Jersey Oil&gas Regulatory News (JOG)

20 April 2017

Jersey Oil and Gas plc

("Jersey Oil & Gas", "JOG" or the "Company")

Final Results for the year ended 31 December 2016

Jersey Oil & Gas (AIM: JOG), an independent upstream oil and gas company focused on the UK Continental Shelf region of the North Sea, is pleased to announce its audited results for the year ended 31 December 2016.

Highlights

Post period end

Outlook

Andrew Benitz, CEO of Jersey Oil & Gas, commented:

"2016 has been another transformational year for Jersey Oil and Gas, during which we have achieved what we believe to be the first promoted farm-out of an exploration licence in the UK North Sea in over two years. With a rig contract announced post period end, Verbier is now expected to be drilled during Summer 2017 and we eagerly await the results."

"We continue to be involved in multiple sales processes and are confident that we are well placed to deliver further shareholder value through our production focused acquisition strategy. I am particularly grateful to JOG's management team and employees who have adeptly demonstrated that good people can lead to great achievements. We have only recently started on JOG's journey and I believe that our team, supported by our shareholders, is capable of developing the Company much further from where we are today."

General enquiries:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

Notes to editors:

Jersey Oil and Gas is a UK E&P Company focused on the North Sea. The company owns an 18% interest in the P.2170 licence, Blocks 20/5b & 21/1d, Inner Moray Firth, where it is participating in a Statoil funded and operated exploration well on the Verbier prospect in summer 2017. A recent Competent Persons Report, carried out by ERC Equipoise Ltd attributes 162 MMboe gross mean prospective resources to the Verbier prospect. The licence also contains the Cortina prospect (124 MMboe gross mean prospective resources) and Meribel lead which are both Upper Jurassic targets like Verbier.

The Company plans to potentially build a major production portfolio via acquisitions coinciding with the cyclical recovery in the oil price and the opportune buying market available in the North Sea. The Company is involved in multiple sales processes and intends to draw on its management team's experience, knowledge and expertise to deliver shareholder value from its stated production acquisition strategy.

CHAIRMAN'S STATEMENT

Corporate Activities

The year ended 31 December 2016 saw Brent Crude oil trading at the upper end of a US$30 to US$55 per barrel price range, with companies continuing to adjust to a new pricing environment. In the UK Continental Shelf ("UKCS") region of the North Sea we are seeing some companies seeking to rationalise their portfolios. During the year, Jersey Oil and Gas Plc ("JOG" or the "Company") has been in many data rooms and evaluated in excess of 40 field interests, with a view to acquiring production assets. In so doing, we continue to apply a disciplined approach to any offers we make and seek a pragmatic treatment of field abandonment liabilities. We continue to receive strong shareholder interest and support for our production asset acquisition strategy and have indicative bank funding support.

The other part of our strategy is to rationalise and, if possible, add value to our legacy asset portfolio. In October 2016, we completed a farm-out of part of our interest in Licence P.2170, Blocks 20/5b & 21/1d ("Verbier") to Statoil.  The Company retains an 18 per cent. interest in this licence area and benefits from a 10 per cent. carry funded by its co-venturer CIECO. A Competent Person's Report was completed in March 2017, which indicated a significant uplift in Mean Prospective Resources for Verbier, compared to the previously announced unaudited management estimates, together with a modest increase in the chance of success for this prospect, which was most encouraging.

We also successfully farmed out JOG's 50 per cent. interest in Licence P.1989, Blocks 14/11, 12 & 16 to Azinor in return for contingent payments of up to US$4 million. Azinor has recently announced the completion of a site survey for a prospect on this licence area in preparation for a well, intended to be drilled later in 2017. Further details of both the Statoil and Azinor farm-outs are set out in the Chief Executive Officer's Report.

Financial Results

Our pre-tax loss for the year amounted to £793,439, down from £1.4 million in 2015. This reflects our continuing tight control of costs, part of which involved the Directors and staff agreeing to salary cuts of up to 50% for nine months of the year. Salary levels have since been restored, although they remain low by industry norms.

We continue to operate from our offices in Jersey and plan to re-open a London office when circumstances allow.

