Nighthawk Energy Regulatory News (HAWK)

27 September 2012

NIGHTHAWK ENERGY PLC

("Nighthawk" or the "Company")

Final Results for the year ended 30 June 2012

Nighthawk, the US focused shale oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces its final results for the year ended 30 June 2012.

Operational Highlights

·; Acquisition of additional 25% working interest in, and the operatorship of, the Jolly Ranch shale oil project in Colorado

·; Completion of major work-over program on existing Jolly Ranch wells combined with extensive new geo-science work significantly improves understanding of project and informs new drilling program

·; New drilling program underway with four wells planned

·; Re-organisation and strengthening of Board and Management structure

Financial Highlights

·; Fundamental re-financing of the Company with fund-raising of US$26.1 million

·; Revenues from continuing operations of US$0.97 million (FY2011: US$0.91 million)

·; Gross oil production from Jolly Ranch of 18,466 barrels (FY2011: 30,795 barrels)

·; Non-cash impairment charges of US$27.0 million following evaluation of Jolly Ranch acquisition price and results of the work-over program

 Post-Period Highlights

·; John Craig 6-2, the first well in the new drilling program, tests significant commercial oil flows

The audited report and accounts will be available on the Company's website at www.nighthawkenergy.com later today and will be posted to Shareholders, as applicable, together with the notice of Annual General Meeting shortly.

Enquiries:

Chairman's Statement

During the year ended 30 June 2012, Nighthawk undertook and completed significant changes in its strategy, asset base, shareholder and financial structure, and management team. The result is a stronger, more focused business, with control over its assets and the resources to implement a new development plan including the drilling of new wells.

Strategically, Nighthawk is now focused on a single, large-scale, US shale oil development, the Jolly Ranch project in the Denver-Julesberg Basin in Colorado. In January 2012, the Company completed the acquisition of an additional 25% working interest in the project from Running Foxes Petroleum ("RFP"), taking Nighthawk's total working interest to 75%. Nighthawk also became the operator of the project, and immediately began a program of well work-overs and geo-science work in preparation for the planned drilling of at least four new wells in the second half of calendar year 2012.

The Jolly Ranch project comprises approximately 385,000 gross acres located in the south-east corner of the prolific oil and gas producing Denver-Julesberg Basin. Prior to this year interest in the general area had been developing steadily, but development and drilling activity has accelerated in 2012 with a number of large US shale players moving into the area, acquiring land and beginning drilling programs. The strategic focus of Nighthawk and the acquisition of the additional interest, appear timely, and fit well with the shift towards liquid shale plays that has been occurring more widely across the United States.

The first stage of Nighthawk's development plan for Jolly Ranch was to work-over 15 existing wells and re-evaluate their condition and potential for a recovery in oil production, which had fallen sharply during 2011 and was running at around 30 bbls/day when Nighthawk assumed operatorship in January 2012. A thorough review of the top-side production facilities was also carried out.

This work-over stage was completed as planned by June 2012, and uncovered a significant number of problems both sub-surface and with top-side equipment.

Seven wells that had been hydraulically fractured had significant formation damage, severely limiting their production potential. The two salt-water disposal wells both required extensive clean-up work. On some wells there were failings in the casing and cement work which required rectification.

On the surface, a variety of problems were encountered with pumps, engines, heater/treaters, flow-lines and tanks, some due to poor installation and maintenance, others to wrong design and specification. Remedial work was also required on electrical systems and to address environmental concerns.

All of the work required to address these problems was completed within five months and operationally Jolly Ranch is now in significantly better shape than under the previous operator. Production from existing wells has slowly recovered from the 30 bbls/day level and reached an average of 61 bbls/day for the month of August 2012.

Whilst the operational problems uncovered by the work-over program have now been dealt with, they have impacted on the business in two other ways. Firstly, assessment of the potential from existing wells, relative to the historic costs expended on them, has resulted in further impairment charges for the year. These are dealt with more fully in the Chief Financial Officer's report. However it is important to note that the Board's confidence in the Jolly Ranch project as a whole has not been affected by these results, as we believe that they are the result of poor operational management by the previous operator.

This leads to the second issue, which is that Nighthawk has raised significant claims on Running Foxes Petroleum, relating principally to the costs of the remediation work required, and also to issues of title defect and unpaid operating expenses. Nighthawk has also invoked its right to audit all billings to Nighthawk by Running Foxes and its associates over the past two years, when they were the operator of Jolly Ranch. This audit may result in further claims. In pursuing these claims, Nighthawk is working closely with its US counsel.

