Hague and London Oil Regulatory News (HNL)

24 MAY 2017

Hague and London Oil PLC

("Company", "HALO")

Full Year 2016 Results

Hague and London Oil PLC (AIM: HNL) is pleased to announce its Final Results for the year ended 2016.

Highlights

Strategic

· Repositioned the Company to pursue a lower risk strategy in line with current market environment in proven areas and with existing infrastructure

· Portfolio restructured with intention to focus on production or near-term production with upside potential, appraisal, development or low risk exploration assets

· MoU signed with ENGIE to target asset natural gas production acquisitions in Europe

· Higher risk exploration assets spun off into Vermeer Exploration BV ("Vermeer")

Operational

· Active portfolio management based on a clear set of criteria and corporate strategy

· Application for F5 block offshore Holland remains in progress

· Decision taken to terminate the farm-in to the Duyung licence in Indonesia due to approval delays causing expiry of initial agreements

· UK blocks relinquished in line with focus on lower risk production and development assets

· Blocks in Western Sahara acquired from Premier Oil (SADR) and spun off to Vermeer

Financial

· Loss before taxation of £0.72 million (18 months to 31 December 2015: loss £6.51m)

· Cash balance of £0.05 million (YE 2015: £0.3m), with commitments reduced to minimal levels

· G&A reduced to minimal levels at £0.68m (18 months to 31 December 2015: £2.96m)

Post-period and outlook

· Agreement to acquire a portfolio of producing assets in the Dutch North Sea from Tullow Oil Plc; financing discussions underway

· Active approach to portfolio management to continue; current position in the Philippines to be reviewed during the course of the year

· Careful screening of opportunities to continue with focus on delivering transformational transactions and cost management

Andrew Cochran, Chairman and Interim CEO, commented:

"The past year, 2016, was relatively quiet publicly as the industry changed but it also represented a period of much work in terms of re-structuring the Company, pursuing various opportunities and reducing costs. We announced that we were refocusing our corporate strategy on lower risk ventures, responding to the investment climate for natural resources as well as the wide array of opportunities becoming available. We actively and aggressively managed the legacy portfolio; rationalizing it to better stream-line the business within the strategy adopted.

HALO also recently embarked on a relationship with ENGIE Global Energy Management ("ENGIE") signing an MoU last year to collectively review opportunities for structured finance potential in terms of natural gas acquisitions. Subsequently we have screened a large number of possibilities, with a disciplined approach to evaluation in order to deliver value-accretive transactions consistent within the strategy in a cost-effective manner.

We were very recently pleased to announce our conditional agreement regarding the acquisition of a portfolio of non-operated natural gas production assets from Tullow Oil Plc in the Netherlands and have already started discussions in terms of funding on the best terms available. Whilst this potential acquisition is significant progress within HALO's corporate plan, we see it as just the initial step on our path to building a substantial and sustainable E&P business."

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Chairman's Statement

The past year, 2016, has been yet another challenging year for the E&P industry globally. It saw many companies struggle, experiencing difficulties with debt repayment and lacking access to new capital. Whilst few would have foreseen such a prolonged downturn, some business models clearly suffered more than others with a preference for production and lower risk from institutional investors. At Hague and London Oil PLC ("HALO"), we have closely monitored the changes in the sector and the underlying market sentiment, taking the decision to continue cost reductions, reduce risk exposure and reposition the Company in order to not only survive last year but to potentially thrive going forward.

The market has seen a significant drop in risk appetite. Whilst the medium-term outlook improved the industry has generally avoided, deferred or cancelled exploration programs or expensive developments. This led HALO to reconsider its corporate strategy, driving the restructuring of the portfolio to emphasize lower risk projects. The higher risk exploration portfolio, in non-OECD countries, was spun-off to Vermeer Exploration BV ("Vermeer"), a subsidiary of HALO in which it retains a sizeable stake. This preserved shareholder exposure to the potential upside within Vermeer without it weighing on the risk profile of HALO, and not confusing the overall equity story of HALO in terms of risk-tolerance. Vermeer also created a structure to re-capitalize HALO, funding overheads, without the issue of new shares (i.e. dilution) or burdening the Company with debt. To date, HALO has not issued a single new share since it was acquired by Wessex Exploration Plc in November 2014.

During the course of 2016, HALO has since placed a firm focus on lower risk assets, in proven basins, within stable regulatory regimes, with access to infrastructure, and most importantly near-term production or development potential within a limited competitive environment. As part of this strategic shift, a process of building a back log of opportunities commenced in 2016 and the exhaustive evaluation of these took place during the remainder of the year. Any thorough evaluation process is time-consuming, especially when performed by a small, low-cost team working on a myriad of targets in parallel. Volatility in commodity prices also negatively impacted this process as the gap between the buyer's and seller's expectations was always subject to rapid change.

