Parkmead Regulatory News (PMG)

20 November 2015

The Parkmead Group plc

("Parkmead", "the Company" or "the Group")

Preliminary Results for the year ended 30 June 2015

Parkmead, the UK and Netherlands focused oil and gas group, is pleased to report its preliminary results for the year ended 30 June 2015.

HIGHLIGHTS

Successful exploration leading to increased gas production

· First commercial gas production achieved at the Diever West gas field in the Netherlands, following a successful fast-track development

· The Diever-2 discovery well was flow tested at 29 million cubic feet per day (approximately 5,000 barrels of oil equivalent per day)

· Further production enhancement work planned on Parkmead's low operating cost Netherlands portfolio, including a new well at the Geesbrug gas field to maximise gas production, serving as a natural hedge to the current low oil price environment

· Awarded nine new oil and gas licences in the UKCS 28th Licensing Round, covering a total of 12 offshore blocks

· Awards include significant new acreage and proven oil fields in the vicinity of the major Parkmead-operated Perth Dolphin Lowlander (PDL) oil hub development

· Detailed technical work undertaken this year has allowed Parkmead to release non-core acreage, significantly reducing licence costs

Continued progress on valuable development projects

· Entered into a Heads of Agreement outlining the structure of a joint development of the Perth, Dolphin and Lowlander fields after detailed technical analysis and development planning work

· The PDL project has been fully appraised, with a combined total of 13 wells drilled, and has expected recoverable reserves of approximately 80 million barrels of oil, double the initial recoverable reserves of a standalone Perth development

· Platypus gas field development advancing well, with the draft Field Development Plan (FDP) submission expected in the coming months

Reserves and resources increasing

· Considerable 2P reserves of 26.1 million barrels of oil equivalent as at 30 June 2015

· Contingent resources increased by 129% to 41.9 million barrels of oil equivalent as at 30 June 2015 (18.3 million barrels of oil equivalent at 30 June 2014)

Strategically positioned for further acquisitions

· Six acquisitions, at both asset and corporate level, have been completed since positioning Parkmead as a new independent oil and gas company

· Parkmead is well capitalised with over US$60 million (£41.1 million) of total cash resources at June 2015

· The Parkmead team is evaluating further acquisition opportunities to take advantage of the current low oil price environment

Financial Strength

· Revenue during the period remained relatively strong at £18.6 million (2014: £24.7 million)

· Total assets stood at £105.6 million at 30 June 2015 (£127.4 million at 30 June 2014)

· Raised approximately US$21.1 million (£13.4 million) in May 2015 to accelerate opportunities

· Substantial cash balances of £41.1 million as at 30 June 2015

Parkmead's Executive Chairman, Tom Cross, commented:

"I am pleased to report another important year of progress for Parkmead, despite the challenges of the low oil price environment. Parkmead discovered and has now brought onstream a new gas field at Diever West, in the Netherlands. This will deliver profitable gas production and important additional cash flow to the Group. We have successfully brought this new gas field onstream within 14 months of discovery, which is an outstanding achievement.

Parkmead is increasing the Group's net gas production in the Netherlands through a low-cost, onshore work programme. This will act as a natural hedge to the very low global oil prices. 

Our major new licence awards in the UKCS 28th Round were an impressive result for Parkmead, with 12 new offshore oil and gas blocks awarded to the Group. We were delighted with the awards located close to Parkmead's PDL development, as they have the potential to add significant value to our assets in this area.

Parkmead is well positioned to take advantage of the lower oil price environment and the opportunities that are arising from this. We have excellent regional expertise, significant cash resources, and a growing low-cost gas portfolio. The Group will continue with its licensing and acquisition-led growth strategy, securing opportunities that maximise long-term value for our shareholders."

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CHAIRMAN'S STATEMENT

2015 has been an important year of progress for Parkmead, despite the challenging low oil price environment. Building on the excellent momentum generated in 2014, the Company discovered a new gas field at Diever West in the Netherlands. The field was flow tested at 29 million cubic feet per day (approximately 5,000 barrels of oil equivalent per day) and was tied into existing onshore facilities, with first commercial gas production achieved in November 2015.

