PGR.L Regulatory News (PGR)

5 June 2018

Phoenix Global Resources plc

("Phoenix" or the "Company")

Final results for the year ended 31 December 2017

Phoenix Global Resources plc (AIM: PGR; BCBA: PGR) is pleased to announce its final results for the year ended 31 December 2017 and the publication of its 2017 Annual Report and Accounts.

Highlights

· Completed strategic combination

· Phoenix Global Resources plc created on 10 August 2017

· Revenues of US$141.8 million (2016: US$129.3 million)

· Adjusted EBITDAX US$40.6 million¹

· Operating loss of US$275.0 million²

· Integration of offices and reorganisation of operational and business support team completed

· Creation of a group with 560,000 net Vaca Muerta shale acres

· Secured operatorship and significant acreage at Mata Mora, Corralera and Rio Atuel

· Average daily production for the year of 11,070 boepd

· 2P reserve volumes independently assessed at 57.2 MMboe

· 2018 accelerated business plan in place and execution under way

· Recapitalisation completed, providing funding for growth

1 Excludes non-recurring expenses (US$32.9 million)

2 After impairment of goodwill (US$224.2 million, non-cash) and non-recurring expenses (US$32.9 million)

Anuj Sharma, CEO said:

"2017 has been a transformational year for the Company, with the completion of the combination and the creation of Phoenix Global Resources. Phoenix is an operator with large unconventional acreage, access to technology, scale and financial capacity. In 2017 we made great progress with the integration of our businesses and now we are reset for growth.

Looking forward we have an exciting 2018 drilling and completion campaign, focused on the appraisal of Phoenix's significant unconventional Vaca Muerta acreage at Puesto Rojas and Mata Mora, including our first horizontal wells."

For further information, please contact:

Qualified Person Review

In accordance with AIM guidance for mining, oil and gas companies, Mr. Javier Vallesi and Mr. Greg Easley have reviewed the information contained in this announcement. Mr. Vallesi, Chief Operating Officer of the Group, is a petroleum engineer with over 22 years of experience in the oil and gas industry and is a member of the Argentinian Institute of Oil and Gas. Mr. Easley, Senior Manager Reservoir and Engineering, is a petroleum engineer with over 10 years of experience in the oil and gas industry, is a licenced Professional Engineer in the State of Texas and is a member of the Society of Petroleum Engineers.

About Phoenix

Phoenix Global Resources is a London Stock Exchange (AIM: PGR) and Buenos Aires Stock Exchange (BCBA: PGR) listed independent Argentina focused oil and gas exploration and production company. The Company has over 6.3 million licensed working interest acres in Argentina (of which over 5 million are operated), 57.2 million boe of working interest 2P reserves and average production of approximately 11,070 working interest boepd in 2017. Phoenix has significant exposure to the unconventional opportunity in Argentina through its 560,000 working interest acres with Vaca Muerta potential.

Annual report

The Company will be posting to shareholders on Wednesday 6 June 2018 a copy of the audited annual report for the year ended 31 December 2017 together with the notice for the Annual General Meeting, to be held at the offices of Herbert Smith Freehills LLP at Exchange House, Primrose Street, London EC2A 2EG at 10.00 am on 29 June 2018. The annual report will be made available on the Company's website at www.phoenixglobalresources.com.

Chairman's statement

Dear shareholders

I have been fortunate to visit Argentina regularly since 2001, and I have been involved with British-Argentine commerce and business for the past several years. Argentina is an extraordinary country with a proud commercial heritage that is blessed with a wealth of natural resources and a skilled and well-educated workforce.

Following more than a decade of domestic policy that stifled investment, the current Macri administration came into power in 2015. The new administration is progressing a business friendly growth agenda that has reconnected Argentina to the international community.

Since being elected, the administration has delivered significant advances with regard to foreign policy, economic normalisation and social reform. Argentina is on a fast-track process to join the Organisation for Economic Co-operation and Development (OECD) and has been designated as the G20 chair for 2018.

The Argentine Peso has been fully deregulated with exchange controls removed and has been freely floating since December 2015. Revised monetary policy has been introduced by the central bank aimed at bringing inflation under control and protecting the value of the Peso over the medium to long term. The government has introduced important labour, tax and capital markets reforms which are helping to attract investment, both domestically and from abroad, and reactivate the economy. The fiscal deficit is being tackled and unemployment is gradually reducing. In 2017, the Argentine Merval Index was the best-performing stock market index globally.

The recent currency volatility and devaluation driven by domestic inflation concerns highlights the challenges Argentina faces. However, the administration's reaction to this recent volatility and the IMF's positive response is encouraging.

The new policy agenda is attracting substantial amounts of foreign capital investment. The oil industry is at the forefront of this trend, with its ability to rapidly improve the country's balance of trade. International oil companies investing in Argentina, and specifically in the Vaca Muerta shale, include ExxonMobil, BP, Shell, Total, Equinor (previously Statoil), Chevron, Sinopec, Petronas and Schlumberger.

These factors provided the backdrop for the transformative corporate combination of Andes Energia and Trefoil Holdings B.V. that was successfully completed in August 2017. Phoenix Global Resources is our new identity and marks a new beginning, with new management and a new strategy. Our business has effectively quadrupled in terms of scale. We have greatly enhanced our operating capability, strengthened our financial position and our access to capital. We have created a very different and investible platform of substantial conventional resources and reserves underpinning a much larger unconventional opportunity in the Vaca Muerta shale. The Vaca Muerta is the only commercially producing shale formation outside of North America and it is currently producing at a rate of more than 90,000 boepd.

