Genel Energy Regulatory News (GENL)

Genel Energy plc - formerly Vallares PLC

30 November 2011

Interim Report for the six months ended 30 September 2011 (Unaudited)

Genel Energy plc ("Genel Energy" or the "Company") today publishes its Interim Report for the six months ended 30 September 2011.

Background

Vallares PLC was incorporated in Jersey on 1 April 2011 and its principal activity is that of a holding company formed for the purposes of acquiring or establishing a major company, business or asset that has significant operations in the resources sector. The Company may achieve this objective through the acquisition of interests in one or more complementary companies, businesses or assets. Within the resources sector, the Company intends to adopt an oil and gas industry focus, but will remain open to other industries should an appropriate investment opportunity present itself.

The Company was admitted to the London Stock Exchange on 22 June 2011.

Vallares Holding Company Limited (the "Subsidiary") was incorporated in Jersey on 1 April 2011 and its principal activity is that of an investment holding company.

The Company announced the proposed acquisition of Genel Energy International ("GEI"), an oil exploration company based in Turkey, on 7 September 2011 and as a result requested the suspension of trading in the Company's shares. The acquisition completed on 21 November 2011. At the same time, the company changed its name from Vallares PLC to Genel Energy plc and trading in the Company's shares was reinstated.

Following the completion of the acquisition, the Company intends to further enhance its position as a leading oil and gas company in the Kurdistan region by developing and potentially expanding its portfolio of production and exploration activities. The Company intends to deliver sustainable growth through development of its substantial reserves and contingent resource base, conversion of its exploration potential into reserves and consolidation in the region and beyond.

Performance and financial position

On 22 June 2011, Vallares raised net proceeds of £1,306.3 million and has 130,632,522 ordinary shares in issue, net of 2,457,480 cancelled shares after stabilisation as at 30 September 2011.

Total costs incurred by the Company in connection with the Placing Admission were £30 million, of which £26.6 million was directly associated with the Admission and accounted for in Share Premium, and £3.4 million being accounted for in the Consolidated Statement of Comprehensive Income.

As at 30 September 2011, the Company had cash balances of £1,297.2 million, and net assets attributable to ordinary shareholders of £1,276.8 million. The cash has been invested in Sterling denominated money market instruments and deposited with commercial banks in line with the stated policy that all such investments and deposits will be AA- rated or better at the time of investment, and easily accessible when required.

Results and Dividends

The results for the period are shown in the unaudited Consolidated Statement of Comprehensive Income.

The Directors do not recommend the payment of a dividend in respect of the six months ended 30 September 2011.

Principal risks and uncertainties

The Group has initiated a risk management process, to continuously identify and evaluate risks and uncertainties, and take relevant actions to mitigate any potential adverse effects on the Group.

The Group holds a significant portion of its net assets as cash and cash equivalents. To mitigate against the risk of default by one or more of its counterparties, the Group currently holds its assets in sterling deposits at mainly AA- or better rated banks, and across a number of diversified sterling liquidity funds. The Board regularly monitors interest rates offered by, and the credit ratings of, current and potential counterparties, to ensure that the Group remains in compliance with its stated investment policy for its cash balances.

Related parties

Information on related parties is shown in note 13.

Directors

The Non-Executive Directors of the Group, who served during the period and subsequently, are:

*Resigned on 17 November 2011

Secretary

The Secretary of the Group during the period and subsequently is Capita Secretaries Limited.

Forward looking statements

This announcement contains statements that are, or may be, forward-looking regarding the group's financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a number of factors which might cause actual results and performance to differ materially from those expressed or implied by such statements. Forward-looking statements speak only as of the date they are made and no representation or warranty, whether expressed or implied, is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Other than in accordance with the Company's legal or regulatory obligations (including under the Listing Rules and the Disclosure and Transparency Rules), the Company does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Information contained in this announcement relating to the Company or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Nothing in this announcement should be construed as a profit forecast.

Responsibility statement

The Directors confirm that these consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union, and that the Interim Report herein includes a review of the information required by the Financial Services Authority's Listing Rules, including the Disclosure and Transparency Rules 4.2.7 and 4.2.8, namely:

See Directors above for a list of directors at 30 September 2011.