Embedded within the new strategic focus was the commencement of a relationship between Engie Global Energy Management ("Engie") and HALO, and the Memorandum of Understanding ("MoU") announced on August 4th 2016. Engie is one of the largest European utilities and manages one of the largest European trading entities for natural gas and power. It was therefore logical to work with Engie whereby they become the off-taker of natural gas acquired by HALO in exchange for assistance in the structured finance of these potential acquisitions. While conventional capital, debt or equity has remained elusive to the wider industry, such structured products, as envisaged within the HALO/Engie MoU, remain available.

A large number of assets within the corporate development back-log has been evaluated by our team over the past year, and the pace of discussions has been slow, methodical and sensitive to commodity price and market sentiment. The extremely wide range of opportunity type, from corporate mergers to new applications, also complicated the process. The competitive nature of this process and mandatory confidentiality limited HALO's ability to share any details of such with the market. However, the Company's application for the F5 Block, offshore Holland, also progressed in 2016 whereby the Company was required to present its credentials to the Ministry of Economic Affairs, State Mining Directorate, National Technical Organization and the State's direct financial interest (EBN) in order explain the full terms and conditions of this application as well as the Company's capabilities. HALO eagerly awaits a conclusion to this process in 2017. The F5 Block, if awarded, represents a highly sought after block on "ground floor" terms wholly consistent with the Company's strategic focus.

The overall efforts and strategic refocusing culminated in the announcement of April 11th 2017, in which HALO released the details of a proposed acquisition from Tullow Oil Plc ("Tullow") of its entire portfolio in the Netherlands; producing 2,900boepd in 2016. The transaction had been long under discussion and formal negotiation between HALO and Tullow; the ultimate result would bring production and reserves into HALO at a very competitive price. Upon closing of the transaction, HALO would become a natural gas producing company, generating cash flow with its equity in long-life, non-operated assets offshore Holland. Again, this is wholly consistent with the repositioning of the Company in 2016.

Prior to the announcement of the potential Tullow transaction, HALO had already begun discussions with potential finance providers in order to identify the optimal manner of funding the transaction with minimal dilution to shareholders and maximum flexibility for the corporate balance sheet. As these discussions progress and any final terms are agreed, HALO will announce to the market. In the meantime, the shares will remain suspended as the transaction had been deemed a reverse take-over ("RTO") by the AIM Market under Rule 14. The shares of HALO will recommence trading once the readmission document has been issued, prior to transaction closing and shareholder approvals.

This transaction is a massive leap in HALO's transformation and places the Company well on its way to building a strong upstream company engaged in low-risk activities, in low-risk jurisdictions. HALO's team has invested considerable time and effort to reach this point, often at personal sacrifice whilst we maintained strict cost controls within the Company. There remains a large backlog of opportunities which remain under review and the Company plans to continue with an aggressive growth strategy going forward. 

However, we shall remain very cost-conscious after the Netherlands acquisition and will continue largely as we have to date. Although costs will rise with respect to the portfolio being acquired, we anticipate that operating cash flows will cover these costs. We are convinced that this disciplined approach has served the Company well in 2016 and will continue to do so as we create even more value for shareholders in the future.

The new year, 2017, has started well for HALO and we hope to continue this trend going forward. Therefore, we wish to thank our staff and shareholders for their support and patience throughout 2016 as well as in the future.

Financial Review

Consolidated Income Statement

In the year ended 31 December 2016, the loss before taxation was £0.72m (18 months to 31 December 2015: loss £6.51m) and loss per share was 2.99p (18 months to December 2015: loss 28.6p).

Administrative expenses for the year were significantly lower than the previous period at £0.68m (18 months to 31 December 2015: £2.96m), a reflection of management's commitment to control costs during this period of transition.

Consolidated Balance Sheet

At the end of December 2016, cash resources stood at £0.05m (2015: £0.28m). Looking forward, our existing project commitments for calendar year 2017 are minimal.

Going concern

At 31 December 2016 the Group had cash balances of £0.05m and will require additional funds in 2017 to maintain sufficient cash resources for its current working capital needs over the next twelve months. During 2017, the Chairman and an investor have provided the Company with £115,000 of short-term funding to cover immediate working capital needs.

On 10 April 2017 HALO announced the conditional acquisition of significant non-operated natural gas production assets in the Dutch North Sea from Tullow Netherlands Holding Coöperatief B.A.. The acquisition comprises interests in a suite of offshore exploration and production licences on the Dutch Continental Shelf ("DCS") within the Northern Area and Joint Development Area in the western part of the DCS, which collectively generated total production of 2,900 boepd in 2016. More details of this transaction are provided in the Directors' Report.