The Company is now entering the second and most important phase of its development plan with the drilling of the first new wells at Jolly Ranch in nearly three years. In planning and permitting the initial well locations, the Company has adopted a geo-science led strategy, based on re-evaluation of existing 3D seismic, the purchase of additional 2D seismic, and extensive well-bore data from both Nighthawk and third party wells. The first well in the drilling program, the John Craig 6-2, was spudded in late August 2012 and initial results are highly positive, indicating that this well will add substantially to production levels.

During the year Nighthawk rationalized its asset base to focus on the Jolly Ranch project. A key objective was to gain control of the project through a higher percentage interest and operatorship. To achieve this Nighthawk required new finance and a shareholder base which could potentially support further investment in drilling and development. As a result of a comprehensive refinancing in late 2011 and January 2012, Nighthawk raised US$26.1 million and has gained strong supportive shareholders.

A reorganization of the board and management structure during 2012 saw Mike Thomsen and Tim Heeley step down from the Board and Geoff Metzger retire as a Director. Mike and Tim remain members of the Denver based management team, which was strengthened by the appointment of Chuck Wilson as Chief Operating Officer in July 2011.

The Company has entered the new financial year in good shape with a four well drilling program underway, production recovering, and cash and management resources in place to build on a successful outcome.

Finally I would like to thank our shareholders, suppliers and my colleagues for their support during the year.

Stephen Gutteridge

Executive Chairman

Chief Financial Officer's Statement

The financial year ended 30 June 2012 saw considerable challenges for Nighthawk but nevertheless a major objective was achieved in January 2012 when it changed from a holder of non-operated oil and gas exploration and development interests to the operator of a 75% working interest in the Jolly Ranch shale oil project, Colorado, USA. Nighthawk successfully acquired an additional 25% interest in the Jolly Ranch Project from RFP and became operator of the project at the same time. It also reassigned its 50% interest in the Cisco Springs Project, Utah, to RFP which leaves Nighthawk with a sole focus on shale oil.

The initial consideration for the acquisition comprised cash of $8.5 million and $4 million in Nighthawk shares at a deemed price of 2.5 pence per share; the total consideration payable approximated to an acquisition cost of $122 per acre. In the event of a sale or disposal by the Company of all or a portion of its working interest in the Jolly Ranch Project to a third party within five years, the Group will pay RFP a portion of the cash proceeds (or the fair market value for any non-cash proceeds) which it receives in connection with such sale or disposal up to a maximum aggregate amount of $5.0 million. Additionally, the terms of the acquisition also provided that a further cash amount of $1.0 million may be payable in the event RFP fails to sell its remaining 25% working interest in the Jolly Ranch Project by an extended deadline of 30 June 2012. RFP chose itself to extend the deadline for sale beyond this date and with the on-going issues between Nighthawk and RFP, the Board believes it is highly unlikely this will be paid.

To finance the acquisition and to provide funds for the further development of Jolly Ranch, during the year the Group raised a total of $26.1 million (before expenses) comprising $15.6 million of unsecured convertible loan notes and $10.5 million through two placings and an open offer to shareholders.

The second half of the financial year ended 30 June 2012, with Nighthawk as operator of the Jolly Ranch Project, saw new funds being invested into the project through workovers, new equipment and geoscience work. At the financial year end, the Group held cash balances of $9.2 million.

Revenues

Group revenues from continuing operations for the year ended 30 June 2012 were marginally ahead at $972,631 (FY2011: $912,248).

Production revenues at the Jolly Ranch project during the year were adversely affected in the first half by a lack of funding for on-going development and maintenance work and in the second half by a program of workovers of existing wells that was implemented upon Nighthawk becoming operator of the Jolly Ranch project in January 2012. Both the lack of funding in the first half and workovers in the second half resulted in loss of some production from shut-in wells. As a consequence, gross production for the year ended 30 June 2012 fell to an average of 50.5 bbls/day (FY2011: 84.4 bbls/day). The average sales price per barrel was marginally ahead at $84.59 per barrel (FY2011: $80.14 per barrel).

From 23 January 2012, the date from which Nighthawk increased its working interest in the Jolly Ranch Project to 75.0%, Nighthawk's net revenue interest in Nighthawk production increased from approximately 40% to approximately 60%.

The balance of Group revenues during the year was accounted for by royalty income and, since Nighthawk became operator of the Jolly Ranch Project in January 2012, charges to the joint venture partner as contributions to overheads in accordance with the joint operator agreement.

Loss for the year

The Group loss for the year ended 30 June 2012 was $35.9 million (FY2011: loss $71.7 million). Normalised losses (adjusted for impairments, depreciation, amortisation, transaction costs, non-recurring finance charges and discontinued operations) were $4.8 million (FY2011: loss $2.9 million). The impairments taken during the year are discussed in more detail below.