By Order of the Board

Tony Hayward

Chief Executive Officer

29 November 2011

Independent review report to Genel Energy plc

Introduction

We have been engaged by the Company to review the consolidated interim financial statements in the Interim Report for the six months ended 30 September 2011, which comprises the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated interim financial statements.

Directors' responsibilities

The Interim Report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group will be prepared in accordance with IFRSs as adopted by the European Union. The consolidated interim financial statements included in this Interim Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the consolidated interim financial statements in the Interim Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of the interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial statements in the Interim Report for the six months ended 30 September 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLPChartered Accountants1 Embankment Place

London

WC2N 6RH

29 November 2011

1 General information

Vallares PLC was incorporated in Jersey on 1 April 2011 and its principal activity is that of a holding company formed to acquire a major company, business or asset that has significant operations in the resources sector.

Vallares Holding Company Limited (the "Subsidiary") was also incorporated in Jersey on 1 April 2011 and its principal activity is that of an investment holding company. The Company's initial admission of ordinary shares into the London Stock Exchange took place on 22 June 2011 (the "Placing Admission"). The Company and the Subsidiary are collectively referred to herein as the "Group".

The Board is responsible for the Company's business strategy and its overall supervision, including the approval of future acquisitions. The Company is utilising the expertise of Nathaniel Rothschild, Dr. Tony Hayward, Tom Daniel and Julian Metherell (the "Founders") to identify and assess acquisition opportunities, structure and execute future acquisitions and enhance the value of any target's business. The Founders, prior to Placing Admission, were issued certain securities ('Founder Shares' or 'B' shares, and 'Founder Securities' or 'C' shares of the Subsidiary) to incentivise them to achieve the Company's objectives. Further details on these securities and their related accounting are provided in Notes 2.3ii, 2.6 and 11 of these financial statements. The address of the Company's and the Subsidiary's registered office is 12 Castle Street, St. Helier, Jersey JE2 3RT.

The consolidated interim financial information was approved and authorised for issue in accordance with a resolution of the directors on 29 November 2011.

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

The financial information contained in the consolidated interim financial statements is unaudited. The consolidated Statement of Comprehensive Income, consolidated Statement of Changes in Equity and consolidated Statement of Cash Flows for the six month period to 30 September 2011, and the consolidated Balance Sheet as at 30 September 2011 and related notes have been reviewed by the auditors and their report to the Company is set out in an earlier section of this Interim Report.

2 Basis of preparation

The consolidated interim financial statements of the Company as at and for the six month period ended 30 September 2011 comprise the Company and the Subsidiary (together referred to as the "Group").

These consolidated interim financial statements are prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting'. They do not include all of the information required for full annual financial statements.

The annual financial statements of the group will be prepared in accordance with IFRSs as adopted by the European Union.

The consolidated interim financial statements are presented in Pounds Sterling (£), which is the Group's presentational currency and are rounded to the nearest million.

2.1 Going-concern basis

The Directors have, at the time of approving the consolidated interim financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the Group continues to adopt the going concern basis of accounting in preparing the consolidated interim financial statements.

2.2 Accounting policies

The accounting policies applied in these consolidated interim financial statements are all present and consistent with those expected to be applied in the annual financial statements for the period ending 31 December 2011.

Standards, Amendments and Interpretations Effective Subsequent to the Period End

The following new standards, amendments and interpretations will become effective subsequent to the period ended 30 September 2011 and do not impact the accounting policies adopted for this current period. The Directors do not expect the future application of the below to have a material impact.

