FOGL.L Regulatory News (FOGL)

30 April 2014

Falkland Oil and Gas Limited

("FOGL" or "the Company")

Final Results for the year ended 31 December 2013

FOGL, the oil and gas exploration company focused on its extensive licence areas offshore the Falkland Islands, announces its Final Results for the year ended 31 December 2013.

Robust financial position

· At 31 December 2013, cash balances were US$151.4m

· Fully funded for a 5 well drilling programme commencing in 2015

Acquisition of Desire Petroleum

· The acquisition of Desire Petroleum has created a broader based exploration portfolio

· FOGL has retained substantial upside exposure to high-impact exploration

· Gained an interest in the Sea Lion project

· Successfully farmed-out two of Desire's licences to Premier Oil and Rockhopper Exploration

Scale

· FOGL is the largest licence holder of the six oil companies operating in the Falkland Islands with a net interest of over 40,000 sq. km

· FOGL is the only oil company to have exploration exposure to both the northern and southern basins offshore the Falkland Islands

· The Company has been able to retain a material licence interest of at least 40%, thereby providing substantial exposure for shareholders in the event of success

· The 2015 five well drilling programme will target gross un-risked resources of more than one billion barrels of oil

New 3D seismic

· Extensive 3D seismic programme completed, with the acquisition of over 12,000 sq km of high quality data

· The new 3D seismic is being used to optimise and select targets for the 2015 drilling campaign

· Multiple new prospects have already been identified

Richard Liddell, Chairman of FOGL, said:

"2013 was a year of remarkable achievement during which the company significantly diversified its portfolio whilst simultaneously orchestrating farm-out deals to achieve a balance of upside exposure, risk and funding. During the course of 2015 we will have exposure to 5 high impact wells within a fully funded programme and we are naturally very pleased with the opportunity for value growth which this offers our shareholders, and we are looking forward to a very exciting period ahead"

Enquiries:

The technical information included in this announcement has been reviewed, verified and compiled by the Company's geological staff, including a qualified person, Colin More BSc., MSc. (Exploration Director), who has over 26 years of experience in petroleum exploration, for the purpose of the Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in respect of AIM companies, which outline standards of disclosure for mineral projects. Mr. More is a member of the Geological Society of London, the American Association of Petroleum Geologists and the Society of Exploration Geophysicists.

Chairman's statement

2013 was a year of distinction for Falkland Oil and Gas (FOGL), which culminated in the transformational acquisition of Desire Petroleum. This makes FOGL the most diversified of the Falkland Island explorers, with exposure to five high-impact wells planned in the next drilling campaign.

During the year FOGL extended its exploration portfolio into the North Falkland Basin, successfully farmed-out two of Desire's licences to Premier Oil and Rockhopper Exploration, and continued to improve its subsurface understanding by carrying out a major 3D seismic survey in the South and East Falkland Basins.

A key theme of 2013 was the 3D seismic acquisition programme. Three separate surveys, totalling over 12,000 sq. km, were all guided by the results of previous wells and the extensive data gathered has provided us with valuable insight and focus for the next round of drilling.

The acquisition of Desire has created a broader based business not only offering shareholders reduced risk through a more diversified portfolio, but also retaining substantial upside exposure to high-impact exploration. In addition, FOGL has gained an interest in the Sea Lion project, which is currently expected to commence production approximately four years after the project is sanctioned.

Our financial position is robust and we are fully funded for our planned exploration programme, which comprises five wells to be drilled, commencing in 2015. The loss for the year was US$4million (2012: profit of US$1.1 million), including interest received on deposits and exchange gains of US$2.4 million (2012: US$5.7 million). At the start of the year cash balances totalled US$174 million. Exploration expenditures totalled US$62.8 million in the year and the Company had cash balances at 31 December 2013 of US$151million.

Our goal is to create significant value for shareholders through the discovery of material hydrocarbon accumulations offshore the Falkland Islands and we intend to realise this value through a multi-well drilling programme commencing in 2015. We believe that we will be able to deliver this from our solid operational platform and strong financial position. Our objectives are further underpinned by a proven management team, board and our joint venture partners and I would like to thank them all for their energy and efforts in driving the enterprise forward through a busy year.

Chief Executive's Business Review

During 2013 FOGL made significant progress on a number of fronts in support of our strategy, which is to create substantial shareholder value through successful exploration. In order to achieve this we have successfully maintained scale and materiality, so that any success will have a significant share price impact. We have also carefully managed risk in order to mitigate the technical and commercial challenges of our business model and operating environment. We remain on target to deliver an exciting inventory of exploration prospects and a multi-well drilling programme that can deliver transformational shareholder value.

Scale & Materiality

FOGL is the largest licence holder of the six oil companies operating in the Falkland Islands with a net interest of over 40,000 sq. km. The size and prospective nature of this acreage has enabled us to successfully conclude farm-out transactions with well established, strong international partners including Noble Energy, Edison International and Premier Oil. As a result FOGL has been able to retain a material licence interest of at least 40%, thereby providing substantial exposure for shareholders in the event of success.