Importantly, during 2017, we have upgraded and revamped our corporate governance, both at board level and within the operating business. We welcomed many new faces to the board and now have a strong, experienced board. During the year, I was appointed chairman, Anuj Sharma was appointed CEO and Philip Wolfe was appointed CFO. We welcomed John Bentley and Garrett Soden as independent non-executive directors, and also Guillaume Vermersch as non‑executive director. Importantly, following the appointment of John and Garrett to the board, the number of independent non-executive directors has increased to four.

The second half of the year was one of transformation and consolidation with focus on driving forward the operational and corporate integration of the two businesses before year-end. Having recently announced our accelerated business plan and recapitalised our business with the support of the Mercuria Group, Phoenix is now reset to capitalise on the significant unconventional oil and gas growth opportunities in Argentina, including in the world class Vaca Muerta shale formation.

I am very pleased to be the new chairman of Phoenix and am excited as we look forward to growing our business and realising its significant potential over the next 12 months and beyond.

Sir Michael Rake

Non-executive chairman

4 June 2018

Chief executive officer's statement

Creation of Phoenix

The completion of the combination of Andes Energia and Trefoil in the year has created a pure play Argentina-focused independent exploration and production company with real scale and the ability to finance an active unconventional work programme in the Vaca Muerta.

Production, reserves and resources

At 31 December 2017, Phoenix had production of more than 11,000 boepd, representing approximately 1% of Argentina's total oil and gas production.

Our 2P reserves have been independently assessed at 57.2 million boe, and our contingent and prospective resources have been independently assessed at 1,795 million boe.

We have working interest acreage in the Vaca Muerta of approximately 560,000 acres - equivalent to approximately 7.5% of the formation acreage as a whole.

We firmly believe that Vaca Muerta, and other unconventional resources in Argentina, represent the next shale oil revolution, and that Phoenix is well positioned to create significant value and play a meaningful part in the growth of the Argentine unconventional oil and gas industry.

Securing operatorship and acreage

Since August 2017, we have built on our strategy to consolidate our acreage position and have sought to increase the number of Phoenix operated positions across our portfolio.

In the Rio Atuel licence, adjacent to our Puesto Rojas area, we successfully negotiated and doubled our participation taking it to 66.7% and secured the operatorship from Tecpetrol in October 2017.

In April 2018, we successfully renegotiated the memorandum of understanding that was previously in place in respect of the Mata Mora and Corralera blocks. The renegotiation resulted in the formation of a joint venture with GyP, the Neuquén province-owned oil and gas company. Phoenix has increased its participation in the Mata Mora and the majority of the Corralera areas from 27% to 90%. In doing so, we have also assumed operatorship.

Additionally, in the recent Neuquén province bid-round, we acquired four new blocks with development potential in the unconventional Vaca Muerta, Mulichnico and Agrio formations.

Integration, technology transfer and people

In October 2017, we consolidated our teams in Buenos Aires and moved into our new offices at Torre Alem Plaza. This brought our corporate team together in a single location and fast-tracked the integration process. Moving to a single location and integrating staff has enabled us to instil our corporate culture, and the values that underpin our governance objectives, across all of our teams.

Phoenix opened its technical excellence centre in Houston in April 2018. Transferring the knowledge and technology developed in the US shale industry to Argentina and bringing that knowledge to bear in the development of our assets is fundamental to the Phoenix strategy. We have already made a number of key expert appointments including a senior geophysicist, senior geoscientist and have secured the services of a senior directional drilling engineer. Basing our technical centre in Houston puts our team directly in the engine room of the US shale industry and provides us access to the best and most experienced service providers and consultants in the US.

We have strengthened our team in Mendoza with the appointment of a new asset manager with responsibility for our Argentina asset portfolio and have also recruited a specialist in directional drilling who will oversee the execution of our upcoming horizontal drilling activities.

Our teams in Mendoza and Houston are technologically enabled to work closely with each other to marry in-country operational excellence and a deep understanding of our assets with world class geological, geophysical and technical expertise. This unconventional technical expertise, developed over years of working unconventional plays in the US, will enable us to optimise our appraisal and evaluation programme of the company's significant unconventional opportunities.

Unconventional regulations in Mendoza

The recently announced unconventional oil and gas regulations in Mendoza province are very important for our industry. They provide us with the framework to move forward responsibly with our appraisal and evaluation activities in the northern part of the Neuquina basin, where we have approximately 745,000 working interest acres of which approximately 445,000 are prospective for unconventional development. These regulations are the result of several months' work by the province and its advisers and, in our view, reflect industry best practice. The regulations balance the protection of the environment and the communities we operate in with the responsible development of the province's significant unconventional oil and gas resources.

Importantly, the regulations provide the foundation for our continued and increased investment in the province of Mendoza that will bring job creation both in our own operations and in the service industry that supports us. This investment will also bring direct benefit to the province through taxes and royalties. Because the combination brought together two existing groups already active in Mendoza province, we believe that we benefit from an early entrant advantage in the province on which we are well positioned to capitalise as we appraise and evaluate the Vaca Muerta and Tight Agrio formations.

Business development

As well as investing in our existing asset base, Phoenix continues to evaluate non‑organic growth opportunities, including participating in new licence bid rounds and other third-party sale processes.

In April 2018, the company successfully participated in the Neuquén province bid round, securing four additional operated blocks that are prospective for unconventional appraisal.

In addition, the company participated in the bidding round in the Mendoza province, bidding for blocks which are proximate to our existing interests in the province.

