Nighthawk Energy Regulatory News (HAWK)

30 September 2015

NIGHTHAWK ENERGY PLC

("Nighthawk" or "the Company")

Unaudited

Interim Results for the six months ended 30 June 2015

Nighthawk, the US focused oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces its unaudited interim results for the six months ended 30 June 2015 ("First half 2015").

First Half 2015 Operational Highlights

· Oil sales volumes higher than six months ended 30 June 2014 ("First Half 2014")

o First Half 2015 351,609 barrels of oil (First Half 2014: 345,558 barrels of oil)

o First Half 2015 1,950 bopd (First Half 2014: 1,909 bopd)

· Production maintained despite very limited new drilling activity through capital efficient production enhancement projects within existing wells

· Joint Development Agreements ("JDAs") signed in January 2015

o Monarch and El Dorado JDAs materially increase Nighthawk's Mississippian Spergen drilling inventory adding significant strategic value

o 3D seismic interpretation complete showing as many as 10 drillable features containing as many as 55 to 65 possible Mississippian Spergen drilling locations

· Key initiatives to set up business for reduced operational costs and increased margins

o Water gathering infrastructure at Arikaree Creek expected to deliver material operational cost savings from early 2016

o Oil marketing initiatives delivering US$3 to US$4 per barrel cost savings

· Secondary recovery waterflood at Arikaree Creek being pursued as potential 2016 project

o Potential to deliver highly significant reserves and borrowing base increase and associated production and operating cash flows increase by end 2016

· Recommenced drilling since period end with five well program which commenced in early September 2015

o Crested Butte 2-14 development well at Arikaree Creek followed by four commitment wells at Monarch JDA testing new Mississippian Spergen structures

o Drilling costs reduced by 30% from recent years

o Nighthawk's conventional vertical wells potentially highly economic even at low oil prices

First Half 2015 Financial Highlights

· Group revenues for First Half 2015 materially lower than First Half 2014 due to low oil prices

o Revenues US$16.0 million (First Half 2014: US$25.4 million)

o Realised oil price US$44.32 per barrel (excluding hedging) (First Half 2014: US$91.73 per barrel (excluding hedging))

· Normalised EBITDA1 for First Half 2015 US$6.6 million or US$18.73 per barrel (First Half 2014: US$17.4 million or US$50.50 per barrel)

· Non-cash impairment charges recognized in exceptional administrative expenses of US$8.8 million (First Half 2014: US$3.2 million) relating to decisions taken to write off, plug and abandon four wells and to impair partially nine non-core wells on account of reduced expectations for reserves recovery and lower oil prices

· US$16.9 million invested in First Half 2015 (First Half 2014: US$18.8 million) in new wells drilled in late 2014 and early 2015 prior to rig release, additional completions and recompletions in wells, strategic lease acquisitions and renewals and 3D seismic at JDAs

· Cash balances of US$2.3 million at 30 June 2015

· US$10.0 million raised since period end in August 2015 via issuance of a zero coupon unsecured convertible loan note

Rick McCullough, Chairman of Nighthawk, said:

"The first half of the year was challenging with low oil prices and our lack of drilling. However, now with the recent capital raise, we are well positioned to execute our five well drilling program during the remainder of this year. We are particularly encouraged by the prospects of the Arikaree Creek water flood project that we expect to implement in 2016. We will file for Colorado regulatory approval for the waterflood in October and hope to complete the project by mid 2016. The project is expected to increase materially both our production and reserves out of the field."

Notes:

1. Normalised EBITDA is operating profit adjusted for depreciation, amortisation, contribution from test revenue and exceptional administrative items. Refer to the Chief Financial Officer's statement.

Enquiries:

Chairman's Statement

This past six months were challenging with very low oil prices, an extremely harsh winter that adversely impacted Nighthawk's field operations and the uncertainties associated with declining production and cash flows. When oil prices fell in late 2014, Nighthawk's management agreed to focus on behind pipe completion projects and other capital efficient production enhancement projects to preserve cash flow and liquidity. The Group developed plans to return to drilling in the third quarter of 2015 if oil prices recovered. Oil prices have remained low throughout the year, with a brief uptick mid-year. However, as discussed in more detail below, Nighthawk's drilling costs have also tracked down making the Group's well economics still attractive even in this low price environment. This is due to the conventional vertical drilling and completion nature of Nighthawk's business and is a real strategic benefit to the Company in this difficult market environment. Being able to drill in a capital efficient manner makes Nighthawk a unique energy company in today's low oil price market. In fact, management's projections show that Nighthawk can drive considerable value with its drilling program, but the Company plans to approach drilling at a relatively modest pace in anticipation of improving oil prices over the next year or two.