Equity Placing

In November 2016, the Company raised £1.6 million (before expenses) by way of a placing with new and existing shareholders at a placing price of 110 pence per share. The placing was well received by investors and was oversubscribed. As part of this placing, the directors and certain members of senior management subscribed for 120,454 shares at the placing price, raising £0.13 million (before expenses). The net proceeds are being utilised to fund technical studies and evaluation work to improve the Company's understanding of the Verbier prospect and provide additional working capital.

As at 31 December 2016, available cash amounted to approximately £1.9m.

Following completion of the placing, Arden Partners plc were appointed as broker to the Company. Subsequently, in March 2017, BMO Capital Markets were appointed as joint brokers.

Outlook

We look forward to the drilling of the Verbier prospect exploration well later this year. Although we believe the prize for success may be significant, as is the case with exploration wells of this nature, success is not assured. We also have a contingent interest in the outcome of a well that Azinor has stated it plans to drill later this year. Alongside this, we will continue to pursue our production asset acquisition strategy. We have observed in the market some notable large scale asset acquisition transactions and are confident that this can be replicated by the Company at prices which yield a good return for shareholders.

On behalf of the Board, I would like to welcome the new shareholders who supported our equity placing in 2016 and to thank all of our employees who have continued to work on our exploration and production plans, which I am confident have the potential to provide long-term shareholder value.

Marcus Stanton

Non-Executive Chairman

20 April 2017

CHIEF EXECUTIVE OFFICER'S REPORT

Transformational Year

2016 proved to be another transformational year for JOG, during which we successfully achieved what we believe to be the first promoted farm-out of an exploration licence in the UK North Sea in over two years. Statoil is now established as operator of Licence P.2170 and we eagerly await the drilling of Verbier, a material and moderately risked prospect. With a rig contract announced post period end, Verbier is now expected to be drilled during summer 2017. We continue to be involved in multiple sales processes and are confident that we are well placed to deliver further shareholder value through our production asset acquisition strategy.

Successful High Impact Farm-Out to Statoil and confirmation of the drilling of the Verbier prospect

Together with CIECO, we successfully farmed-out a 70% interest in Licence P.2170, Blocks 20/5b and 21/1d to Statoil and retain an 18 per cent. interest in this licence area. Against the backdrop of low oil prices and a dearth of deal flow at that time, this was a significant achievement for the Company and, we believe, demonstrates the value potential that the Verbier prospect holds for the Company.

Statoil, as the Licence's operator, has acquired the necessary site survey and has recently contracted the Transocean Spitsbergen for the drilling, this summer, of an exploration well on the Verbier prospect. JOG has conducted further technical studies to improve and update it's understanding of this prospect. Subsequently, we contracted ERCE, to review its latest geological, geophysical and petrophysical interpretations and produce a Competent Person's Report on the P.2170 licence area and its Verbier and Cortina prospects. We were pleased to report an increase in the Mean Prospective Resources attributed to Licence P.2170 for the Verbier prospect to 162 MMboe from 118 MMboe and in the chance of success from 26% from 29%. In addition, Contingent Resources relating to the historic third party discovery well 20/5a-10Y were identified. With respect to Cortina, the Mean Prospective Resources were increased to 124 MMboe from 91 MMboe with a chance of success of 19%.

Pursuant to the terms of the farm-out, Statoil is funding all costs up to US$25 million in respect of the drilling of the Verbier exploration well and following commencement of the work programme for this well, the Company is also benefiting from a 10 per cent. carry funded by CIECO in relation to the well programme's costs.

Production Focused Acquisition Strategy

Over the past 18 months, JOG has significantly increased its corporate intelligence with respect to its objective of establishing a well-balanced portfolio of production assets. This knowledge base gives us a competitive strength with respect to the identification, evaluation and negotiation of potential asset acquisitions. We have also built strong relationships with potential financial partners, who have been and continue to be actively involved with JOG in multiple sales processes.

The UK government's recent initiative to set up a panel of industry experts to recommend a possible way forward regarding the transfer of tax history from vendor to purchaser, if implemented, will be of significant benefit to stimulating activity, leading to a level playing field for the application of decommissioning tax relief. We would welcome this action from the government, which we believe would greatly help the Oil & Gas Authority's committed strategy to MER (Maximise Economic Recovery) within the UK North Sea.

We have observed an acceleration of deal-flow in the last few months within the North Sea which is encouraging. Our investment criteria remains disciplined both technically and commercially. I am optimistic that we will succeed in securing acquisitions that will provide shareholders with the prospect of significant long term value creation.