Parkmead has also enjoyed a highly successful period of exploration activity through the recent UK 28th Licensing Round awards, winning nine new oil and gas licences spanning 12 attractive offshore North Sea blocks. These awards include significant new acreage and proven oil fields within the vicinity of the Parkmead operated Perth Dolphin Lowlander (PDL) oil hub development. 

Operations and Portfolio Growth

The Group has made considerable progress towards building an independent oil and gas company of significant scale, by developing its current portfolio and adding new assets through the licensing round process.

Major progress has been made this year across Parkmead's licence portfolio in the Netherlands. In September 2014, a new onshore gas field was discovered at Diever West. The Diever-2 well found gas in a good quality Rotliegendes age sandstone reservoir. A 157 foot gas column was encountered, with both net pay and porosity values exceeding pre-drill expectations. The well was flow tested after the successful discovery and recorded an excellent flow rate of 29 million cubic feet per day (approximately 5,000 barrels of oil equivalent per day). Diever West has been tied into existing production facilities under a fast-track and low-cost development, and first commercial gas production was achieved in November 2015. Parkmead has worked closely with the field operator, Vermilion Energy, on the fast-track development of the field and the joint-venture group successfully brought the field onstream within just 14 months of discovery. This is an outstanding achievement.

Parkmead's gas assets in the Netherlands continue to provide a robust revenue stream and net cash flows to the Company. A number of enhanced production opportunities are available across Parkmead's existing Netherlands portfolio which the Company intends to capitalise on, with the aim of significantly increasing our net gas production. These include a new low-cost infill well at Geesbrug, and a further exploration target at De Mussels. The new production from Diever West and the additional Geesbrug well are forecast to more than treble Parkmead's net gas production in the Netherlands. This gas derived revenue will act as a natural hedge against low and volatile oil prices.

Parkmead also enjoyed a highly successful year of licensing round awards. In November 2014, the Group was awarded six new licences covering a total of nine offshore blocks in the first tranche of awards under the UKCS 28th Licensing Round. These new licences contain opportunities across the Central and Southern North Sea areas, and are all operated by Parkmead. Three of the new licence awards significantly increase Parkmead's asset base in the vicinity of the Company's major PDL oil hub development project, which is one of the largest undeveloped oil projects in the North Sea. This newly awarded acreage also contains exploration prospects in addition to sizeable proven oil accumulations, such as the Buzzard sandstone discoveries at Polecat and Marten. Polecat was discovered in 2005 and appraised in 2010. The 2010 appraisal well was flow tested at 4,373 barrels of oil per day. The Marten discovery was made in 1984, encountering three oil bearing sandstones of Upper Buzzard age. Three additional blocks were awarded to Parkmead in the PDL vicinity, one situated adjacent to the Perth oil field, and two further blocks located approximately 12km north of Perth containing the exciting Upper Jurassic Piper Formation oil prospects, Fynn and Penny. These new strategically positioned licences have the potential to add significant value to the PDL project.

In July 2015, Parkmead was awarded a further three new licences as part of the 28th Licensing Round covering three offshore blocks. Two of the new licences are located in the highly prospective West of Shetland area adjacent to existing Parkmead blocks. Detailed mapping of these blocks indicate two new exploration targets, Sanda North and Sanda South, as well as an extension of Parkmead's large Cretaceous Eddystone prospect. The third licence award in this suite of awards is located in the Southern Gas Basin, an area where the Company has a deep technical knowledge of the exploration plays, and is building a valuable portfolio of targets. Parkmead has already enjoyed significant success in the Southern Gas Basin with the gas discoveries at Platypus and Pharos. Seven prospects and leads have been identified on the new Southern North Sea licence with Lower Leman targets, the most important of which is a prospect called Selene.

Parkmead's experienced team of geoscientists have already begun several work programmes across these licences, with detailed petrophysics and mapping work underway. Parkmead will continue to invest heavily in licensing round applications, both in the UK and overseas, and views this as a key component in the Group's strategy to build an attractive and balanced portfolio that offers significant exploration upside.