Amendment to IAS 12, 'Income taxes' on deferred tax relating to 'Recovery of underlying assets' (effective 1 January 2012)

Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income (effective 1 July 2010)

Amendment to IFRS 7, 'Financial instruments: Disclosures' on derecognition (effective 1 July 2011)

IFRS 9, 'Financial instruments - classification and measurement' (effective 1 January 2013)

IFRS 10, 'Consolidated financial statements' (effective 1 January 2013)

IFRS 11, 'Joint arrangements' (effective 1 January 2013)

IFRS 13, 'Fair Value Measurement' (effective 1 January 2013)

Amendment to IAS 19, 'Employee benefits' (effective 1 January 2013)

IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2013)

IAS 27 (revised 2011), 'Separate financial statements' (effective 1 January 2013)

IAS 28 (revised 2011), 'Investment in associates and joint ventures' (effective 1 January 2013)

2.3 Consolidation

i) Subsidiaries

Subsidiaries are entities over which the Company has the power to govern the financial and operating policies in order to obtain benefits from their activities. Control is presumed to exist where the Company owns more than one half of the voting rights (which does not always equate to percentage ownership) unless it can be demonstrated that ownership does not constitute control. Control does not exist where other parties hold veto rights over significant operating and financial decisions. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The consolidated interim financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and their subsidiary after eliminating intragroup transactions as noted above.

ii) Non controlling interests

Founder Shares and Founder Securities: As noted in Note 1, prior to Placing Admission, the Subsidiary issued 'B' and 'C' shares to the Founders. The Founders' investment in such 'B' and 'C' shares represents their non-controlling interests in the Company. Prior to an acquisition being made, all losses generated by the Company are allocated between the ordinary shareholders and the Founders based on the provisions of the 'Priority Return Sum' calculation, which results in all losses, with the exception of costs associated with the Placing Admission, being allocated to the Founders' non-controlling interest. Upon completion of an acquisition, and following exchange of the 'B' and 'C' shares to ordinary shares of the company, such pre-acquisition losses previously allocated to the Founders as the holders of the 'B' and 'C' shares will be transferred to the retained earnings of the Company.

The allocation of net assets and net loss to non controlling interests is shown separately on the face of the Consolidated Statement of Comprehensive Income and the Consolidated Balance Sheet.

2.4 Segmental reporting

IFRS 8 requires the Group to disclose information about its operating segments and the geographic areas in which it operates. It requires identification of operating segments on the basis of internal reports that are regularly reviewed by the entity's chief operating decision maker in order to allocate resources to the segment and assess its performance. The Company has only one segment, whose activity is to acquire a major company, business or asset within the resources sector.

2.5 Cash and cash equivalents

i. Financial risk management

The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group's financial performance. As at 30 September 2011, the Group is focussed on managing the credit risk it is exposed to through the cash and cash equivalents it holds. To mitigate against the risk of default by one or more of its counterparties, the Group's policy is to hold its assets in Sterling deposits at financial institutions with credit ratings of AA- or better at the time of making such an investment or deposit. Currently the assets held are across a number of diversified sterling liquidity funds, on which interest accrues at an average of 0.61%. The Board regularly monitors interest rates offered by, and the credit ratings of, current and potential counterparties, to ensure that the Group remains in compliance with its stated investment policy for its cash balances.

Foreign exchange risk is mitigated as all cash and cash equivalents are held in Sterling deposits.

ii. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short‑term highly liquid investments. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, generally have an original maturity of 90 days or less and are subject to an insignificant risk of adverse changes in value.

2.6 Share based payments

The Company has three share-based payment plans. These plans have been accounted for in accordance with 'IFRS 2 - Share based payments', and the related accounting policies are summarised below.

(i) Share Matching Award

For equity-settled share options, the services received from Directors are measured by reference to the fair value of the share options. The fair value is calculated at grant date and is recognised in the Consolidated Statement of Comprehensive Income, together with a corresponding increase in shareholders' equity, on a straight-line basis over the vesting period, based on an estimate of the number of options that will eventually vest. Vesting conditions, other than market conditions, are not taken into account when estimating the fair value. Market conditions are those conditions that are linked to the share price of the Company. For the purposes of Share Matching Awards, vesting is based on non-market conditions. At the end of each reporting period the Company revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the Consolidated Statement of Comprehensive Income, with a corresponding adjustment to shareholders' equity.

(ii) Founder incentives

Founder incentives represent Founder Shares and Founder Securities as described in Note 10 in detail. These schemes award shares in the Subsidiary. The services received from the Founders are measured by reference to the fair value of the shares. The fair value is calculated at grant date and recognised as non-controlling interest in the group balance sheet.

2.7 Finance income

Finance income is accounted for on an accruals basis using the effective interest method and represents income in relation to cash and cash equivalent assets.