Outlook

The 2018 accelerated business plan more than doubles our 2017 capital expenditure programme. Phoenix plans to target capital expenditure on key assets in and around the Puesto Rojas area and on our Mata Mora licence.

The capital expenditure programme also involves a new 3D seismic survey being shot on the southern part of the Puesto Rojas, and the La Brea and Rio Atuel licences, together with drilling nine additional vertical wells to appraise the Vaca Muerta and Tight Agrio formations. Later in the year, we plan to drill our first horizontal wells in the Puesto Rojas area which, if successful, will be an important milestone in demonstrating the potential for large-scale unconventional development in the Puesto Rojas area.

In the second half of 2018, we plan to drill and complete our first two unconventional horizontal wells on the Mata Mora licence area. Again, the results of our pilot well and initial horizontal wells will inform our plan for a full-scale development programme of Vaca Muerta at Mata Mora.

Mata Mora is a core concession for the group as it represents a significant operated acreage position in Vaca Muerta and lies on-trend with a number of existing unconventional production areas. These existing production areas account for almost all of the current commercial oil production from the Vaca Muerta formation.

Phoenix will also continue to invest in its conventional reserves in the Neuquina basin, that provide the company with low risk and high netback production. At the Puesto Rojas area, the company has net 2P conventional reserves of 17.2 MMboe. Similarly, we have net 2P conventional reserves of 6.0 MMboe at Chachahuen, where we continue to invest with our operating partner, YPF.

In addition, our assets in the Austral and Cuyana basins will continue to provide Phoenix with steady, profitable gas and oil production, respectively.

We are committed to the judicious deployment of our capital to the projects that will create the greatest value for our shareholders. In the medium term this will involve balancing short-term production growth with the longer term objective of migrating our significant unconventional resources to reserves and on into profitable production.

I believe that Phoenix has many attractive investment opportunities across our asset base in Argentina and I look forward to the challenge of developing our unconventional exploration opportunities into world-class production assets.

Anuj Sharma

Chief executive officer

4 June 2018

Operating review

Neuquina basin

Production

Production from the Puesto Rojas area was consistent year on year, with average production of 2,697 boepd in 2017 compared to 2,704 boepd in 2016. This reflects the focus on exploration drilling in the period that was not immediately accretive to production together with the workover of a number of wells aimed at improving production and arresting natural decline.

Drilling activity

A total of nine wells were drilled on the Puesto Rojas concession in 2017, of which seven were completed. Of the nine wells, five were drilled as unconventional vertical wells targeting the Vaca Muerta formation. Four of these wells were completed using our second-generation hydraulic fracture design that aims to generate a larger fracture surface area. This fracture design was applied on all six production horizons of the Vaca Muerta, with certain horizons then individually tested to evaluate the performance of the completion technique.

The design appears to have been successful in VM3 horizon of the Vaca Muerta, and it is expected that economically viable horizontal wells can be drilled in this horizon in the future using this fracture design. Emulsion issues were encountered on all of the wells when using the fracture design in the thicker VM6 horizon of the Vaca Muerta, which is the primary producing horizon of the successful CP-1010 well.

While minor emulsion issues were also encountered in the CP-1010 well, it is believed that these issues were more severe in the newer wells due to the lower conductivity of the fracture that can result from fractures designed to generate a higher surface area. The emulsion issues have been replicated in laboratory experiments using a combination of the produced oil, water from the hydraulic fracture, and formation solids. We continue to explore options for remediation of the emulsion issues in these wells.

One well, CDM-3001, was awaiting completion pending clarification of the permitting process associated with the new unconventional oil and gas regulations that were announced by the province of Mendoza in February 2018. Once the permitting process is in place, CDM-3001 will be completed together with two planned new wells. The planned completion will use a combination of higher conductivity and higher surface area fractures in order to determine the optimum completion for each zone of the Vaca Muerta. The ultimate objective of this work is to design an effective, repeatable and economic completion design for horizontal wells in the area.

The remaining four wells were conventional vertical wells drilled into the Agrio and Chachao formations at the Cerro Pencal field. One well, CP-1014ST, came online above expectations with initial production in excess of 750 boepd from the Chachao alone. The Agrio remains behind pipe in this well and will be completed at a later date. Two wells, CP-1011 and CP-1012, had initially strong test results, though on extended testing these wells appear to have limited natural fracture networks and, as such, are candidates for hydraulic fracture in 2018. The fourth well, CP-1019, was completed in early 2018 and is currently under evaluation.

Workover activity

In addition to the new wells drilled, two workovers of existing wells were performed on the Puesto Rojas concession in 2017. Of these, the workover performed on CDM-3002 is potentially significant for the long-term development of the Puesto Rojas area. The CDM-3002 well was drilled in 2016 as an exploration well and initial results were disappointing with production of only 47 boepd at the time of recompletion. The 2017 workover involved two stages of a hydraulic fracture being performed in the Agrio formation. Following completion of the two-stage hydraulic fracture, the production rate from CDM-3002 increased to a maximum rate of over 600 boepd, and it continues to produce at over 500 boepd. Should this process be found to be repeatable, this could significantly increase both reserves and production from the Agrio formation at the Puesto Rojas concession. Further tests of the Agrio formation are included in the 2018 accelerated business plan.

The results of the CDM-3002 workover have further potentially positive implications if the process can be found to also work in the organic rich source rock intervals of the Lower Agrio, also referred to as the 'Tight' Agrio. If the process can be made to work successfully in these formations, the company could potentially have an entirely new unconventional play on its acreage, in addition to its Vaca Muerta position.

