Nostra Terra Regulatory News (NTOG)

7 June 2013

Nostra Terra Oil and Gas Company plc

("Nostra Terra" or the "Company")

Final results for the year ended 31 December 2012

Asset Base and Production Increased

Nostra Terra (AIM: NTOG), the AIM quoted oil and gas producer with a growing portfolio of horizontal and vertical drilling projects in the USA, announces its final results for the year ended 31 December 2012. NTOG currently has production interests in Colorado, Kansas, Oklahoma and Texas.

Highlights

·; 11 producing wells over 8 prospects

·; 44% increase in revenue to £352,000 (2011: £244,000)

·; Gross profit of £90,000 (2011: loss of £126,000), reduced overall loss

·; Acquired a 20% interest in the Chisholm Trail Prospect (Oklahoma), with varying interests in individual wells - first four wells all exceeding production expectations

·; Acquired a 10% working interest in the Warrior Prospect (Oklahoma) and brought well into production

·; Bale Creek (Oklahoma) brought into production

·; Initial Verde well (Colorado) exceeded expectations and reached payout in nine months, with a second well undergoing completion at the year end

·; Secured a new loan facility of up to US$3 million and raised more than £1 million through placings of new shares.

Post balance sheet highlights

·; Surpassed breakeven at the operational level in January 2013

·; Acquired a 20% working interest in the High Plains Prospect

·; Acquired further acreage in the Chisholm Trail Prospect, giving exposure to 21 potential drilling locations

·; Successfully concluded legal action against Richfield Oil & Gas, resulting in a judgement to recover in excess of US$1.5 million - initial $200,000 received

·; Raised a further £0.5 million through standby equity distribution agreement.

Matt Lofgran, Chief Executive Officer of Nostra Terra, commented:

"2012 was a year in which we made significant progress and this has continued into 2013. We acquired our interest in the Chisholm Trail Prospect during H2-2012 and from the production of the initial wells we were able to surpass break even in January 2013. There is potential for 21 drilling locations on our existing acreage position, which allows us a lot of room for growth, and as the play continues heating up we expect the pace of development to increase even further from here. This will serve as a great foundation for our greater portfolio.

The quality of the Chisholm Trail Prospect has also meant that we can enter negotiations in other prospects in a stronger position. This has been shown with news of our increasing our stake in the High Plains prospect from an initial 5% to a 20% working interest. We are excited to be a part of these highly prospective plays as we seek to grow production and reserves for years to come."

For further information, visit www.ntog.co.uk or contact:

Nostra Terra Oil and Gas Company plc

Matt Lofgran, CEO

mlofgran@ntog.co.uk Telephone: +1 480 993 8933

Shore Capital & Corporate Limited (Nominated adviser)

Bidhi Bhoma/Toby Gibbs Telephone: +44 (0)20 7408 4090

Alexander David Securities Ltd (Joint Broker)

David Scott/Bill Sharp Telephone: +44 (0)20 7448 9812

XCAP Securities plc (Joint Broker)

Jon Belliss / Halimah Hussain Telephone +44 (0)20 7101 7070

Lothbury Financial Services Limited

Gary Middleton/Michael Padley Telephone: +44 (0)20 3440 7621

Chairman's statement

Dear Shareholder,

I am pleased to present the full year results of the Company for the year ended 31 December 2012. This was a successful year for Nostra Terra. We continued to implement our growth strategy, expanding both our asset base and our production.

Exploration & production highlights

A key development in 2012 was our acquisition of a 20% interest in the Chisholm Trail Prospect. The first four wells have all exceeded our expectations, contributing to greater revenues for Nostra Terra and helping us to pass breakeven on an operational basis in January 2013. A horizontal well in the Warrior Prospect began producing in the first half of the year and a well at the Bale Creek Prospect was producing oil and generating revenue by November. The initial Verde well has exceeded our expectations, reaching payout within nine months. In March 2013, we purchased a 5% working interest ("WI") in the High Plains Prospect in Texas, which we have since increased to 20%. High Plains gives us a higher-risk exploration opportunity, with large upside potential. We are now identifying potential drill targets and expect to have multiple prospect areas.

Financial highlights

Growth in production led to higher revenues, which increased from £244,000 in 2011 to £352,000 in 2012, a rise of 44%. We achieved a gross profit of £90,000, compared with a loss of £126,000 in the previous year. As the company grows we keep tight control of administrative expenses, which decreased by 6% to £876,000. This contributed to a reduced loss before tax of £840,000, against a loss of £996,000 in 2011.