3 Critical accounting judgements and key sources of estimation uncertainty

The preparation of the consolidated financial information requires the use of certain critical estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. In preparing the consolidated financial information, management considers valuation of share based payments to involve a higher degree of judgement or complexity, and outcome of that judgment to be significant to the consolidated financial information.

The terms of the Founder Shares and Founder Securities were agreed prior to Admission. The successful Admission reflects, therefore, an acceptance of the terms of the Founder Shares and Founder Securities. Management has also considered, at the grant date, the probability of an acquisition being completed, and potential range of values for the Founder Shares and Securities, based on the circumstances at the grant date. Overall, it has been concluded that in the absence of a known acquisition target at the grant date the fair value of the share based payments to the Founders is represented by the amount subscribed for the Founder Shares and Founder Securities (£15 million and £5million respectively). Consequently, there is no charge in the statement of comprehensive income in relation to these share based payments. A summary of the terms of the Founder Shares and Founder Securities is set out in Note 10.

4 Operating loss

5 Taxation

Neither the Company nor the Subsidiary are "Financial Services Companies" registered under the relevant Jersey laws; or specified utility companies and therefore they are subject to Jersey income tax at the general rate of 0 per cent. If the Company or Subsidiary derives any income from Jersey property, including development of land or quarrying, such income will be subject to tax at the rate of 20 per cent. It is not expected that the Company or Subsidiary will derive any such income.

6 Earnings per share

Basic loss per ordinary share is calculated by dividing the loss attributable to ordinary shareholders of the Company of £3,369,582 by the weighted average number of ordinary shares in issue at the end of the period of 71,464,465.

Diluted earnings per share is the basic earnings per share at 30 September 2011 adjusted for the effects of dilutive potential ordinary shares such as the exercise of share options by directors as well as the founders shares and the founders securities.

7 Cash and cash equivalents

The Group had cash and cash equivalents at the six month period end of £1,297 million. The majority of this amount (97%) was deposited with banks holding credit-ratings of AA- or better.

The Group aims to mitigate the risk of default by one or more of its counterparties, by regularly monitoring interest rates offered by, and the credit ratings of, current and potential counterparties, to ensure that the Group remains in compliance with its stated investment policy for cash balances.

8 Other payables and accrued expenses

9 Called up share capital and share premium

On 1 April 2011, two ordinary shares of £0.10 each were subscribed for at par value. On 28 June 2011, a written resolution of the sole member of the Company authorised the issue of 133,090,000 ordinary £0.10 shares at a price of iii.£10 per share. On 28 June 2011, pursuant to the terms of a Repurchase Option, the Company repurchased 2,457,480 ordinary shares of £0.10 each in the Company at a price of £10 per ordinary share.

Following the repurchase and the related cancellation of the ordinary shares, the Company's issued ordinary share capital consists of 130,632,522 ordinary shares. There are no shares held in treasury, therefore the total number of shares with voting rights in the Company is 130,632,522 ordinary shares of £0.10. Each share holds one voting right.

There have been no changes to the authorised share capital since it was determined to be 10,000,000,000 ordinary shares.

10 Share based payment reserve

The Company has three share-based payment plans. These plans have been accounted for in accordance with 'IFRS 2 - Share based payments'.

Share Matching Award

On 2 June 2011, the four Independent Non-Executive Directors of the Company were granted an option to purchase a maximum of 3 shares at par value of £0.10 for each share obtained on Admission. The participation in the placement by the Independent Non-Executive Directors was limited to a maximum of 90,000 shares for the Chairman, and 60,000 shares for the other Independent Non-Executive Directors.

The Directors' options are divided into two tranches, the details of which are set out below.

There are no expected forfeitures at grant date.

As at 30 September 2011, £732,329 has been recognised in the Consolidated Statement of Comprehensive income and Consolidated Balance Sheet as Share-based payment reserve in relation to Share Matching Award.