In December 2013, the acquisition of Desire Petroleum was approved both by our respective shareholders and by the Falkland Islands Government. This acquisition created the only oil company to have exploration exposure to both the northern and southern basins of the Falkland Islands.

Together with our joint venture partners Noble Energy and Edison International, FOGL has made a major investment in the acquisition of 3D seismic data. Commencing in late 2012 and continuing into 2014, we acquired 12,000 sq. km of high quality 3D data. This was in addition to the 4,200 sq. km of 3D data that has previously been acquired by Desire in the North Falkland Basin. FOGL is actively using this seismic data to define a large inventory of exciting prospects. Based on our work to date, we expect that the next drilling programme will target gross un-risked resources of more than one billion barrels of oil.

Risk Management

FOGL has continued to successfully manage its risk exposure and funding through farm-outs. On 9 December 2013, FOGL entered into a farm-out agreement with Premier Oil and Rockhopper Exploration with respect to licences PL004a and PL004c. FOGL retained a 40% interest in both licences and is fully carried through two exploration wells. Operational skills and competence have also been enhanced as a result of the Company's farm-outs, by bringing in well regarded and experienced international operators including Noble Energy and Premier Oil. The successful farm-outs will also enable FOGL to drill more wells. The combination of a strong balance sheet and carried interests means that we are fully funded for our planned five well drilling programme in 2015.

The acquisition of Desire Petroleum has created a more balanced, diversified portfolio which offers a range of exciting opportunities including multiple large 'high impact' prospects in the South and East Falkland Basins; proven oil resources in the Sea Lion oil development, and relatively low risk step-out exploration and appraisal opportunities in the established oil play around the Sea Lion field. This acquisition has allowed us to lower the overall risk profile of the portfolio, protect downside risk, as well as offering a wider range of value creation opportunities.

FOGL now has access to high quality 3D seismic data which will be used to reduce exploration risk by targeting oil prone prospects with good quality reservoirs. Advanced seismic analysis, calibrated using existing well data, will be applied to determine likely fluid content, hydrocarbon phase, and reservoir properties.

Prospect Inventory

Five prospects will be selected for the next drilling programme, spread across a risk spectrum of exploration and appraisal opportunities in multiple basins. In addition, a number of follow-up locations and prospects will also be matured as drilling options in the event of encouragement or success.

South and East Falkland Basins

Diomedea Fan Complex

The Toroa well proved thick, good quality, mid Cretaceous sands on the edge of the Fitzroy Basin. These sands have been re-deposited in the Diomedea area as deep-water channels and fans. A large 3D seismic survey was acquired in 2012/13 to explore this play. Interpretation is ongoing, and many features have been mapped within this play. To date, two prospects, Finback and Humpback have been high graded as potential drilling targets. Several additional prospects have also been mapped and these could provide follow-on opportunities in the event that initial drilling results are encouraging. Regional studies undertaken by Noble Energy and FOGL suggest that the source rocks within the Diomedea area may be conducive to oil generation.

Cretaceous Fault Blocks

The Darwin exploration well, drilled by Borders and Southern in 2012, is located in the South Falkland Basin and discovered a rich gas condensate in good quality mid Cretaceous sands within a 'tilted fault block' structure. Numerous, similar features had been mapped on 2D seismic by FOGL in the adjacent licences. In 2013 a 3D seismic survey was acquired to better define some of these prospects and leads. Interpretation is still underway, but several potential drilling targets have already been identified within this area. Whilst Darwin encountered gas-condensate, our regional studies suggest that oil may also be present in this area, owing to the complex hydrocarbon generation and migration history in the South Falklands Basin.

Hersilia Fan Complex

The Scotia well, drilled in 2012, was drilled on the eastern margin of this system, which lies within the Volunteer Basin. During 2013 and 2014 a large 3D seismic survey was acquired over the main area of interest. The plays in this area are similar to those expected in the Diomedea area. Prospect mapping has yet to commence, but a number of leads, including Hersilia, West Hersilia, Hero and Challenger have been identified on the basis of existing 2D seismic data. Whilst Scotia encountered gas, it is predicted that the source rocks are less deeply buried towards the edge of the basin and may be oil, rather than gas generative, in the vicinity of Hersilia and West Hersilia.

Loligo and the Tertiary channel play

The Loligo well drilled in 2012, proved the presence of large amounts of gas in this play. The reservoir quality at the Loligo well location was however, poor. The recently completed northern area 3D seismic survey may provide more insight into whether better reservoir is present away from the well location, particularly in the northern part of the Loligo complex. In addition to Loligo, a number of other similar prospects remain to be tested in this play including Nimrod, Vinson and Nautilus.

North Falkland Basin

Zebedee

The Sea Lion Field was discovered by Rockhopper Exploration in 2010 with the 14/10-2 well. In December 2011 a final appraisal well was drilled on the field (well 14/15-4a) which proved that Sea Lion extended into licence PL004b (FOGL 40% equity). A further appraisal well (Zebedee) is scheduled to be drilled in 2015. This well has the potential to extend the proven Sea Lion reservoirs to the south and substantively increase the amount of Sea Lion resources within the PL004b. The Zebedee well will also, target a number of stacked exploration objectives.