I am pleased to report that as we moved into 2013 production increased significantly, enabling us to achieve break even on an operational basis. We were also successful with our litigation with Richfield leading to a judgment, enabling us to begin collection.

Summary

Nostra Terra made strong progress in 2012. We are encouraged by the start we have made to 2013 and believe we are well positioned to achieve further success. I would like to thank our executive directors, Matt Lofgran and Alden McCall, for their considerable achievements and their hard work, which includes significant analysis of the many opportunities they decided not to pursue. I also wish to thank Nostra Terra's shareholders for their continuing loyalty. We look forward to keeping you informed about our progress.

Sir Adrian Blennerhassett

Chairman

Chief Executive's review

A strategy for growth

Nostra Terra is an exploration and production company, focused on finding and producing oil from conventional reservoirs. We accelerate production by applying modern technologies, including 3D seismic mapping, logging, precision horizontal and vertical drilling, and multi-stage well completions.

We target regions of low political and geological risk, specifically the United States mid-continent. Goldman Sachs has predicted that by 2017 the US will once again be the world's largest oil producer, generating 10.9m barrels a day. This is the result of highly sophisticated drilling technologies of the types we use, which are opening new fields. The states in which we operate - Oklahoma, Colorado, Kansas and Texas - are all achieving their highest daily productions in several decades because of the widespread application of these technologies.

Continuing our progress

A significant development in 2012 was our agreement with Ward Petroleum to acquire an interest in the Chisholm Trail Project, which we announced in August. This is our third multi-well drilling project in Oklahoma. We have a 20% interest in the overall play, with varying WIs in the individual wells, due to differences in the net acres leased in each well.

This play is a good example of how horizontal drilling and completion techniques can revive areas that were thought to be fully exploited. Ward has made rapid progress, with the first two wells entering production towards the end of 2012 and two further wells now in production. The fifth well, in which we have a 2.2% WI, has been completed and is currently in production testing. Our initial expectation was that each well would produce 200 barrels of oil equivalent per day ("BOEPD"). However, all of the first four wells have done considerably better than this and we expect that the fifth well will demonstrate similar results.

*Subject to final elections being concluded and finalisation of Working Interest percentage

An ongoing leasing program has also expanded the Prospect holdings. The acquisition of additional acreage means that Nostra Terra is now exposed to 21 potential drilling locations, including the five wells drilled so far.

We are excited by the Chisholm Trail Prospect's potential, a view supported by a recent, larger acquisition in the play by Gastar Exploration Limited (NYSE:GST), as well as other companies recently investing in the area. Our estimate is that these wells each need to produce 75,000 BOE to reach payback and we are encouraged by Gastar's announcement that it expects to recover several times this from its most recent wells. We believe Chisholm Trail is a low-risk, high-return play. A reserve report has now been commissioned and is anticipated shortly. Nostra Terra will then be able to put in place reserve-based lending, an attractive alternative to more dilutive forms of financing.

We also made progress with our two other prospects in Oklahoma, Bale Creek and Warrior. Nostra Terra owns a 30% WI in the Bale Creek Prospect, which is operated by Pathfinder Development Capital LLC. Bale Creek lies within a highly productive and extensively mapped trend, with multi-pay potential from as many as eight reservoirs. Following the acquisition of 3D seismic data, two wells were drilled at Bale Creek. The first well, which was horizontal, produced oil in swab testing but the pressure was unusually low. While drilling the second well, we and our partner saw the opportunity to test two stacked formations that were prominent anomalies in the 3D seismic interpretation, and decided to continue drilling the well vertically. In November, we announced positive results from prolonged testing of the second well, which was producing oil and generating revenue. Work on the first well has been discontinued, allowing us to focus our resources on future wells.

In January 2012, Nostra Terra agreed with Crown Energy Company Inc. to acquire a 10% WI in the Warrior Prospect. Like Bale Creek, Warrior lies within a prolific oil system in Oklahoma and contains multiple, stacked reservoirs. A horizontal well was drilled in the first half of the year and put into production.

Nostra Terra owns a 16.25% WI in the Verde Prospect Unit, which covers 636 acres in Colorado and is operated by Plainsmen Partners LLC. At the start of 2012, one vertical well was in operation and producing approximately 50 barrels of oil per day. This well has exceeded our expectations and reached payout within the first nine months of continuous production.