Other Licence Activities

Early in the first half of the year, we were pleased to announce the farm-out of our 50 per cent. interest in Licence P.1989, Blocks 14/11, 12 & 16 to Azinor which also acquired the remaining 50 per cent. interest from Norwegian Energy Company UK Limited ("Noreco") and was subsequently appointed as operator.

By way of consideration, Azinor will undertake certain firm work commitments, including a drill-or-drop obligation in respect of an exploration well, and make conditional payments of up to US$4m. Post period end, Azinor has stated its intention to drill an exploration well on the licence's Partridge prospect (previously named Homer).

We relinquished our interests in a number of licences, comprising Licence P.1610, Block 13/23a (Liberator), Licence P.1666, Block 30/11c (Romeo) and Licence P.1889 (Niobe) - Niobe relinquished effective 31 December 2015 as they were considered to be non-prospective and the associated licence fees were onerous.

As reported in previous years, Total E&P UK Limited ("TEPUK") has a conditional agreement to pay the Company £1m in relation to the termination of its 2013 farm-in to Licence P.2032, Blocks 21/8c, 21/9c, 21/10c, 21/14a and 21/15b. TEPUK disputes that the conditions giving rise to the obligation to pay the Company have been satisfied. We continue efforts in pursuit of our claim.

Financial review

During the year, the Company's revenue-stream ceased. Previously, this was largely associated with our interest in the Athena Oil Field. As announced in July 2015, we ring-fenced our liabilities to the Athena Consortium with respect to the Athena Oil Field. The result of this was that we subsequently no longer had any real economic exposure to the field and, as a consequence, the Group no longer accounts for the income and expenses of the Athena Oil Field in its results.

Our cost of sales largely relate to ongoing work on our remaining licence interest P.2170 and our active pursuit of several production asset acquisition targets.

We were also in receipt of a small refund of just under £90,000 from our insurers in the period, as a result of a return of premiums on various policies and, in addition, the Group received a refund of prepaid well costs from the operator on the Niobe exploration well, due to the actual costs of the well having been less than had been billed. These items are shown as other income in the accounts.

The Company has taken a sharp focus on administration costs over the last couple of years and these costs were lowered further in January 2016, as is reflected in the reduction of such costs compared to the Group's 2015 results for the comparable period. There are also no exceptional items in the current year (2015 £3.3m).

In November 2016, we successfully closed a significantly oversubscribed equity placing of £1.6m (before expenses), which ensures that we have sufficient working capital through into 2018. Part of the net proceeds have been used for technical studies conducted by the Company on the Verbier prospect as we continue to enhance our knowledge of this prospect ahead of the drilling campaign. This work has provided us with a better understanding of the Verbier prospect and has led to the recent upgrade in prospective resources attributed to both Verbier and Cortina.

Overall, there was a loss of £793,439 (2015: £1,430,078) in the year and cash balances stood at £1,882,310 (2015: £862,910) at the end of December 2016.

Looking Forward

We look forward to the drilling of the Verbier prospect set to commence this summer. Together with the nearby Cortina prospect, this holds significant potential for the Company. We continue to manage our existing cash resources prudently and in addition to the Statoil carry we are also benefiting from the CIECO carried interest with respect to the drilling of the Verbier prospect.

The market is now firmly open for M&A activity within the North Sea sector and we look forward to executing on the production side of our strategy, although it should be noted that we will continue to focus on doing the right deal for shareholders rather than executing a deal just simply to acquire production.

I am particularly grateful to JOG's management team and employees who have adeptly demonstrated that good people can lead to great achievements. We have only recently started on JOG's journey and I believe that our team is capable of developing the Company much further from where we are today.

I was very pleased with the interest we generated from our placing in November and I welcome the new shareholders to our register. We remain tightly held, with just under 10 million shares in issue. Management retains a significant shareholding and as such is closely aligned with the interests of shareholders.