Future appraisal and development activity

The 2018 planned drilling programme is focused on accelerating the appraisal and development of Phoenix's significant Vaca Muerta and other unconventional resources in the Neuquina basin. The company plans to spend up to US$120 million of total budgeted 2018 capital expenditure on developing these unconventional resources. This activity is expected to de-risk a significant portion of unconventional acreage and also provide the basis for robust production growth going forward.

The company's 2018 business plan focuses on the drilling and completion of further vertical development and exploration wells in the Puesto Rojas area, targeting up to nine prospects in the unconventional Vaca Muerta and Agrio formations, as well as drilling one conventional target. The drilling plan for the company's unconventional assets, together with the acquisition and processing of new seismic data in the south of Puesto Rojas, and La Brea and Rio Atuel concessions, is designed to prepare these assets for large-scale development. The acquisition of approximately 60,000 acres of new seismic data is complete with the processing and interpretation of that data under way.

In the fourth quarter of the year, the company plans to drill and complete its first horizontal wells in the Puesto Rojas area, following appraisal of its vertical wells to identify which horizons are likely to deliver the best rates and economic return.

Future exploration and development activity

In the Neuquén province, the company is moving forward with its investment plans on its Mata Mora and Corralera licences further to increasing its ownership to 90% and securing operatorship in April 2018.

The company plans to drill its first two unconventional horizontal wells under its new agreement with GyP, the Neuquén province-owned oil and gas company, on its Mata Mora block in Q3 of 2018. These two horizontal wells should be completed in Q4 2018.

Neuquina Basin: Puesto Rojas area

Neuquina Basin: Mata Mora and Corralera

Neuquina Basin: Chachahuen

Production

Chachahuen represents the company's most significant non-operated production block in terms of activity and production. Production has increased by 29.9% from an average of 1,521 boepd in 2016 to 1,976 boepd in 2017. This reflects the impact of the 2017 drilling campaign on production and also the continued use of waterflood on the Chachahuen concession.

Drilling activity

In 2017, 118 wells were drilled and 112 wells were completed on the Chachahuen concession. Of these, 92 wells came online as producers in the Rayoso formation and yielded results in line with expectation. Average maximum 30-day production rates from these wells was 50 boepd. In many cases, performance is expected to improve over time due to the waterflood response on the Chachahuen concession. YPF continues to drill water injectors on Chachahuen as needed and also converts selected underperforming production wells to water injections where remediation is not feasible.

In November 2017, YPF commenced drilling the first horizontal well, ChuS-600(h), into the Rayoso formation. The well was completed in December achieving a maximum 30-day oil production rate of 182 bpd. Since coming on stream, production from the well has been steady, with current production of approximately 170 bpd. At the end of 2017, YPF drilled an additional horizontal well, CHuS-601(h), with similar initial results.

Exploration activity

Of the wells drilled, four were completed in the Centenario formation in the exploration portion of the Chachahuen concession. This area is expected to provide growth potential at Chachahuen pending the results of additional evaluation of these wells. Should these wells prove economic for further development, it is likely that application will be made to the government to convert a portion of the exploration concession to an additional exploitation concession that would enable further development on the concession in due course.

Future exploration and development activity

In 2018, the company plans to continue its investment on its Chachahuen development, together with our operating partner YPF. The development plan includes participating in approximately 80 new wells in the year.

Chachahuen should continue to deliver low-risk and low-cost production growth, adding both new producing wells and water injectors. The development plan also contemplates the continuing conversion of underperforming production wells to water injection wells. Continued horizontal development is also expected, as this appears to be a more capital-efficient means of developing certain horizons that are presently underdeveloped.

Once development of the exploitation portion of the concession is completed in around 2020, it is expected to generate high quality, low cost, cash flows for the company for several years to come.

Austral basin

Production

Production from the Tierra del Fuego assets was marginally down on the prior year at 720 boepd (compared to 759 boepd in 2016). This was as a result of a production decline in the Las Violetas concession where no new drilling was undertaken and offset by an increase in the Angostura concession from the successful exploration well in the Tobifera formation.

Exploration and development activity

A successful exploration well in the Tobifera formation on the Angostura concession was drilled in 2017. The well fulfilled the licence commitments on the concession and yielded initial gross production of 2,132 bpd of oil and 656 mscfd of gas. The results of the initial well are highly promising in terms of the further development of the Tobifera formation.

A single well targeting the Springhill formation on the Rio Cullen concession was also drilled in 2017. The well gave average initial production of 1,038 Mscfd of gas and 2 bpd of oil. Results were generally below expectation and, while this well was a geologic success, further development of this asset is not currently planned.

Austral Basin: Tierra del fuego area

Austral Basin: Santa Cruz Sur area

Production

Average daily production for the concessions in the Santa Cruz Sur area showed marginal decline in the period with 3,180 boepd in 2017 as compared to 3,314 boepd in 2016. This is primarily due to a decline in production in the Oceano concession where no new drilling or workover activity took place in the period.

Exploration and development activity

In 2017, three conventional vertical wells were drilled on the Chorrillos concession of which two wells were completed. These wells targeted the Tobifera formation and were an attempt to use more modern hydraulic fracturing technology to bring more reliable results to the Tobifera formation. One of the wells was successful and yielded average initial production of 1,608 Mscfd of gas and 2 bpd of oil. These results were in line with pre-drill expectations.