On-going administrative expenses rose slightly during the year to $4.6 million (FY2011: $4.0 million) as a result of staff hires and increased office and infrastructure costs in Colorado, USA commensurate with Nighthawk becoming operator of the Jolly Ranch project. At the same time, Director's salaries and fees were cut by 25% from 1 November 2011, the Board size has been reduced and other overhead saving measures such as lower cost office space in the UK were implemented. The Company will continue to manage costs aggressively.

Impairment

During the year, the Group has taken impairments totaling $27.0 million. At the time of the Group's unaudited interim results for the half year ended 31 December 2011, an impairment of approximately $12.6 million relating to Nighthawk's existing 50% interest in the Jolly Ranch Project at 31 December 2011 was included in accordance with the required treatment under International Financial Reporting Standards and which was informed by the price paid to acquire the additional 25% working interest in Jolly Ranch. Due to a subsequent, downwards revision to the total price payable to acquire the additional 25% working interest in Jolly Ranch, the impairment previously announced has been increased in these full year audited results to approximately $14.1 million.

Additionally, upon becoming operator of the Jolly Ranch Project during the second half of the year, Nighthawk gained first hand access to the existing well set and infrastructure at the Jolly Ranch Project and carried out a substantial amount of work both at surface and sub-surface. One significant outcome of these workovers was the discovery that considerable down-hole and near well bore damage had been caused in several existing wells through the drilling and completion techniques employed by the previous operator. The damage was such that previously uncompleted and unproduced horizons that otherwise presented as prime geological horizons on log and other geophysical analyses were rendered unworkable, and not capable of economic production through recompletions.

As a result of this discovery process, the Board considered it prudent to carry out an operational review and has determined that an additional impairment of approximately $13.0 million should be included in the year. This impairment relates only to the existing well set at the Jolly Ranch Project drilled prior to Nighthawk becoming operator. The Board has not in any way impaired its view of the potential value of the Jolly Ranch Project as a whole which it believes is underpinned by the considerable sub-surface geophysical analysis that Nighthawk has undertaken since becoming operator, by the initial flow results from the recently completed John Craig 6-2 well and also by highly successful wells drilled and produced locally by other operators.

A corresponding impairment has been included in the parent company financial statements to reduce the net investment in subsidiaries on the parent company balance sheet and to match the impaired value of net assets held in those subsidiaries.

All of the Group's other projects have now been fully disposed, leaving Nighthawk as a focused US shale oil play.

Cashflow, investment and liquidity

Cash outflow from operating activities for the year was approximately $5.7 million (FY2011: outflow $3.0 million) and included cash-based administrative expenses of $3.5 million and transaction related costs of $1.8 million.

Cash flow used in investing activities during the year comprised capital expenditure of $4.8 million (FY2011: $12.5 million), the majority of which was spent in the second half of the year since Nighthawk became operator, and $8.5 million as cash consideration for the acquisition of the additional 25% working interest in the Jolly Ranch Project.

Cash flow from financing activities during the year totaled $26.1 million before expenses (FY2011: $8.3 million) and comprised two placings and an open offer of, in aggregate, 268,595,918 new ordinary shares at 2.5p per share raising $10.5 million and, in addition, an issue of £10.0 million unsecured zero coupon convertible loan notes raising $15.6 million.

At 30 June 2012, the Group held cash balances of $9.2 million (FY2011: $2.0 million).

Accounting Policies and Restatements

The audited results for the year ended 30 June 2012 include a change in accounting policy for early stage production revenue. Prior to 1 July 2011, the Group accounted for all revenue at 100% margin. However, this approach was not in line with the accounting treatment of comparable oil and gas companies. The change in accounting policy means that revenues from wells that are determined to be pre-commercial are credited to turnover. An amount based on such revenues is both charged to cost of sales and credited against appraisal costs so as to record nil-margin on such production, with the losses effectively capitalized. Prior accounting periods have been restated for this change in accounting policy. The change has no impact on the Group statement of cash flows.

Additionally, a significant proportion of the investment held in the parent company balance sheet in relation to the US subsidiaries has been reclassified to reflect the substance of the transactions as intercompany loans.

Change of accounting period

In order to bring the Group more in line with other oil and gas companies and in light of the fact that most US companies and the US Internal Revenue Service account to a calendar year end, the Board intends to change Nighthawk's accounting period end from 30 June to 31 December. Accordingly, Nighthawk's next audited results will be for the six-month period to 31 December 2012 and will follow annually thereafter.

Shareholders' equity

As at 30 June 2012 there were 748,935,420 ordinary shares of 0.25 pence each in issue.

Additionally, a total of up to 546,500,000 new ordinary shares may be issued pursuant to the exercise of share options, warrants or convertible loan notes.