Andrew Benitz

Chief Executive Officer

20 April 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

The financial statements were approved by the Board of Directors and authorised for issue on 20 April 2017.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016

The following describes the nature and purpose of each reserve within owners' equity:

Reserve Description and purpose

Called up share capital Represents the nominal value of shares issued

Share premium account Amount subscribed for share capital in excess of nominal value

Share options reserve Represents the accumulated balance of share based payment charges recognised in respect of share options granted by the Company less transfers to retained deficit in respect of options exercised or cancelled/lapsed

Accumulated losses Cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income

Reorganisation reserve Amounts resulting from the restructuring of the Group at the time of the IPO in 2011

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. GENERAL INFORMATION

Jersey Oil and Gas and its subsidiaries (together, "the Group") are involved in upstream oil and gas business in the UK.

The Company is a public limited company, which is quoted on AIM, a market operated by the London Stock Exchange plc and incorporated and domiciled in the United Kingdom. The address of its registered office is 10 The Triangle, ng2 Business Park, Nottingham, NG2 1AE.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of Accounting

These financial statements have been prepared under the historic cost convention, in accordance with International Financial Reporting Standards and IFRS IC interpretations as adopted by the European Union ("IFRSs") and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Going Concern

The Company is expected to have sufficient resources to cover the expected running costs of the business for a period of 12 months after the issue of these financial statements. Taking into account the carry from Statoil and the anticipated cash receivable from CIECO in relation to our carry from them on the P.2170 (Verbier) well drilling and given the current anticipated well costs, the Statoil carry and proceeds receivable from CIECO, as well as our current cash reserves, are in a dry hole case expected to more than exceed the estimated liability of the Company. Should the well be successful as we hope, further testing and well activity will be required and the Company will seek to approve budgets with our partners and raise additional finance in order to cover this eventuality and its share of the expected additional costs. Whilst there can be no certainty of the success of any fund raising, the Directors believe the successful well result in this scenario would position the Company favourably in order to source additional capital. Based on these circumstances, the directors have considered it appropriate to adopt the going concern basis of accounting in preparing its consolidated financial statements.

Changes in Accounting Policy and Disclosures

(a) New and amended standards adopted by the Company

There are no new standards that came into effect during 2016.

(b) The following standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2018, but the Group has not adopted them early. The Group does not expect the adoption of these standards to have a material impact on the financial statements.

· IFRS 15 'Revenue from contracts with customers' is effective for accounting periods beginning on or after 1 January 2018.

· IFRS 9 'Financial instruments' is effective for accounting periods on or after 1 January 2018.

· IFRS 16 'Leases' is effective for accounting periods beginning on or after 1 January 2019.

Amendments have also been made to the following standards effective on or after 1 January 2017. The Group does not expect the amendments to have a material impact on the Group's financial statements.

· IFRS 2 'Share-based Payment'

· IFRS 4 'Insurance Contracts'

· IFRS 12 'Disclosure of Interests in Other Entities'

· IAS 7 'Statement of Cash Flows'

· IAS 12 'Income Tax'

· IAS 28 'Investment in Associates and Joint Ventures'

· IAS 40 'Investment Property'

All other amendments to accounting standards not yet effective and not included above are not material or applicable to the Group.

Significant Accounting Judgements and Estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities at the date of the financial statements. If in future such estimates and assumptions, which are based on management's best judgement at the date of the financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. The Group's accounting policies make use of accounting estimates and judgements in the following areas:

· impairment (note 13),

· the estimation of share based payment costs (note 21).

Impairments

The group tests its capitalised exploration licence costs for impairment when facts and circumstances suggest that the carrying amount exceeds the recoverable amount. The recoverable amounts of CGUs are determined based on value-in-use calculations. These calculations require the use of estimates. An impairment charge of £710 arose relating to licence P1989 during the course of the 2016 year, resulting in the carrying amount of the licence being written down to its recoverable amount of £nil.

Share Based Payments

The Group currently has a number of share schemes that give rise to share based charges. The charge to operating profit for these schemes amounted to £114,788 (2015: £nil). For the purposes of calculating the fair value of the share options, a Black-Scholes option pricing model has been used. Based on past experience, it has been assumed that options will be exercised, on average, at the earliest exercise date. The share price volatility used in the calculation of 40% is based on the actual volatility of the Group's shares as well as that of comparable companies. The risk free rate of return is based on the implied yield available on zero coupon gilts with a term remaining equal to the expected lifetime of the options at the date of grant.

These are described in more detail in the relevant accounting policies within note 2.

Basis of Consolidation

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50 per cent. of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date the Group ceases to have control.