One of the completed wells appears to have connected to the aquifer during the hydraulic fracturing process, and remediation options are being explored for the well. The final well was successfully completed in January 2018, with an initial rate of approximately 1,200 Mscfd. The results of this programme indicate the potentially lower risk of further planned infill development in the Tobifera formation at Chorrillos.

In addition, three workovers were performed at Chorrillos adding an average of 487 Mscfd of production.

Future exploration and development activity in Austral basin

In 2018, the company plans to continue to invest in its Austral basin licences together with its partner, ROCH S.A., in order to increase gas production in the basin.

Cuyana basin

Production

Production from the mature Tupungato and Atamisqui concessions was slightly down with average daily combined production of 1,347 boepd in 2017 compared to 1,429 boepd in 2016. Production at Chañares Herrados declined from 776 boepd to 514 boepd, primarily due to natural decline and no new drilling activity.

Exploration and development activity

Two workovers were performed at Tupungato in 2017 both of which were acid stimulations aimed at arresting decline in the wells. While the production increase from the wells was modest, the decline curve appears to have flattened.

There was limited new activity on Atamisqui in the period with a single conventional vertical exploration well drilled. The well targeted the Rio Blanco formation that had been identified on 3D seismic. In early 2018, evaluation of the well log and preliminary test data indicated that, while having discovered hydrocarbons and thus being a geologic success, the well is tight and will require fracture stimulation before its commerciality can be determined.

A single workover was performed at Chañares Herrados adding perforations and acid stimulation. The results of the workover remain under evaluation.

Future exploration and development activity

In 2018, the company plans to invest in additional exploration and development wells aimed at increasing oil production in the Cuyana basin.

Cuyana Basin:

Chief financial officer's review

Introduction

The group's 2017 financials include the performance of Trefoil for the full year plus Andes from 10 August 2017, and are compared with the 2016 financials for the standalone performance of Trefoil.

Overview

The group's revenue for the year was US$141.8 million (2016: US$129.3 million). Cash flow from operating activities was US$7.0 million (2016: US$32.6 million) and the group ended the year with US$23.7 million of cash on hand (2016: US$5.2 million). Capital expenditure in the year was US$82.8 million (2016: US$31.0 million).

Adjusted EBITDAX for 2017 was US$40.6 million and EBITDAX was US$7.7 million (2016: US$48.8 million).

Oil sales volumes increased to 2,319,184 bbl (2016: 1,974,924 bbl) due to the inclusion of Andes volumes from August 2017. Gas sales volumes were stable at 165,063 Mm3 (2016: 163,800 Mm3).

Realised oil prices declined year-on-year from US$55.88 per bbl in 2016 to US$50.46 per bbl in the current period. The decline in oil prices was as a result of the regulated pricing regime which gradually reduced the oil price month by month. From October 2017 the oil price has been deregulated. Following deregulation realised prices achieved for the group's oil production have, on average, been approximately 10% lower than the quoted Brent crude benchmark price. Realised prices have recovered somewhat in 2018 as the Brent crude and other international benchmarks have trended upwards.

Realised gas prices increased year on year from US$3.08 per MMbtu in 2016 to US$4.07 per MMbtu in 2017, due to improved spot sale prices in the Austral basin.

The group realised a net operating loss of US$275.0 million (2016: profit US$20.2 million). The loss in the current year was after non-recurring expenses of US$32.9 million (2016: nil), the substantial majority of which related to costs incurred as a result of the combination transaction and are included within administrative expenses.

The group recorded an impairment loss of US$224.2 million (2016: nil) related to the write-down of goodwill recognised as part of the combination transaction. In a business combination where the purchase consideration given takes the form of shares, the value of the consideration is calculated by reference to the closing share price on the day of the transaction. At close on 10 August 2017, the company's share price was £0.49. This relatively high share price resulted in a calculated purchase consideration of US$385.1 million that has resulted in transaction goodwill of US$224.2 million. The assets and operations acquired relate in whole to oil and gas production in Argentina and as such do not result in access to new markets or customers for the group. Reflecting this and the fact that oil and gas production is a commodity business, the directors did not consider it appropriate to recognise any of the transaction goodwill and as such it has been impaired.

Income statement

Gross profit declined year-on-year in absolute terms from US$32.2 million in 2016 to US$8.4 million in 2017. The gross margin percentage also fell from 24.8% to 5.9%. The reduction in profitability is largely due to the lower realised oil price and a natural decline in production from the conventional asset base, which has a higher proportion of fixed costs.

Operating costs were US$62.8 million in 2017 compared with US$61.4 million in 2016. Netback after deduction of royalties, turnover tax and operating expenses was US$52.6 million compared with US$45.1 million in 2016. The netback averaged US$15.79 per boe in 2017 compared with US$16.68 per boe in 2016. Phoenix achieved a much higher netback per boe on its Neuquina basin production, as compared with the Austral and Cuyana basin, due to the lower operating expense in the Neuquina basin.

Cost of sales includes US$49.3 million of depreciation (2016: US$28.2 million) related to property, plant and equipment.

The group's conventional assets continue to produce positive cash flows. The group will continue to invest in selected drilling as well as maintenance and workover activity related to the conventional production base, so long as the assets remain cash positive and the investment return is attractive. The cash generated from the conventional production assets is an important element in the financing of the 2018 accelerated business plan.