During the first quarter, Nighthawk experienced extremely cold weather conditions in its Denver area field operations resulting in 14 separate maintenance projects just to restore lost production. This was well above historic levels and explains why lease operating expenses were high for the first half of the year. However, Nighthawk's operations group did a good job in restoring production during this first quarter and adding new production with behind pipe completion projects. As a result, Nighthawk has maintained production levels very near end of year 2014 levels, in spite of normal well depletion rates. This was also very important in this low oil price environment with very limited new drilling.

As discussed earlier, in line with previous down cycles for the oil business, service costs have also tracked down considerably. Nighthawk recently began drilling its Crested Butte 2-14 development well location in Arikaree Creek and the Group's operations team has seen its drilling costs come down approximately 30% from recent years. The tables below show Nighthawk's expected drilling economics for its Mississippian Spergen wells at various cost of drilling and oil prices. These charts have not been updated for the anticipated oil marketing margin improvements discussed in more detail below, but it is evident that Nighthawk can still generate very attractive rates of returns, even in this low oil price environment.

The first half of the year also saw considerable progress being made on Nighthawk's two new joint development agreements ("JDAs") with Cascade Petroleum. Nighthawk's management believe these JDAs have very strong strategic value to the Group's business and while business terms were reached with Cascade very late last year, Nighthawk had to complete its due diligence on the acreage and put the necessary agreements in place which was achieved in January 2015. Since January, a 3D seismic shoot over this new acreage has been carried out and analysis of the 3D seismic is completed. As previously reported, the results show many more features and possible drilling locations than Nighthawk previously anticipated.

The 3D seismic interpretation shows as many as 10 features that Nighthawk believes may be suitable for drilling containing as many as 55 to 65 possible Mississippian Spergen drilling locations. This could form the basis of Nighthawk's drilling program for years to come.

As previously disclosed, Nighthawk has a six gross/three net well drilling commitment associated with the Monarch JDA and Nighthawk plans to drill four of those commitment wells in late 2015. Nighthawk began drilling the Crested Butte 2-14 development well location in the Arikaree Creek field on September 9th and reached a final depth of 8,360 feet on September 17th. Nighthawk's operations team is in the process of completing the well and initial results from mud logs and oil shows seen during drilling suggest that the well has production potential from both Pennsylvanian aged formations as well as the target Mississippian aged formation. Preliminary 30-day production results from the Crested Butte 2-14 should be available sometime in October. Following the Crested Butte 2-14 well, the drilling rig has moved on to the first Monarch JDA well, which spudded on September 23rd.

Even though Nighthawk has not been drilling since its 2014 program finished in early 2015, its operations group has completed a number of key actions that will prepare its business for growth in 2016 and beyond. The Group completed an engineering feasibility study of its future infrastructure needs for water, oil and gas pipelines and power needs across its entire acreage position. This study will help management anticipate the Group's infrastructure needs as it grows and will already lead to some operating cost savings in 2016. Nighthawk is in the process of contracting with a third party to build a water pipeline system designed to serve the Arikaree Creek field and tie into the Group's existing water disposal well in the field. Construction of this pipeline is expected to begin later this year and once it is placed in service in early 2016, it is anticipated that it will reduce lease operating expenses (LOE) by as much as US$0.5 milion to US$0.75 million per year.

As previously reported, Nighthawk entered into a new arrangement with an oil marketing firm with effect from April 1st, 2015. Since that date, the firm has already found Nighthawk more cost effective oil transportation solutions saving the Group approximately US$3 to US$4 per barrel in costs. To put that in perspective, in this US$40 per barrel oil price environment, that represents approximately an 8% to 10% margin improvement and Nighthawk is working on longer term solutions for 2016 and beyond.

Nighthawk's Arikaree Creek field has been producing since late 2012. The Company's engineers have noted that it shows characteristics of a natural water flood assisted reservoir fed by deep underground heated water that flows up the underground fault systems. Nighthawk's engineers, together with external experts, have studied the reservoir and tested it to see if production could be enhanced by a new water flood injection system. As recently disclosed, Nighthawk has concluded that the reservoir can in fact be enhanced and is making preparations to pursue this project in 2016.