Since the end of the financial year, we have made another strategically important acquisition, with the purchase of an initial 5% WI in the High Plains Program in Texas. This strengthens our portfolio by giving us a higher-risk exploration opportunity, with the potential for large upside for our shareholders. Brown and Borelli is our highly experienced and respected operator-partner.

The area of mutual interest ("AMI") covers 66 contiguous square miles (42,000 acres) and is in a region where subsurface mapping, 3D seismic, vertical and horizontal drilling and completion technologies have achieved varying degrees of success. We aim to increase that success rate by applying a new "proof of concept" with Brown and Borelli.

The first step was to re-enter a previously drilled well, which we believed to have been mis-drilled. This re-entry confirmed that the original well had missed its target by a wide margin. As a result, the partnership are now reprocessing 35,000 acres of proprietary seismic data, integrating that with 42,000 acres of detailed subsurface mapping and identifying other potential drill targets. We expect to identify multiple prospect areas within the AMI, each of which could comprise up to 2,500 acres and have multiple drilling locations. The encouraging results so far have led us to increase our WI to 20%.

2012 net production

Our portfolio of interests has continued to expand and oil and gas production increased during 2012, as shown in the table below. As we move through 2013, it is pleasing that both of these trends have continued, enabling us to surpass break even at the operational level in January, a significant milestone in our development.

Improving financial performance

Growth in production led to higher revenues, which increased from £244,000 in 2011 to £352,000 in 2012, a rise of 44%. We achieved a gross profit of £90,000, compared with a loss of £126,000 in the previous year. As the company grows we keep tight control of administrative expenses, which decreased by 6% to £876,000. This contributed to a reduced loss before tax of £840,000, against a loss of £996,000 in 2011.

We have continued to put in place the financial resources we need to support our growth. In May 2012, we entered into a 360-day loan facility of up to US$3 million with YA Global Master SPV Ltd ("YA Global"), an investment fund managed by Yorkville Advisors LLC. The initial advance on the loan facility was US$1 million and we may request further advances of up to US$2 million. The facility attracts interest at 10% per annum.

In September, we successfully raised finance through two placings, allowing us to further fund the drilling campaign in Oklahoma. In total we raised £1,070,000 before expenses, by placing 297,222,223 new shares at 0.36 pence per share.

Since the year end, we have raised £502,750 under the SEDA by issuing 123,546,296 new shares at an average price of 0.407p per share. We have used the majority of the proceeds to acquire additional leases and expand the Chisholm Trail Prospect, along with developing further opportunities.

Also since the year end, Nostra Terra has reached a milestone in its legal proceedings against Richfield Oil & Gas Company (formerly Hewitt Energy Group, Inc.). On 14 April 2011, Richfield issued a US$1.3 million secured loan note to Nostra Terra, which accrued interest at 10% per annum and matured on 31 January 2012. At a hearing on 1 March 2013, Nostra Terra's motion for partial summary judgment went unopposed. We have received a judgement against Richfield in excess of US$1.5 million in principal and interest, plus an additional amount to be determined to cover the costs of collection. Collection has now begun and we will aggressively pursue all remedies available under the judgement, which include garnishment of cash and the forced sale of corporate assets, until the entire amount has been collected.

An encouraging outlook

Nostra Terra has made a strong start to 2013, both operationally and financially. In January, we surpassed breakeven on an operational basis - a major milestone in our development. This was the result of greater than expected production from the Chisholm Trail wells, combined with production from the rest of our portfolio. We expect most of the revenue from Chisholm Trail to come through from 2013 onwards.

With production now comfortably covering our operating overheads, we can apply our operating margins and all new funds raised to the leasing and drilling of new wells. Several wells are planned for 2013 within Chisholm Trail, as well as in other prospects. We will continue to minimise overheads and remain focused on growing our production throughout the year.

Matt Lofgran

Chief Executive Officer

Consolidated income statement

for the year ended 31 December 2012

Consolidated statement of comprehensive income

for the year ended 31 December 2012

Consolidated statement of changes in equity

for the year ended 31 December 2012

Company statement of changes in equity

for the year ended 31 December 2012

Consolidated statement of financial position

31 December 2012

Company statement of financial position

31 December 2012

Consolidated statement of cash flows

for the year ended 31 December 2012

Notes to the financial statements

for the year ended 31 December 2012

GENERAL INFORMATION

The financial information set out in this announcement does not constitute the Company's financial statements for the years ended 31 December 2112 or 2011. The financial information for 2011 is derived from the financial statements for 2011 which have been delivered to the Registrar of Companies.