Administrative expenses increased in the year from US$7.6 million to US$40.0 million largely driven by transaction costs incurred of US$24.1 million. These costs included costs related to transaction advice, legal and financial diligence and capital market advisory fees associated with the preparation of the AIM admission document and associated professional diligence. In addition, the group incurred US$2.2 million of severance costs directly related to the integration of the businesses and the restructuring of the management and administrative teams. An additional US$2.4 million related to other one-off professional fees and expenses. An impairment of US$4.2 million was also recognised in respect of a receivable previously held in respect of an incentive plan for gas production that, in the view of the company, is unlikely to be recovered. Due to the nature of the above items none are expected to recur in future periods.

The group also recognised a loss of US$8.2 million (2016: nil) related to the relinquishment of the Puesto Pozo Cercado block. The licence previously held included very high exploration commitments that were not in line with the longer term strategic direction of the group, hence the licence was relinquished.

Balance sheet

The net assets of the group increased from US$125.5 million to US$282.5 million primarily as a result of the combination transaction. The provisional fair value of net assets brought onto the balance sheet as a result of the combination transaction amounted to US$125.1 million with goodwill of US$35.8 million recognised due to the effect of deferred taxes. An analysis of the assets and liabilities included in the balance sheet as a result of the combination is included in note 14 to the financial statements.

Assets acquired in the combination transaction and recorded at fair value include US$132.2 million in respect of producing assets, primarily Chachahuen and La Brea, and a further US$161.8 million related to unconventional and exploration upside, primarily Mata Mora and Corralera.

In addition to assets acquired in the combination transaction, in 2017 the group invested US$82.8 million (2016: US$31.0 million) primarily in the evaluation of the group's unconventional acreage. The focus of this investment was continuing the appraisal work related to Vaca Muerta and expanding that work to include the Tight Agrio formations and Chachao formations.

In 2017, the group has also continued to invest in further production wells at Chachahuen together with its partner, YPF.

The group also substantially upgraded the oil processing and fire safety systems at the Cerro Mollar concession.

Financing and liquidity

As part of the combination transaction, Mercuria advanced a bridging and working capital facility to the company for the amount of US$160.0 million. Of this amount, US$87.0 million was used to redeem outstanding loans and other liabilities related to the former Andes Energia at the completion date with the remainder for investment in capital expenditure and general corporate purposes.

At 31 December 2017, US$162.6 million (including accrued interest) was outstanding under the bridging and working capital facility. In addition to this facility, the group had a total of US$29.9 million borrowings locally in Argentina at 31 December 2017. The Argentina borrowings are with a small selection of local banks and carry fixed interest rates ranging from 2.2% to 4.25% for US Dollar denominated loans and fixed interest rates ranging from 20.0% to 27.0% for Argentine Peso denominated loans. The term of these loans held in Argentina ranges from 90 days to 24 months.

At 31 December 2017 the group had cash on hand of US$23.7 million (2016: US$5.2 million).

In February 2018, Mercuria converted US$100.0 million of the bridging and working capital facility into ordinary shares of the company at a price of £0.37 per share. The remaining US$60.0 million of the bridging and working capital facility was restructured into a new convertible revolving credit facility of US$160.0 million, providing US$100.0 million of fresh debt capital to the group.

This fresh capital, together with the cash expected to be generated from operations provides the funding for the group to move forward with the accelerated business plan in 2018. The original bridging and working capital facility carried a variable interest rate of LIBOR plus 7% that increased on certain predetermined dates of the facility. The new convertible revolving credit facility carries a fixed interest rate of three-month LIBOR plus 4% resulting in a saving of approximately US$11.0 million in cash interest in 2018. The loan is convertible at £0.45 per share until maturity in December 2021.

Taxation

In December 2017, the Argentine federal tax authority announced a reform of the corporate income tax rules that saw the corporate income tax rate reduce from 35% to 30% for the fiscal years ended 31 December 2018 and 2019. The corporate income tax rate is then set to reduce to 25% for fiscal year 2020 and beyond. The reduction in the corporate income tax rate relates to profits reinvested in Argentina. Should a company wish to pay a dividend then the tax rate for the amount of profit being used to support the dividend is increased from the relevant marginal rate back to 35%. This tax reform will benefit the group and reduce its exposure to cash taxes during the exploration and development phase when the intention is to reinvest cash from operations back into the business.

Hedging

In January 2018, the group entered a swap arrangement with Mercuria to give price protection for a portion of its production from proved, developed, producing reserves at a price of US$65.97 per bbl (Brent crude). The hedge was entered to underpin the capital expenditure programme for 2018 alongside the renewed funding arrangements put in place with Mercuria and announced in February 2018, concurrent with the announcement of the 2018 accelerated business plan.

Dividend

Given the company's high growth objectives, the directors do not recommend the payment of a dividend.

Philip Wolfe

Chief financial officer

4 June 2018

Consolidated income statement

For the period ended 31 December 2017

The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated statement of comprehensive income

For the period ended 31 December 2017

The above items will not be subsequently reclassified to profit and loss. There are no impairment losses on revalued assets recognised directly in equity.

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated statement of financial position

At 31 December 2017

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

The financial statements on pages 93 to 129 were approved by the board of directors and authorised for issue on 4 June 2018 and were signed on its behalf by:

Consolidated statement of changes in equity

For the period ended 31 December 2017

The above statement of consolidated changes in equity should be read in conjunction with the accompanying notes.

Consolidated statement of cash flows

For the period ended 31 December 2017

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

1. General information

The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 December 2017 or 31 December 2016.

The financial information has been extracted from the statutory accounts of the Company for the year ended 31 December 2017. The auditors reported on these accounts; the report was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

The Company has produced its statutory accounts for the year ended 31 December 2017 in accordance with International Financial Reporting Standards as adopted by the European Union and in accordance with the Group's accounting policies consistent with those set out in the 2016 statutory accounts.

The statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies and those for the year ended 31 December 2017 will be delivered to the Registrar of Companies in due course.

2. Segment information

The group's executive management comprising the chief executive officer, the chief financial officer and the chief operating officer has been determined collectively as the chief operating decision maker for the group. The information reported to the group's executive management for the purposes of resource allocation and assessment of segment performance is focused on the basins in which the group operates. The strategy of the group is focused on the development of the Vaca Muerta shale opportunity in the Neuquina basin while optimising conventional production from that basin. In addition, the group is active in the Austral basin in south Argentina where its operations with its partner, Roch S.A., are targeted at exploiting gas resources in the group's licence areas within the basin. The group also has production activities in the Cuyana basin. Segments that are not currently material to the operations or result of the group are aggregated within 'Corporate - unallocated'.

The Neuquina, Austral and Cuyana basins have been determined by the group to represent the reportable segments of the business based on the level of activity across these basins and the information provided to the executive management.

The group's executive management primarily uses a measure of adjusted earnings before interest, tax and depreciation (EBITDAX) to assess the performance of the operating segments. However, the chief executive officer also receives information about segment revenue and capital expenditure on a monthly basis.

In August 2017, the company relinquished its interest in the Puesto Pozo Cercado block. The accumulated capitalised costs associated with Puesto Pozo Cercado of US$8,238,000 have been expensed accordingly.

The impairment of US$224,169,000 recognised in respect of the Neuquina segment relates to goodwill arising on the combination transaction as a function of the closing share price used to calculate the purchase consideration. The directors determined that the goodwill was not supportable and an impairment charge has been accordingly been recorded. All of the goodwill impairment is attributable to the Neuquina basin assets as all of the goodwill had been allocated to Neuquina basin assets.

Non-recurring expenses of US$32,900,000 primarily related to costs incurred in relation to the reverse takeover transaction during the year, non-recurring professional fees and severance payments made to former employees. The substantial majority of costs incurred related to legal and professional fees associated with the financial and legal diligence and costs related to the preparation of the AIM admission document required for the readmission of the enlarged group to trading on the AIM market. The non-recurring transaction expenses also include advisory fees related to structuring and Argentina market advice associated with the transaction.

There are no intersegment revenues in either period presented. All revenues represent sales to external customers and all sales are made in Argentina. The significant majority of oil and gas sales are made to the Argentinian state-owned oil company, YPF.

3. Property, plant and equipment

In August 2017 the company relinquished its interest in the Puesto Pozo Cercado block. The accumulated capitalised costs associated with Puesto Pozo Cercado of US$8,238,000 have been impaired accordingly.

Additions to property, plant and equipment in the year ended 31 December 2017 include US$690,000 of interest capitalised in respect of qualifying assets (2016: US$636,000).

The total amount of interest capitalised within property, plant and equipment at 31 December 2017 is US$2,139,000 (2016: US$1,449,000).

4. Intangible assets

Exploration and appraisal assets are primarily the group's licence interests in exploration and appraisal assets located in Argentina. The exploration and appraisal assets consist of both conventional and unconventional oil and gas properties.

The increase in exploration and evaluation assets of US$161,760,000 relates to the fair value assessed for the licences acquired and associated exploration upside as part of the combination transaction. Fair value has been assessed on a comparative transaction basis by reference to dollars-per-acre paid in other recent observable market transactions. All of the exploration and evaluation assets recognised as part of the combination related to licence areas in the Neuquina basin.

Impairment tests for exploration and appraisal assets

Exploration and appraisal assets are subject to impairment testing prior to reclassification as tangible fixed assets where commercially viable reserves are confirmed. Where commercially viable reserves are not encountered at the end of the exploration phase for an area the accumulated exploration costs are written off in the income statement.

Impairment tests for Goodwill

Goodwill is monitored by management at the level of the operating segments identified in note 5.

A segment level summary of the goodwill allocation is presented below.

No goodwill was recognised prior to 2017. All goodwill presented relates to the allocation of technical goodwill arising as a result of accounting for deferred tax on the business combination in the year.

The carrying value of goodwill has been assessed for impairment at the period end. The discount rate used in the carrying value assessment was the group's calculated weighted average cost of capital of 14.2%. Prices used in the assessment were the Energy Information Administration's forecast of Brent crude prices.

5. Business combination

Summary of acquisition

On 10 August 2017 the parent entity acquired 100% of the issued share capital of the Trefoil Holdings B.V. group of companies by way of a reverse takeover. The acquisition has significantly increased the group's licensed acreage position in Argentina and, in particular, related to the Vaca Muerta shale formation and other unconventional oil and gas prospects present in much of the combined group's acreage in the Neuquina basin.

Details of the purchase consideration, the net assets acquired and goodwill are as follows:

Both the assessed fair value of Trefoil Holdings B.V. (Trefoil) and its oil and gas reserves were greater than those of Andes Energia Plc (Andes) and therefore the transaction represented a reverse takeover under the AIM Rules for Companies. Because of the reverse nature of the transaction, and although Andes was the legal acquirer, Trefoil is determined to be the accounting acquirer for the purposes of purchase accounting. Accordingly the transaction has been accounted for under IFRS 3, 'Business Combinations'.

The purchase consideration is valued by reference to the number of shares held by Andes shareholders at the transaction date multiplied by the Andes share price on that day. This represents the value 'given up' by Andes shareholders in exchange for an interest in the enlarged group.