The study phase of this project is nearly complete and Nighthawk will soon be seeking State of Colorado regulatory approval for the project. Once approved, the Group will build out the necessary water pumping and processing facilities in the field near its current water disposal well and may convert a small number of existing lesser performing producing wells in the field to water injection wells. Once the project is complete and placed in service in mid-2016, Nighthawk expects to see increased production from its existing 11 producing Spergen wells and the booking of increased reserves associated with the Arikaree Creek field. The new reserves will increase the asset value of the Company, increase the related borrowing base loan facility and the increased production will improve the operating cash flows of the Company. Nighthawk expects to disclose more specifics related to this project in October once it files for the requisite regulatory approvals in Colorado.

With the continued support of some of Nighthawk's major shareholders, the Company completed a US$10 million unsecured zero coupon convertible loan note financing in August that the Board believes sets up the Group's 2015 and 2016 drilling program and will allow Nighthawk to return to both growth in production and cash flows. This financing further strengthens Nighthawk's balance sheet and with no debt due for repayment before 2019, Nighthawk is well positioned to operate in these markets.

Rick McCullough

Executive Chairman

29 September 2015

Chief Financial Officer's Statement

1. Normalised operating profit is operating profit adjusted for exceptional administrative items.

2. Normalised EBITDA is operating profit adjusted for depreciation, amortisation, contribution from test revenue and exceptional administrative items.

Despite the on-going challenging environment for the oil and gas sector, Nighthawk delivered production growth in the six month period ended 30 June 2015 when compared to the six month period to 30 June 2014. This was achieved principally through low cost, high margin workovers and treatments of existing producing wells. Nighthawk would expect some of the squeeze on the E&P industry's operating and cash flow margins to be mitigated in the second half of 2015 and going forward as the Group benefits from cost reductions as the industry and its suppliers further adjust to a lower oil price environment and as the Group implements administrative and operational cost reduction initiatives.

Gross oil sales of 351,609 barrels during the period were greater than First Half 2014 but marginally behind the second six months of 2014 ("Second Half 2014") due to few new wells being brought into production in First Half 2015 (six months ended 30 June 2014: 345,558 barrels; year ended 31 December 2014: 703,414 barrels; six months ended 31 December 2014: 357,856 barrels).

Group revenues from continuing operations for the period were US$16.0 million (six months ended 30 June 2014: US$25.4 million; year ended 31 December 2014: US$47.5 million). The average price realised during the period was US$44.32 per barrel (excluding hedging) compared to US$74.61 per barrel in Second Half 2014. Of the total US$16.0 million revenues in the period, US$3.3 million related to oil commodity hedging income.

Gross profit generated in the period was US$7.7 million (six months ended 30 June 2014: US$17.3 million; year ended 31 December 2014: US$27.6 million; six months ended 31 December 2014: US$10.3 million). Within cost of sales of US$8.3 million, lease operating expenses on wells classified as producing wells for IFRS purposes accounted for US$3.9 million, with the balance including depreciation and contribution from test revenue of US$2.9 million, profit shares and royalties on loans of US$0.2 million and sales based tax payments and accruals of US$1.2 million.

Administrative expenses, excluding exceptional items, during the period were US$4.1 million (six months ended 30 June 2014: US$3.2 million; year ended 31 December 2014: US$7.3 million). The increase in administrative expenses over the comparable period in 2014 was driven by employee headcount growth and professional fees.

Exceptional administrative expenses during the period of US$8.8 million (six months ended 30 June 2014: US$3.2 million; year ended 31 December 2014: US$20.3 million) relate to decisions taken to plug and abandon four wells which are deemed non-commercial and decisions to impair partially nine wells on account of reduced expectations of present value in the lower oil price environment.

Normalised earnings before interest, taxation, depreciation and amortisation was US$6.6 million ("NEBITDA") (six months ended 30 June 2014: US$17.4 million; year ended 31 December 2014: US$27.4 million). On a per barrel basis NEBITDA during the period was US$18.73/barrel (six months ended 30 June 2014: US$50.40/barrel; year ended 31 December 2014: US$39.01/barrel).