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.

Acquisition related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Acquisitions, Asset Purchases and Disposals

Acquisitions of oil and gas properties are accounted for under the purchase method where the business meets the definition of a business combination.

Transactions involving the purchase of an individual field interest, farm-ins, farm-outs, or acquisitions of exploration and evaluation licences for which a development decision has not yet been made that do not qualify as a business combination, are treated as asset purchases. Accordingly, no goodwill or deferred tax arises. Consideration from farm-ins/farm-outs are adequately credited from, or debited to, the asset. The purchase consideration is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds on disposal are applied to the carrying amount of the specific intangible asset or development and production assets disposed of and any surplus is recorded as a gain on disposal in the Consolidated Statement of Comprehensive Income.

Revenue Recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. It is measured at the fair value of consideration received or receivable for sale of goods.

Revenue derived from the production of hydrocarbons in which the Group has an interest with joint venture partners is recognised on the basis of the Group's working interest in those properties. It is recognised when the significant risks and rewards of ownership have been passed to the buyer.

Revenue from strategic partners on the identification of opportunities for application for a licence to explore further and is recognised in the period in which the services are provided or the date a trigger event occurs if this is later.

Exploration and Evaluation Costs

The Group accounts for oil and gas and exploration and evaluation costs using IFRS 6 "Exploration for and Evaluation of Mineral Resources". Such costs are initially capitalised as Intangible Assets and include payments to acquire the legal right to explore, together with the directly related costs of technical services and studies, seismic acquisition, exploratory drilling and testing.

Exploration costs are not amortised prior to the conclusion of appraisal activities.

Exploration costs included in Intangible Assets relating to exploration licences and prospects are carried forward until the existence (or otherwise) of commercial reserves have been determined subject to certain limitations including review for indications of impairment on an individual license basis. If commercial reserves are discovered, the carrying value, after any impairment loss of the relevant assets, is then reclassified as Property, plant and equipment under Production interests and fields under development. If, however, commercial reserves are not found, the capitalised costs are charged to the Consolidated Statement of Comprehensive Income. If there are indications of impairment prior to the conclusion of exploration activities, an impairment test is carried out.

Property, Plant and Equipment

Property, plant and equipment is stated at historic purchase cost less accumulated depreciation. Asset lives and residual amounts are reassessed each year. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

Depreciation on these assets is calculated on a straight line basis as follows:

Joint Ventures

The Group participates in joint venture agreements with strategic partners, where revenue is derived from annual retainers and success fees in a combination of cash and carried interests. The Group accounts for its share of assets, liabilities, income and expenditure of these joint venture agreements and discloses the details in the appropriate Statement of Financial Position and Statement of Comprehensive Income headings in the proportion that relates to the Group per the joint venture agreement.

Investments

Fixed asset investments in subsidiaries are stated at cost less accumulated impairment in the Company only Statement of Financial Position and reviewed for impairment if there are any indications that the carrying value may not be recoverable.

Financial Instruments

Financial assets and financial liabilities are recognised in the Group's Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. The Group does not have any derivative financial instruments.

Cash and cash equivalents include cash in hand and deposits held on call with banks with a maturing of three months or less.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for doubtful debts. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the recoverability of the trade receivable is doubtful. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss will be recognised in the Consolidated Statement of Comprehensive Income within administrative expenses. Subsequent recoveries of amounts previously provided for are credited against admin expenses in the Consolidated Statement of Comprehensive Income.

Trade payables are stated initially at fair value and subsequently measured at amortised cost.

Loan notes are stated initially at fair value and subsequently measured at amortised cost of the investment as agreed in the loan instrument.

Exceptional Items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

Deferred Tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred taxation liabilities are provided, using the liability method, on all taxable temporary differences at the reporting date. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date.

Foreign Currencies

Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the reporting date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Gains and losses arising on retranslation are recognised in the Consolidated Statement of Comprehensive Income for the year.

Employee Benefit Costs

The Group operates a defined contribution pension scheme. Matching contributions are made by the employer and employees up to 10% of salary each via a salary sacrifice scheme. Contributions payable are charged to the Statement of Comprehensive Income in the period to which they relate. No further obligations remain once contributions have been paid.