The financial statements for 2012 have been audited and will be delivered to the Registrar of Companies. The auditors have reported on the 2012 statements; their report was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 December 2012.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. 

1. ACCOUNTING POLICIES

Going concern

The financial statements have been prepared on the assumption that the Group is a going concern. When assessing the foreseeable future, the directors have looked at a period of 12 months from the date of approval of the report and accounts.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's Report and Directors Report. In addition, note 19 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk.

The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the Group should be able to operate within the level of its current cash resources. In addition, the Group has entered into a £5 million financing agreement (expandable to £10 million) and US$1 million promissory note (expandable to US$3 million) with Yorkville Advisors.

After making enquiries, the directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

New and amended standards adopted by the Company

There are no IFRS or IFRIC interpretations that are effective for the first time in this financial period that would be expected to have a material impact on the group.

2. OPERATING LOSS FOR THE YEAR

The operating loss for the year is stated after charging/(crediting):

3. EARNINGS PER SHARE

The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group had two classes of dilutive potential ordinary shares, being those share options granted to employees and suppliers where the exercise price is less than the average market price of the Group's ordinary shares during the year, and in 2009 Convertible Loans.

Details of the adjusted earnings per share are set out below:

4. TRADE AND OTHER RECEIVABLES

Group Company

2012 2011 2012 2011

£000 £000 £000 £000

Current:

Other receivables 1,079 943 - 21

Other taxes receivables 10 31 7 28

1,089 974 7 49

Other receivables include £950,834 due from Richfield. See note 10 of the annual report and accounts.

The directors consider that the carrying amount of other receivables approximates their fair value.

5. CASH AND CASH EQUIVALENTS

Group Company

2012 2011 2012 2011

£000 £000 £000 £000

Bank current accounts 309 1,457 12 193

6. TRADE AND OTHER PAYABLES

Group Company

2012 2011 2012 2011

£000 £000 £000 £000

Current:

Trade payables 249 20 - -

Accruals and deferred income 59 37 44 24

Director's loan account 503 - 503 -

Other taxes payable 4 - - -

815 57 547 24

Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going expenses.

The directors consider that the carrying amount of trade and other payables approximates their fair value.

7. RELATED PARTY TRANSACTIONS

Group

Stock to the value of £502,750 owned by Matt Lofgran was advanced to the group during 2012. This is held in escrow by Yorkville on behalf of New Horizons One LLC, and is sold where necessary to provide working capital funding to the group. The balance owing to Matt Lofgran, a Director of the company, was £502,750 (2011: nil) at the year-end.

Company

During the year, the Company advanced loans to its subsidiaries. The details of the transactions and the amount owed by the subsidiaries at the year-end were.

At the year-end, the Company made a provision of £nil (2011: £nil) against the outstanding loan balance due from NHE. The net amount due to the Company from NHE after provision carried forward of £560,000 at the year-end was £5,045,661 (2011: £3,090,797). Additionally, during the year, the Company also charged management fees of £36,937 (2011: £13,734) to NHE.

The intercompany loans are unsecured and interest-free.

8. EVENTS AFTER THE REPORTING PERIOD

In January 2013 the Company surpassed break even on an operational basis. The primary contribution was the additional production from the first four wells in the Chisholm Trail prospect.

On 13 March 2013, the Company entered into an agreement acquiring 5% working interest in the High Plains Prospect operated by Brown & Borelli. The Company subsequently increased its interest to 20% on 31 May 2013.

On 2 April 2013, the Company was awarded a judgment against Richfield Oil & Gas in excess of US$1.5 million. Collection efforts have since begun.

On 1 May 2013, a further £0.5 million was raised £502,750 under its aggregated stand-by equity distribution agreement with Yorkville Global Advisors, as amended on 23 October 2012, through the issue of 123,546,296 new ordinary shares of 0.1p ("Ordinary Shares") at an average price of 0.407p per share. The majority of the proceeds have been deployed to acquire additional leases and expand the Prospect, along with developing further opportunities.

On 1 May 2013, the Company also announced that additional acreage was acquired in the Chisholm Trail Prospect, giving exposure to 21 potential drilling locations

A copy of the Company's Annual Report and Accounts for the year ended 31st December 2012 will be posted to shareholders in due course, and will also be available on the Company's website today.