The tax charge of US$0.8 million primarily represents the recycling of a deferred tax charge held in the hedging reserve and relates to gains on the Company's hedges realised during the period. As reported at 31 December 2014, the Group undertook a detailed review of its capital deductions under US taxation which gave rise to a restatement of the 2013 deferred tax position. In 2013, the Group had recorded a deferred tax asset of US$7.0 million which was restated to US$nil in the 2014 annual financial statements. Accordingly, in these interim financial statements, the results for the comparative six months ended 30 June 2014 have been similarly restated. The previously reported deferred tax asset of US$5.9 million at 30 June 2014 has been restated to US$nil. The deferred tax charge of US$1.0 million previously recognised for the period ended 30 June 2014 has also been restated to US$nil, resulting in an overall tax charge for the period ended 30 June 2014 of US$0.3 million. 

The Group statutory loss for the period after exceptional administrative items was US$8.0 million (six months ended 30 June 2014: profit US$8.3 million; year ended 31 December 2014: loss US$3.9 million).

Cash inflow from operating activities for the period was US$9.4 million (six months ended 30 June 2014: US$14.4 million; year ended 31 December 2014: US$28.2 million).

Cash flow used in investing activities during the period of US$16.9 million (six months ended 30 June 2014: US$18.8 million; year ended 31 December 2014: US$42.3 million) included capital expenditure on drilling and completing new wells in late 2014 and early 2015 prior to release of the drilling rig, further new completions and recompletions on existing wells, strategic lease acquisitions and lease renewals and 3D seismic acquisition and interpretation across the Monarch JDA area announced in January 2015.

Net cash flow from financing activities during the period totaled US$4.9 million (six months ended 30 June 2014: US$5.7 million; year ended 31 December 2014: US$15.9 million) and included additional drawings against the Group's reserves based bank facility with Commonwealth Bank of Australia of US$6.0 million.

At 30 June 2015, the Group held cash balances of US$2.3 million (30 June 2014: US$4.3 million; 31 December 2014: US$5.0 million).

Since the period end, in August 2015 the Group issued £6.4 million (US$10.0 million) of new zero coupon unsecured convertible loan notes which may be converted at any time into new ordinary shares in the Company at 3.0 pence per share. The purpose of the fund raise was to underline the Group's ability to fund drilling of new wells in the remainder of 2015 and into 2016.

Richard Swindells

Chief Financial Officer

29 September 2015

Unaudited Consolidated Income Statement

for the 6 months ended 30 June 2015

Unaudited Consolidated Statement of Comprehensive Income

for the 6 months ended 30 June 2015

Unaudited Consolidated Balance Sheet

as at 30 June 2015

Unaudited Consolidated Statement of Changes in Equity

for the 6 months ended 30 June 2015

Unaudited Consolidated Cash Flow Statement

for the 6 months ended 30 June 2015

Notes to the consolidated cash flow statement

for the 6 months ended 30 June 2015

1. Reconciliation of profit/(loss) before tax to cash generated from operations

Notes to the Unaudited Financial Information

for the 6 months ended 30 June 2015

Accounting policies

The interim financial information in this report has been prepared on the basis of the accounting policies set out in the audited financial statements for the year ended 31 December 2014, which complied with International Financial Reporting Standards as adopted for use in the European Union ("IFRS"). The financial information for the periods ended 30 June 2015 and 30 June 2014 are unaudited but have been reviewed by the company's auditors.

IFRS is subject to amendment and interpretation by the International Accounting Standards Board ("IASB") and the IFRS Interpretations Committee and there is an on-going process of review and endorsement by the European Commission.

The financial information has been prepared in accordance with the recognition and measurement requirements of IFRS that the Directors expect to be applicable as at 31 December 2015, with the exception of IAS 34 Interim Financial Reporting which is not mandatory for companies listed on the AIM Market.

The financial information for the year ended 31 December 2014 set out in this interim report does not comprise the Group's statutory accounts as defined in section 434 of the Companies Act 2006.

The statutory accounts for the year ended 31 December 2014, which were prepared under IFRS, have been delivered to the Registrar of Companies. The auditors reported on these accounts; their report was unqualified; did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006, and did not include reference to any matters to which the auditor drew attention by way of emphasis.

1. Exceptional items

During the period decisions were taken to plug and abandon a total of four wells. As a result of these decisions, the associated assets have been fully impaired as at 30 June 2015 resulting in an exceptional charge to the income statement of US$5.5 million. An additional impairment charge of US$3.3 million has also been taken to the income statement at 30 June 2015 which represents a partial impairment of a further nine wells which arises primarily due to the reduction in the spot and forward oil price assumptions used in estimating the oil reserves and future discounted cash flows for each well.