Jayne East

Jayne East is located in PL004c and the well will intersect a number of stacked targets. The primary objective is to test the F2 (Sea Lion equivalent reservoir sequence) sands and these include the known Beverley and Casper South fans, which are oil and gas bearing on the west flank.

Isobel/Elaine

The Isobel and Elaine prospects are located in PL004a. This part of the basin is untested and the well will target a number of stacked exploration objectives. The primary objectives are Elaine South and Isobel Deep fan systems. Any success at this location will also reduce the risk on other prospects lying even further to the south, such as Helen.

Ann/Orca South

The Ann and Orca South prospects are a combination of two geological plays. One play is similar to that penetrated at the Liz location, but less deeply buried and so with potentially better reservoir properties. In addition, there is a shallower prospect defined by a 4-way dip closure which is also, supported by a seismic amplitude anomaly.

Liz

The 14/19-1 Liz well encountered two separate hydrocarbon intervals, comprising over-pressured gas condensate, and a deeper dry gas. The commerciality of gas and gas condensate in the North Falkland Basin is unclear at present. Future commercialisation will depend on the possible development of other gas resources in the area.

Sea Lion

The Sea Lion field straddles blocks PL032 and PL004b. FOGL, as a result of the Desire acquisition, holds a 40% interest in PL004b. FOGL estimates that approximately 30% of the Sea Lion oil-in-place is located within PL004b. Premier Oil, who operate both licences, are proposing a two phased development concept, targeting the northern part of the field first. Currently it is anticipated that the Field Development Plan will be submitted in 2015, with project sanction coming later in the same year. Initial production from Sea Lion is expected to commence approximately four years after the project is sanctioned.

Further appraisal drilling is required in PL004b in order to determine the extent and total resource potential within this licence and inform the scope of the second phase of field development. The Zebedee well will be a key next step in this process. In the event that Zebedee is successful, this will demonstrate that a larger proportion of Sea Lion hydrocarbon resources lie within PL004b and that the overall field is bigger than currently estimated. Given that FOGL has a significant stake in Sea Lion through its interest in PL004b, we have initiated unitisation discussions with the other field owners.

Operations & drilling preparations

During the reporting period three large 3D seismic surveys were acquired. The surveys were completed on time and in budget. PGS have operated all three surveys, which have been conducted safely and without incident. FOGL would like to thank PGS and their employees for their contribution to the success of this programme and the excellent safety, environmental and operational performance achieved.

An environmental baseline and geochemical survey has recently been completed using the MV Poseidon. This vessel collected sea bottom samples from all three South Falkland Basin 3D areas and then continued to the North Falkland Basin to survey the Isobel/Elaine prospect. The data collected is essential material for inclusion in the environmental impact statement which is a key step in the government approval process for 2015 drilling.

In preparation for the next drilling campaign Noble Energy has taken steps to enhance logistical support by the provision of a new floating dock within Stanley harbour. This dock, named the 'Noble Frontier', will be installed during the course of 2014 and is located in close proximity to the existing oil industry supply base.

This additional infrastructure is another important step for the oil industry, as it further enhances its ability to explore for, develop and produce hydrocarbons in the offshore areas around the Falkland Islands.

Outlook

The year ahead will be a busy period for FOGL as we prepare for the next drilling programme. Prospect identification, based on the very large, recent 3D surveys, is ongoing and this will continue into the summer of 2014. The sheer size of the surveys and the number of plays and prospects under consideration has driven selection of the final well locations into Q3 2014.

The 3D seismic survey over the Hersilia Fan complex was completed on 24 February 2014. The early completion of this survey allowed the site survey programme to be extended over this area, which in turn potentially facilitates early drilling on prospects identified on this 3D.

Negotiations are currently progressing with a number of parties to secure a suitable deep-water drilling rig. The drilling programme is expected to commence in in the first half of 2015. In the South Falkland Basin it will include two deep-water wells operated by Noble Energy. In the North Falkland Basin three wells are planned, all operated by Premier Oil. These include exploration wells on the Zebedee, Jayne East and Isobel/Elaine prospects. The final drilling order has yet to be agreed. 

Falkland Oil and Gas Limited

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013

Audited

The loss for the year (2012: profit for the year) arose from continuing operations.

Falkland Oil and Gas Limited

Consolidated Statement of Financial Position

For the year ended 31 December 2013

Audited

Falkland Oil and Gas Limited

Consolidated Cashflow Statement

For the year ended 31 December 2013

Audited

Falkland Oil and Gas Limited

Consolidated Statement of Changes in Equity

For the year ended 31 December 2013

Audited

Group

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts. Statutory accounts for 2013 will be available towards the end of May 2013. The auditors have reported on those accounts: their report was unqualified and did not draw attention to any matters by way of emphasis.