend AMI and will also have an option to participate in the already identified prospects on the following basis:

· Prospect #1: EME pays 60% of dry hole cost (i.e. to testing and setting production casing or abandonment) to earn 30% WI

· Prospect #2: EME pays 45% of dry hole cost (i.e. to testing and setting production casing or abandonment) to earn 30% WI

· Prospect #3: EME pays 45% of dry hole cost (i.e. to testing and setting production casing or abandonment) to earn 30% WI

Riverbend Project (10%) and Eagle Oil Pool Development Project (58.084% WI)

In light of current market conditions, little or no work has been completed on these projects during the year and no budget has been prepared for 2017/18 whilst the Company focuses on other projects.

Definitions

MMBOE Million barrels of oil equivalent

Production Production available for sale

WTI West Texas intermediate crude, type of oil used as a benchmark in oil pricing

Frank Brophy BSc (Hons)

Technical Director

12 December 2017

Statement of Comprehensive Income

For the Period Ended 30 September 2017

Statement of Financial Position

As at 30 September 2017

Statement of Cash Flows

For the Period Ended 30 September 2017

Statement of Changes in Equity

For the Year Period 30 September 2017

The accompanying accounting policies and notes form an integral part of these financial statements.

Statement of Accounting Policies

For the Period Ended 30 September 2017

Basis of preparation

The Company's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and Companies Act 2006. The principal accounting policies are summarised below. The financial report is presented in the functional currency, US dollars and all values are shown in thousands of US dollars (US$'000). The financial statements have been prepared on a historical cost basis and fair value for certain assets and liabilities. These condensed interim financial statements of the Company for the six months ended 30 September 2017 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The same accounting policies, presentation and methods of computation are followed in these financial statements as were applied in the Company's latest audited financial statements for the year ended 31 March 2017.

The financial information for the period ended 30 September 2017 does not constitute the full statutory accounts for that period. They have not been reviewed by the Company's auditor. The Annual Report and financial statements for the year ended 31 March 2017 have been filed with the Registrar of Companies. The independent auditor's report on the Annual Report and financial statements was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

Going Concern

The Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing its financial statements. The Company had a cash balance of US$4.650m at 30 September 2017 (US$6.106m: 31 March 2017).

Notes to the Financial Statements

For the Period Ended 30 September 2017

(a) Derivative financial assets consist of the fair value of contingent consideration amounts attached to the sale of Sugarloaf AMI on 19 February 2016. The fair value of the options was initially measured at the effective date of the sale and subsequently remeasured at each reporting period. At 30 September 2017, the value has been assessed as nil, with the final contingency expiring 31 December 2017.

(a) The Company was awarded its permit in China in December 2016 and acquired working interests in the Duyung PSC Project in Indonesia and the Sacramento Basin, California during the period. For further information, please refer to the Operational Review.

Derivative financial liabilities represent the fair value of 15,000,000 options granted to Macquarie Bank and linked to the extension of a now repaid loan facility held with Macquarie Bank. The options were granted on 27 July 2015 and are referred to as the Tranche 4 options. At the date of grant these were considered to fall outside of the scope of IFRS 2 and unlike Tranches 1-3 were not accounted for as a share based payment. The Macquarie Bank loan facility was repaid in 2016 but the options did not expire at that point. 

During the prior financial year, the Company modified the exercise price of the options. This was deemed to be a substantial modification under IAS 32 and IAS 39. The value of the derivative financial liability was extinguished at that point and the fair value of the modified options recognised at the date that they were granted. As a financial liability at fair value through the profit or loss these were revalued at period end. The fair value is measured using a Black-Scholes Model with the following inputs:

Expected volatility was determined by calculating the historical volatility of the Company's share price over the expected remaining life of the options.