Share Based Payments

Equity settled share based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The total amount to be expensed is determined by reference to the fair value of the options granted:

· including any market performance conditions (for example, an entity's share price);

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and

· including the impact of any non-vesting conditions (for example, the requirement for employees to save).

The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity settled employee benefits reserve.

Equity settled share based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Exercise proceeds net of directly attributable costs are credited to share capital and share premium.

Share Capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects is included in equity attributable to the Company's equity holders.

Segmental Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors.

3. SEGMENTAL REPORTING

The Directors consider that the Group operates in a single segment, that of oil and gas exploration, appraisal, development and production, in a single geographical location, the North Sea of the United Kingdom and do not consider it appropriate to disaggregate data further from that disclosed.

During 2016 the group had no turnover. In 2015 revenue from one major customer exceeded 10%, and amounted to £4.1m.

4. FINANCIAL RISK MANAGEMENT

The Group's activities expose it to financial risks and its overall risk management programme focuses on minimising potential adverse effects on the financial performance of the Group. The Company's activities are also exposed to risks through its investments in subsidiaries and is accordingly exposed to similar financial and capital risks as the Group.

Risk management is carried out by the Directors and they identify, evaluate and address financial risks in close co-operation with the Group's management. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as mitigating foreign exchange risks and investing excess liquidity.

Credit Risk

The Group's credit risk primarily relates to its trade receivables. Responsibility for managing credit risks lies with the Group's management.

A customer evaluation is typically obtained from an appropriate credit rating agency. Where required, appropriate trade finance instruments such as letters of credit, bonds, guarantees and credit insurance will be used to manage credit risk.

The Group also has a number of joint venture arrangements where partners have made commitments to fund certain expenditure. Management evaluate the credit risk associated with each contract at the time of signing and continually monitor the credit worthiness of our partners.

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The Group manages its liquidity through continuous monitoring of cash flows from operating activities, review of actual capital expenditure programmes, and managing maturity profiles of financial assets and financial liabilities.

Capital Risk Management

The Group seeks to maintain an optimal capital structure. The Group considers its capital to comprise both equity and net debt.

The Group monitors its capital structure on the basis of its net debt to equity ratio. Net debt to equity ratio is calculated as net debt divided by total equity. Net debt is calculated as borrowing less cash and cash equivalents. Total equity comprises all components of equity.

The ratio of net debt to equity as at 31 December 2016 is Nil (2015: Nil).

Maturity analysis of financial assets and liabilities

Financial Assets

Financial Liabilities

Post-employment benefits include employee and Company contributions to money purchase pension schemes.

The average monthly number of employees during the year was as follows:

Key management compensation

Key management includes Directors (Executive and Non-Executive) and the Company Secretary. The compensation paid or payable to key management for employee services is shown below;

6. OTHER INCOME

Income from JV partners: Reimbursement of well-related costs received as a result of the carried interest arrangement with CIECO Exploration in relation to P.2170

Refund of well insurance: A return of prepaid insurance premiums on various policies

Refund of JV well costs: Refund of prepaid well costs from the operator on the Niobe exploration well due to the actual costs of the well having been less than had been billed. These costs were initially capitalised as intangible assets under IFRS 6 and subsequently impaired in 2015. This has been reflected in the intangible assets note 12.

7. GAIN ON DISPOSAL OF ASSET

During the year licence P.2170, which contains the Verbier prospected was farmed out to Statoil. The group still retain an 18% carried interest in this licence.

8. EXCEPTIONAL ITEMS

The impairment of goodwill relates to the acquisition of Jersey Oil E&P Ltd during 2015 and the £3.8m relates to the settlement agreement reached with the Athena Consortium and CGG.

11. TAX

No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2016 or for the year ended 31 December 2015.

The Group have not recognised a deferred tax asset due to the uncertainty over when the tax losses can be utilised. At the year end the tax losses within the Group were approximately £25m.

12. LOSS PER SHARE

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

Diluted loss per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. As a loss was recorded for the current and prior year, the issue of potential ordinary shares would have been anti dilutive (see note 21 for share options in place at the end of the year).