Cautionary Statement

This announcement contains certain judgments/assumptions and forward looking statements and assumptions that are subject to the normal risks and uncertainties associated with the exploration, development and production of hydrocarbons. Whilst the Directors believe that expectations reflected throughout this announcement are reasonable based on the information available at the time of approval of this announcement, actual outcomes and results may be materially different due to factors either beyond the Group's reasonable control or within the Group's control but, for example, following a change in project plans or corporate strategy. Therefore absolute reliance should not be placed on these judgments/assumptions and forward looking statements.

Richard Swindells

Chief Financial Officer

Consolidated Income Statement

for the year ended 30 June 2012

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2012

Consolidated Balance Sheet

as at 30 June 2012

Consolidated Statement of Changes in Equity

for the year ended 30 June 2012

Consolidated Cash Flow Statement

for the year ended 30 June 2012

Notes

1. Basis of Accounting and Presentation of Financial Information

Whilst the financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards (IFRS), it does not contain sufficient information to comply with IFRS. Full financial statements that comply with IFRS will be available to be downloaded from the Company's website at www.nighthawkenergy.com in shortly.

The financial information set out in the announcement does not constitute the Company's statutory accounts for the year ended 30 June 2012 or the year ended 30 June 2011. The financial information for the year ended 30 June 2012 and the year ended 30 June 2011 are extracted from the statutory accounts of Nighthawk Energy plc. The Company's auditors reported on those accounts and their report was unqualified.

The Annual Report for the year ended 30 June 2012, including the auditors' report, and the notice of Annual General Meeting will be posted to shareholders, as applicable, shortly and will be available from the Company's website at www.nighthawkenergy.com 

2. Change in accounting policy and prior period restatement - Revenue recognition

Following a review of the Group's accounting policies, the accounting treatment of test production revenue has been changed to make it more comparable with other oil & gas companies.

Previously test production revenue was recognised at a profit with the associated costs included within intangible exploration costs.

Under the revised policy, test production revenue is recognised at a zero margin and a corresponding deduction made against intangible exploration costs. The impact of this change in accounting policy is detailed below:

There is no impact on the Group statement of Cash flows.

3. Revenue

An analysis of the Group's revenue for the year (excluding finance income) from both continuing and discontinued operations is as follows:

4. Finance Costs

5. Exceptional administrative expenses

As a result of the acquisition on 23 January 2012 of an additional 25% interest in, and operatorship of, the Jolly Ranch project, an impairment was recognised in the results to revalue the Group's existing 50% interest down to the valuation informed by the fair value of the acquisition.

At the end of the financial year, an operating review was carried out which informed a further reduction in the value of the project assets and an additional impairment was recognised as a result. Each well was modelled on current production using expected decline rates at a long term oil price of US$ 80/boe and a discount rate of 10%.

6. Loss Per Share

Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Given the Group's reported loss for the year share options and warrants are not taken into account when determining the weighted average number of ordinary shares in issue during the year and therefore the basic and diluted earnings per share are the same.

Basic loss per share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

If the Company's share options and warrants were taken into consideration in respect of the Company's weighted average number of ordinary shares for the purposes of diluted earnings per share, it would be as follows:

7. Property, Plant and Equipment

As a result of the acquisition on 23 January 2012 of an additional 25% interest in, and operatorship of, the Jolly Ranch project, an impairment was recognised in the results to revalue the Group's existing 50% interest down to the valuation informed by the fair value of the acquisition.

At the end of the financial year, an operating review was carried out which informed a further reduction in the value of the project assets and an additional impairment was recognised as a result as disclosed in note 5.

8. Intangible Assets

Management review each exploration project for indication of impairment at each balance sheet date.

Such indications would include written off wells and relinquishment of development acreage.

As a result of the acquisition on 23 January 2012 of an additional 25% interest in, and operatorship of, the Jolly Ranch project, an impairment was recognised in the results to revalue the Group's existing 50% interest down to the valuation informed by the fair value of the acquisition.

At the end of the financial year, an operating review was carried out which informed a further reduction in the value of the project assets and an additional impairment was recognised as a result. These impairments are disclosed in note 5.

At the balance sheet date there were no further indications of impairment in respect of any of the projects.

9. Acquisition of Business Interests

On 23 January 2012, the Group acquired from Running Foxes Petroleum an additional 25% interest in, and operatorship of, the Jolly Ranch project.

Under the Contingent Consideration arrangement, the Group is required to pay additional sums to Running Foxes Petroleum up to a maximum of US$5.0 million in the event of a sale or all or part of the Jolly Ranch project within 5 years from the acquisition date.

A probability calculation has been performed by the Group to estimate the likely consideration payable under this arrangement and an appropriate provision has been made.

10. Cash Flow from Operating Activities

11. Prior year disposal of business interests and loss from discontinued operations