As a result of this announcement, the Directors have a reasonable expectation that the Group will be able to raise new equity, providing it with adequate resources to continue operating for the foreseeable future and to meet its planned commitments and liabilities for at least twelve months from the date these financial statements have been approved. For this reason the Directors continue to adopt the going concern basis in preparing these financial statements.

Project Review

The Netherlands

On 4 August 2016, HALO announced that it had, through its subsidiary Hague and London Oil B.V., signed a Memorandum of Understanding ("MoU") with ENGIE Global Energy Management ("ENGIE") to co-operate on the acquisition by HALO of natural gas production and reserves within Europe.

Under the MoU, HALO will contribute its upstream and commercial capabilities to target, acquire and manage specific low risk natural gas production assets in Europe.

ENGIE will contribute its substantial footprint in European gas markets and its expertise in energy management to offer an innovatively structured gas off-take, designed to help HALO secure the funding of such assets whilst minimising the dilution to HALO's shareholders.

HALO applied for an offshore exploration licence in the F5 Block in late 2015. The process remains ongoing and definitive results are expected very soon. Additionally, HALO is preparing further applications for the Dutch Continental Shelf in the coming months.

French Guyana

There was little activity on the French Guiana exploration permit during 2016. The original permit expired in June 2016 and two of the joint venture partners withdrew from any extension request, while the partnership is currently re-aligning itself with respect to any possible extension. The Group holds a 44.11% interest in Northpet Investments Limited (Northpet), giving it a 3.31% beneficial interest in the Guyane Maritime Permit. The Company does not expect any further progress or expense on the permit in 2017.

Western Sahara (SADR)

Maghreb Exploration Limited (a wholly owned subsidiary of HALO) and Comet Petroleum (SADR) Limited (a wholly-owned subsidiary of Tower Resources plc) each holds a 50% interest in three licence blocks under Assurance Agreements in the SADR - Bojador, Guelta and Imlili.

On 24 June 2016, HALO announced the acquisition, via Maghreb Exploration Limited, of Premier Oil (SADR) Limited, which holds interests in five exploration licence areas in the Saharawi Arab Democratic Republic. Premier Oil (SADR) Limited changed its name to Maghreb Offshore Limited following the acquisition.

Maghreb Offshore Limited holds interests in the following exploration licence areas: Daora (50%), Haouza (50%), Mahbes (50%), Mijek (50%), Laguera (100%).

A nominal consideration of $1 was payable immediately to Premier Oil and the Seller has also been granted a gross royalty of 5% over future production revenue from the interests in the blocks held by Maghreb and 5% of the proceeds of any eventual sale of these interests in each case and in aggregate subject to an agreed cap calculated as 90% of HALO's market capitalization as at the date of the acquisition and, if it has increased, as at each calendar month thereafter. In addition, the interests held by Premier SADR are subject to a gross royalty in favour of Premier Oil of 5% over future production revenue from such interests and 5% of the proceeds of any eventual sale of such interests. There are no revenues or profits currently attributable to the assets.

On completion, Maghreb Exploration Ltd was transferred to Vermeer Exploration B.V., a subsidiary of HALO.

HALO believes the SADR licences are a good strategic fit for Vermeer due to their risk profile associated with on-going political uncertainty, including overlapping licence claims between the SADR and Morocco, whilst the promising geology is the main attraction.

The licence areas lie on the Atlantic margin, which has seen encouraging drilling results over the past 12 months, particularly in Mauritania and Senegal, resulting in increased interest from larger oil companies. The political situation in Western Sahara remains complicated and, as a result, no operational activity is expected in 2017 but news flow from activity in the general region is expected throughout that period.

Indonesia

On 23 September 2015 HALO announced that it had entered into a conditional agreement to acquire a material interest in the Duyung Production Sharing Contract (PSC).

The transaction was subject to customary regulatory and government approvals. Since the signing of the agreement, HALO's management worked hard to complete the transaction and had secured extensions in the absence of timely progress within the approvals process. Despite HALO's best efforts to secure these approvals in a timely manner, none of the approvals had been received prior to the start of April 2016.

Therefore the decision was taken to terminate the Farm-In Agreement, with an effective date of 1 April 2016, and the Duyung licence itself was expected to expire on 15 January 2017. All costs relating to the Duyung project have been expensed in the period.