Founder Shares

Prior to Placing Admission, the Founders were issued B ordinary shares in the Subsidiary ("B shares" or "Founder Shares"). These Founder Shares reward the Founders for their initial capital commitment to the Company and for completion of an acquisition through exchange of such Founder Shares, upon completion of an acquisition, for up to 6.67% of the fully diluted ordinary shares of the Company. These Founder Shares have been treated as equity settled share based payments and are deemed to have vested immediately on grant date as no performance conditions are attached to them.

The company has determined that the fair value of these share based payments is equal to the consideration received (£15 million) by the Company. Accordingly no share-based payment expense has been recognised in the consolidated statement of comprehensive income.

Founder Securities

In addition to the Founder Shares, prior to Admission the Founders were also issued C ordinary shares in the Subsidiary ("C shares" or "Founder Securities"). These Founder Securities encourage the Founders to grow the Company following an acquisition and to maximise value for holders of Ordinary Shares by entitling the Founders to a share of the upside in the Company's value once certain performance conditions have been satisfied. The performance conditions are summarised below:

If within four years, post-acquisition, the closing share prices reaches the higher of:

The Founders have the right to exchange their Founder Securities for ordinary shares in the Company to a value of 15% of the increase in value from the Admission value of £10. The Company has the option to settle by issuing shares or the equivalent in cash. The Founder Securities are deemed to have vested immediately as no performance conditions exist in relation to their vesting, however there are performance conditions, which need to be met prior to exchanging the Founder Securities for ordinary shares.

The Company has determined that the fair value of these share based payments is equal to the consideration received (£5 million). Accordingly no share-based payment expense has been recognised in the consolidated statement of comprehensive income.

11 Non controlling interest

12 Cash flows from operations

13 Related party transactions

The Company has entered into an agreement with Vallares Advisers LP Limited (the "Adviser") to provide advice on the implementation of the Group strategy and the management of its daily operations and business. The Company has outsourced to the Adviser, a related entity, all of its operating functions, including identifying and assessing acquisition opportunities, designing the strategy to acquire the target, due diligence, and providing personnel and support staff to carry out those roles. During the period Adviser fees and expenses totalled £4,926,709, in accordance with the Advisory Agreement. The Adviser has, in turn, appointed Vallar LLP (the "Sub-Adviser") to assist it in the provision of services to the Company.

During the period, the Group issued Founder Shares and Founder Securities to incentivise the Founders to achieve the Company's objectives. The Founder Shares reward such members for their initial capital commitment to the Company and for completing the Acquisition, through exchange of the Founder Shares for ordinary shares on favourable terms following the Acquisition. The Founder Securities encourage the Vallares Team to grow the Company following the Acquisition and to maximise value for holders of Ordinary Shares by entitling the Vallares Team to a share of the upside in the Company's value once the Performance Condition is satisfied

During the period, the Group also issued Share Matching Awards to the Independent Non-Executive Directors; these are detailed in Note 10 of these interim financial statements.

14 Subsequent events

On 21 November 2011 the Company completed the acquisition of the entire issued share capital of Genel Energy International Limited ("GEI"). The consideration for the purchase is approximately $2.1 billion to be satisfied through issue of, in aggregate, 130,632,522 new Vallares Ordinary Shares. In addition the Company will pay £2 million to the Founders for agreement to the dilution of the value of Founder Securities upon Completion of the acquisition.

It has been agreed that the Advisory Agreement will be terminated with effect from the date of Completion. This is on the basis that following Completion the services previously provided to the Company by the Adviser and, in turn, the Sub-Adviser will instead be capable of being undertaken by the Group itself, and it will accordingly no longer be necessary to retain the Adviser and, in turn, the Sub-Adviser to perform these services. In lieu of this termination a payment of £10 million was made to the Adviser, of which £1.8 million was to the Sub-Adviser, net of fees already paid.

On 21 November 2011, a prospectus was published in conjunction with the share issue in order for these shares to be admitted to the standard listing segment of the Official List and commence trading on the London Stock Exchange's main market for listed securities.

On 21 November 2011, at the time of completion of the acquisition, Vallares PLC was renamed to Genel Energy plc.

Genel Energy International Limited has an interest in six Production Sharing Contracts (PSCs) with the Kurdistan Regional Government. It is the largest producer of oil and is the largest holder of reserves in the Kurdistan Region with interests in the Taq Taq and Tawke fields.