Loss Weighted

attributable average

to ordinary number Per share

shareholders of amount

£ shares pence

Year ended 31 December 2016

Basic and Diluted EPS

Loss attributable to ordinary shareholders (793,439) 8,545,612 (9.28)

Year ended 31 December 2015

Basic and Diluted EPS

Loss attributable to ordinary shareholders (1,430,078) 4,895,881 (29.21)

13. INTANGIBLE ASSETS

* Impairments relate to the following licences included in Cost of sales in the Consolidated Statement of Comprehensive Income:

£

Following completion of geoscience evaluation activities in 2015, four North Sea licences (P.1556 29/1c (Orchid), P.1889 12/26b & 27 (Niobe), P.1768 14/14b, 18c & 19c (Bordeaux, Brule) and P.1666 30/11c (Romeo)) were relinquished as they were considered to be non-prospective and the associated licence fees were onerous.

Following these relinquishments the Group retained two licences: Licence P.2170 (Verbier) and P.1989 (Homer).

The P.2170 licence was farmed out to Statoil, under which we disposed of 42% of our 60% interest (retaining an 18% interest) in the licence. The disposal recorded within the note reflects this reduced interest.

At 31 December 2016 the remaining exploration asset (P.2170 - Verbier) was reviewed and the then carrying value of £48,363 was considered reasonable based on ongoing exploration work in the licence block and as a result no further impairments have been considered necessary.

14. PROPERTY, PLANT AND EQUIPMENT

Following the contract negotiations on the Athena production field the costs incurred on the licence have been impaired as the asset does not have a value to the Group.

15. IMPAIRMENTS

16. TRADE AND OTHER RECEIVABLES

17. CASH AND CASH EQUIVALENTS

18. CALLED UP SHARE CAPITAL

Issued and fully paid:

19. TRADE AND OTHER PAYABLES

20. CONTINGENT LIABILITY

In 2015 the settlement agreement reached with our partners in the Athena Consortium means that, although Trap Oil Limited remains a Licensee in the joint venture, any past or future liabilities in respect of its interest can only be paid from the revenue that the Athena Oil Field generates and 60 per cent. of net disposal proceeds or net profits from the P.2170 and P.1989 licences which are the only remaining assets still held that were in the Group at the time of the agreement with the consortium partners who hold security over these assets. Any future repayments, capped at 125% of the unpaid liability associated with the Athena Oil Field, cannot be calculated with any certainty, and any remaining liability still in existence once the Athena Oil Field has been decommissioned will be written off. A payment was made in 2016 to the Athena Consortium in line with this agreement following the farm-out of P.2170 (Verbier) to Statoil and the subsequent receipt of monies relating to that farm-out.

In 2014 the Group assigned its lease of 35 King Street to a third party, although the Group is still acting as Authorised Guarantor for all liabilities of the assignee in relation to the lease agreement, which terminates on 30 October 2018.

21. SHARE BASED PAYMENTS

The Group operates a number of share option schemes. Options are exercisable at the prices set out in the table below. Options are forfeited if the employee leaves the Group through resignation or dismissal before the options vest.

Equity settled share based payments are measured at fair value at the date of grant. The fair value determined at the date of grant of equity settled share based payments is expensed on a straight line basis over the vesting period, based upon the Group's estimate of shares that will eventually vest.

The Group share option schemes are for Directors, Officers and employees. The charge for the year was £114,788 (2015 nil) and details of outstanding options are set out in the table below.

The weighted average fair value of options granted during the year determined using the Black-Scholes valuation model was 41.55p per option. The significant inputs into the model were the mid-market share price on the day of grant or 1p exercise price as shown above and an annual risk-free interest rate of 2 per cent. The volatility measured at the standard deviation of continuously compounded share returns is based on a statistical analysis of daily share prices from the date of admission to AIM to the date of grant on an annualised basis.

22. RELATED UNDERTAKINGS AND ULTIMATE CONTROLLING PARTY

The Group and Company do not have an ultimate controlling party, or parent Company.

Registered Offices

1 10 The Triangle, NG2 Business Park, Nottingham, NG2 1AE

2 6 Rubislaw Terrace, Aberdeen, AB10 1XE

3 Howard House, 9 The Esplanade St Helier, Jersey, Channel Islands, JE2 3QA

23. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

RECONCILIATION OF LOSS BEFORE TAX TO CASH USED IN OPERATIONS

CASH AND CASH EQUIVALENTS

The amounts disclosed on the Statement of Cash Flows in respect of Cash and cash equivalents are in respect of these statements of financial position amounts:

Year ended 2016

Year ended 2015