Philippines

The Company (through its wholly owned subsidiary HALO BV) holds a 15% interest in Service Contract SC54A in the NW Palawan Basin, offshore Philippines. The project holds a number of undeveloped oil discoveries with much remaining exploration potential. The joint venture sought, and was awarded, a three-year moratorium with respect to exploration activities in SC54A in August 2014. No activity beyond care and maintenance was undertaken in 2016.

Although we see much remaining prospectivity, and potential commerciality of existing discoveries, in SC54A we believe that the prevalent oil price makes it imprudent to formally commit to a work programme. A formal decision will be taken during the first half of 2017 as to whether the joint venture partners wish to continue with the licence or relinquish at the end of the three-year term in August 2017.

UK

In November 2016, HALO, as Licence Administrator, in conjunction with its partner NWE Mirrabooka (UK) Pty., decided to relinquish the Promote Blocks 98/7b, 98/8a and 98/12 (northern part).

Consolidated Income Statement

for the year ended 31 December 2016

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2016

Consolidated Balance Sheet

as at 31 December 2016

Consolidated Statement of Changes in Equity

for the year ended 31 December 2016

Consolidated Statement of Cash Flows

for the year ended 31 December 2016

Notes to the Consolidated Financial Statements

for the year ended 31 December 2016

1. Basis of Preparation

This announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") but in itself does not contain sufficient information to comply with IFRS. Details of the accounting policies are set out in the annual report for the period ended 31 December 2016.

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

Basic and diluted loss per share

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

The Company's share options have not been taken into consideration in respect of the weighted average number of ordinary shares for the purposes of the diluted earnings per share. At the current market price of the Company's shares, the options would have no impact on earnings per share.

3. Cash Flow from Operating Activities

4. Post balance sheet events 

On 10 April 2017 HALO announced the conditional acquisition of significant non-operated natural gas production assets in the Dutch North Sea from Tullow Netherlands Holding Coöperatief B.A. for an initial purchase price of €4,752,675 (subject to adjustment) and contingent payments of up to €20,000,000 between 1 January 2019 and 1 January 2021.

HALO would acquire the assets through the purchase by its wholly owned subsidiary, Hague and London Oil B.V., of the entire issued share capital of Tullow 101 Netherlands B.V. (the "Acquisition").

The Acquisition comprises interests in a suite of offshore exploration and production licences on the Dutch Continental Shelf ("DCS") within the Northern Area and Joint Development Area in the western part of the DCS, which collectively generated total production of 2,900 boepd in 2016.

The Directors believe that the Acquisition would represent a transformational step in the implementation of HALO's strategic repositioning towards lower risk, production opportunities in established hydrocarbon provinces with ample access to, and equity ownership of, infrastructure. The licences benefit from stable field production and the Directors see potential for significant upside in proved undeveloped and probable reserves, and contingent resources.

HALO is currently engaged in discussions with potential finance providers to agree the terms of funding for the initial purchase price payable pursuant to the terms of the Acquisition, whilst minimising dilution to Shareholders. The Company will announce further details of its financing arrangements at the appropriate time and once any binding agreement is entered into and details of such arrangements shall be included in the Admission Document.

Given the scale of the Acquisition when compared to the existing Group, the Acquisition would constitute a reverse takeover under Rule 14 of the AIM Rules and requires the Company to issue a new admission document and is conditional, inter alia, on the approval of the Acquisition by Shareholders. The Company is in the process of preparing an admission document relating to the Acquisition and readmission to trading on AIM of the Enlarged Group and is aiming to publish the Admission Document by 1 August 2017 . A Competent Person's Report ("CPR") on the material assets and liabilities of the Enlarged Group is in the course of being finalised, and will be included in the Admission Document as required by the AIM Rules. The Admission Document and a notice of the General Meeting, at which the approval of HALO's shareholders to the Acquisition will be sought, will be sent to shareholders in due course following the finalisation of the CPR and binding financing agreements.

Trading in the Company's Ordinary Shares on AIM was temporarily suspended on 4 April 2017. On publication of the Admission Document, the Ordinary Shares will be re-admitted to trading on AIM.

5. Publication of Non-Statutory Accounts

The financial information set out in this announcement does not comprise the Group's statutory accounts for the periods ended 31 December 2016 or 31 December 2015.

The financial information has been extracted from the statutory accounts of the Group for the year ended 31 December 2016 and period ended 31 December 2015. These audited Financial Statements include the auditors' report that, whilst unqualified, contains reference to the disclosures concerning the ability of the Group to continue as a going concern.

The statutory accounts for the period ended 31 December 2015 have been delivered to the Registrar of Companies, whereas those for the year ended 31 December 2016 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

5. Annual Report

The Annual Report will shortly be made available on the Company's website www.haloil.co.uk and, where relevant, will be posted to shareholders in due course.