The assets and liabilities recognised as a result of the acquisition are as follows:

The provisional fair values recorded in the purchase price allocation were assessed with the assistance of an external professional valuation firm. The inputs used for the evaluation included:

· asset level cash flow forecasts based on the production, revenue, capital expenditure and operational expenditure assessed by reference to the information used to compile the competent persons' reports prepared as part of the AIM readmission process;

· an assessment of the group's weighted average cost of capital;

· commodity price forecasts based on information published by the Energy Information Administration; and

· comparable transaction values based on a US Dollar per acre value were used to assess the fair value of non-producing assets and unconventional exploration upside associated with producing assets.

Goodwill arising on the acquisition amounts to US$260,007,000. Of this amount US$224,161,000 relates to the difference between the fair value of the purchase consideration given and the fair value of the net assets acquired and liabilities assumed. Under IFRS 3 the purchase consideration has been calculated by reference to the market price of the shares issued in consideration at the date of completion. The closing share price on the date of the completion was £0.49/share. The directors have assessed the carrying value of this element of the goodwill and specifically note:

· that prior to and following the combination, the group operates in a single country, Argentina;

· the group's operations relate in whole to exploration for and the appraisal and development of oil and gas assets;

· both oil and gas are commodity products that trade in an active market that, particularly in the case of oil, is international; and

· oil and gas assets are valued based on the quantity of oil or gas that it is estimated can be economically recovered.

Having taken these factors into consideration, the directors have concluded that there is no basis for recognising goodwill related to the difference between the fair value of the consideration given and of the assets and liabilities acquired.

The remaining goodwill of US$35,838,000 arises as a result of the application of deferred tax accounting to the fair values recorded in respect of the Andes assets 'acquired'. The fair value of property, plant and equipment is higher than the book value it was previously recorded at. This increase in recorded value gives rise to an increase in the difference between the book value and tax value of the assets that is used to calculate deferred tax. Consequently there is an increase in the deferred tax provision recorded with a corresponding entry to goodwill.

The directors consider that this element of goodwill that is recorded as a result of the accounting for deferred tax is attributable to the enhanced opportunities and benefits to the enlarged group arising from the potential greater scale of the business as Vaca Muerta is developed.

The company incurred costs of US$24,080,000 related to the combination transaction primarily consisting of consulting, accountancy, legal and capital markets advisory fees. All such deal related consultancy and advisory fees have been expensed in the income statement and are included within administrative expenses.

Revenue and profit contribution

The acquired business contributed revenues of US$22,600,000 and net loss of US$275,142,000 to the group for the period from 10 August to 31 December 2017.

If the acquisition had occurred on 1 January 2017, consolidated pro-forma revenue and net loss for the year ended 31 December 2017 would have been US$165,854,000 and US$300,344,000 respectively.

These amounts have been calculated using the acquired group's results and adjusting them for:

· differences in accounting policy between the group and Andes;

· the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from 1 January 2017, together with the consequential tax effects; and

· the effect of the impairment charge recognised in respect of goodwill arising on the transaction. The goodwill impairment charge recognised in the income statement in respect of the impairment of goodwill was US$224,169,000.

6. Borrowings

Secured liabilities and assets pledged as security

Secured liabilities include a total of US$5.7 million AR$ denominated loans that carry interest at a rate of 22-27% repayable in August 2018 and August 2020 and accrued interest of US$125,000. In addition, the group is party to US Dollar denominated secured loans totalling US$17,200,000 with interest rates ranging from 3.0-6.2%.

Fair value

For the majority of the borrowings, the fair values are not materially different to their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. Material differences are identified only for the following borrowings:

The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as Level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.

Recognised fair value measurements

The group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in Level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. This is the case for unlisted equity securities.

The group does not currently hold any financial instruments whose fair value is assessed by reference to Level 1 or Level 2 inputs (2016: Nil).

7. (Loss)/earnings per share

There were no dilutive instruments in issue at the end of either period and no discontinued operations in either period.

Weighted average number of shares used as the denominator

8. Post balance sheet events

Oil price swap

On 22 January 2018 the company entered a swap agreement with Mercuria Energy Trading S.A. under which it sold swaps for Brent crude at a price of US$65.97/bbl. The swap agreement is effective from 15 January 2018 to 14 December 2018 and relates to 1.2 million barrels of oil production in Argentina. The swap was entered in order to give certainty of cashflow to support the 2018 capital expenditure programme.

New convertible revolving credit facility

On completion of the combination transaction Mercuria Energy Trading S.A. provided a bridging and working capital facility of US$160.0 million. On 15 February 2018, Mercuria agreed to convert US$100.0 million of the facility into ordinary shares of the company at a conversion price of £0.37 per share. The remaining US$60.0 million of the bridging and working capital facility was restructured into a new convertible revolving credit facility of US$160.0 million, providing additional funds of US$100.0 million to support the 2018 capital expenditure programme. The new convertible revolving credit facility has an interest rate of three months LIBOR +4% through maturity at end of December 2021.

Renegotiation of Mata Mora and Corralera memorandum of understanding

In April 2018, the company renegotiated the memorandum of understanding with Gas y Petróleo del Neuquén (GyP) that previously governed the company's interest in the Mata Mora and Corralera exploration concessions. Following the renegotiation the company's interest in the retained areas of Mata Mora and Corralera increased from 27% to 90% and the company assumes operatorship. As part of the renegotiation Integra Oil & Gas S.A. has agreed to relinquish any interest in these concessions and the company is in discussion with Integra Oil & Gas S.A. to agree an appropriate level of compensation.

- ENDS -