2. Finance income and expense

3. Earnings per share attributable to the equity shareholders of the Company

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

Due to the Group's reported losses in the current period and year ended 31 December 2014 share options, convertible loans and warrants were not taken into account when determining the weighted average number of ordinary shares in issue during the period / year for the diluted EPS calculation. Similarly, earnings used in the diluted EPS did not include convertible loan interest that was anti-dilutive for those periods. Therefore the basic and diluted earnings per share were the same in those periods.

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

4. Taxation

The following tax charges and credits arose in the US during each period presented:

No tax charge arose in the in the UK in the period (period ended 30 June 2014: £nil; year ended 31 December 2014: £nil).

No deferred tax asset has been recognised for tax losses of US$135.3 million available in the USA due to uncertainty over the timing of future profits and on account of the fact that the Group's ability to utilise some of these tax losses is restricted under S382 of the IRS Code to an amount of US$0.4 million per annum. The unrecognised taxable losses in the USA can be carried forward for U.S. Federal and Colorado State income tax purposes for 20 years. These losses if not utilised will begin to expire in the year 2026 through 2032. The deferred tax liability that was held in the hedging reserve was released in the period and relates to the gains on the Company's hedges realised during the period.

A deferred tax asset in respect of taxable losses available in the UK has not been recognised due to the uncertainty over timing of future profits. The taxable losses available in the UK can be carried forward indefinitely.

Restatement

Refer to the Chief Financial Officer's Statement for details of the restatement. The impact on the period ended 30 June 2014 was as follows:

Details of the restatement as at 1 January 2014 detailed in the Statement of Changes in Equity have been previously disclosed in the 2014 Annual Report.

5. Share Capital

During the period ended 30 June 2015, the Company issued a total of 1,700,000 ordinary shares at a price of 5p per share, resulting in a premium of US$123,630.

During the comparative period to 30 June 2014, the Company issued a total of 8,054,548 ordinary shares: 6,254,548 at a price of 5.5p per share and 1,800,000 at 5p per share, resulting in a premium of US$691,062.

During the year ended 31 December 2014 the Company issued a total of 14,690,910 ordinary shares: 9,890,910 at a price of 5.5p per share, 3,600,000 at 5p per share and 1,200,000 at 7.16p per share, resulting in a premium of US$1,279,014.

Following the issue of shares in the period, there were 964,076,330 ordinary shares of 0.25p each in issue at 30 June 2015.

6. Post Balance Sheet Events

On 18 August 2015 the Company announced that it had completed the issue of £6.4 million (US$10.0 million) of new zero coupon unsecured convertible loan notes ("Convertible Loan Notes"). The issue of Convertible Loan Notes was underwritten and partially subscribed by Mr Johan Claesson, a director of the Company and the Company's major shareholder. Upon completion of the fund raise, Mr Claesson held a total of £4,339,200 nominal (approximately US$6,780,000) of the Convertible Loan Notes. The terms of the Convertible Loan Notes are such that they are zero coupon, unsecured and convertible at the option of the holder at a price of 3.0 pence per ordinary share at any time before 25 March 2019, subject to limited restrictions including a prohibition on conversion where to do so would breach Rule 9 of the City Code on Takeovers and Mergers.

On 6 August 2015, the Group drew a further US$1.0 million on its reserves based loan facility with Commonwealth Bank of Australia, taking the total amount drawn under the facility to US$30.0 million out of a total borrowing base of US$37.0 million. The available borrowing base is subject to a US$5.0 million withholding by the bank such that the Group at all times maintains a minimum liquidity requirement.

7. Litigation update

The Company previously made announcement on 21 May 2014 regarding a lawsuit brought by Running Foxes Petroleum, Inc. against a subsidiary of the Company, in a Colorado court in the United States. Nighthawk believes that the case is completely without merit and the Court recently dismissed of one of the plaintiff's claims. Nighthawk recently filed a motion for summary judgment to dispose of the remaining claims. The facts and governing law do not give rise to any valid legal claim by Running Foxes Petroleum Inc. against Nighthawk, or otherwise raise a valid business issue that needs to be resolved between the companies. Nighthawk believes that the allegations contained in the complaint are baseless, and that the complaint is a groundless action. Nighthawk will vigorously defend against the complaint and seek all available legal remedies.

8. Competent Person review

Chuck Wilson, Chief Operating Officer of Nighthawk, who has over 33 years of experience in the oil and gas industry and meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.

9. Copies of the Half Yearly Report

A copy of this Half Yearly Report will be made available on the Company's website at: www.nighthawkenergy.com