Key progress has been made during the year towards a joint development of the Perth, Dolphin and Lowlander fields. A Heads of Agreement was signed in August 2014 to progress the future joint development of the PDL fields. The agreement provides the framework needed to bring the enlarged project together, and outlines partner cooperation with regards to equity alignment and the future work programme. Parkmead, as the Perth-Dolphin operator, continues to work closely with its PDL project partners to maximise oil reserves and financial returns from the project, and from the wider regional area. The three fields are fully appraised, with a combined total of 13 wells drilled, and contain oil in place of over 400 million barrels. It is expected that recoverable reserves from the PDL oil hub development will be over 80 million barrels of oil, double the initial recoverable reserves of Perth as a standalone project.

Results

The Group's revenue for the year to 30 June 2015 was £18.6m (2014: £24.7m). As expected, the significant reduction in global oil prices has in turn reduced the Group's revenue during the period. During this time, the price of oil has fallen from near US$110 per barrel, to seven-year lows of below US$50 per barrel. This has severely impacted the revenues and cash flows of oil and gas producers globally. Parkmead and its co-venturers have worked hard to reduce operating costs across the entire asset portfolio to reflect the substantially altered macro environment. The higher cost of sales during the period principally reflected Parkmead's increased working interest in the Athena oil field, acquired through the purchase of an additional 20 per cent. interest in Athena from EWE VERTRIEB GmbH in April 2014. Against the backdrop of lower oil prices and therefore declining revenues compared to the relatively fixed Athena cost base, the contract for the BW Athena FPSO was re-negotiated and the new, improved terms became effective from June 2015, substantially reducing operating expenditure from this point forward. Administrative expenses provided a credit of £1.2m (2014: £5.7m expense), arising principally from the lower share price impacting the non-cash share based payment charge. The Group recorded a post-tax loss of £31.4 million, which includes a non-cash impairment charge of £12.9 million recorded in the period, which relates to the impact on the Athena field of the collapse in global oil prices.

Parkmead's total assets at 30 June 2015 were £105.6m (2014: £127.4m). Available-for-sale financial assets were £3.3m (2014: £4.8m). Cash and cash equivalents at year end were £41.1m (2014: £46.3m) and Parkmead has minimal debt. The Group's net asset value was £80.5m (2014: £99.7m). Parkmead is therefore well positioned to withstand the current market conditions, and indeed views the current macro environment as an opportunity for further growth. This is as a result of experienced portfolio management and a strong focus on capital discipline.

In line with its strategy, Parkmead has shown a strong track record for value-adding transactions, at both the asset and corporate level. The Group's acquisitions to date have expanded its oil and gas asset portfolio significantly, which now covers the entire asset life cycle from exploration through to development and production. In May 2015, the Group raised approximately US$21.1 million through a successful placing of 11,200,000 new ordinary shares, to accelerate work programmes and offer the Company greater flexibility to take advantage of opportunities that are becoming available as a result of lower oil prices.

Following this successful placing, the Group's total ordinary shares in issue increased to 98,929,160 (2014: 87,729,160).

Due to Parkmead's ongoing growth and investment programme, the Board is not recommending the payment of a dividend in 2015 (2014:£nil).

Investments

The Group's principal available-for-sale investment is its shareholding in Faroe Petroleum plc ("Faroe") (LSE AIM: FPM.L). As at 30 June 2015, the value of this investment was £3.3m (30 June 2014: £4.8m). Faroe's closing share price at 30 June 2015 was 85.25 pence per share.

Outlook

The Directors of Parkmead are pleased with the Group's continuing progress in building an independent oil and gas company of increasing scale. With a balanced asset base, new oil and gas licences and a strong balance sheet, we believe Parkmead is well positioned to build further on the progress to date and to capitalise on new opportunities. In addition, we are excited by Parkmead's new gas production at Diever West and the new licence awards in the vicinity of the major PDL project, which increase our strategic position in the region.

As we move towards 2016, Parkmead maintains its appetite for acquisitions and will also seek to add shareholder value through a dynamic work programme. The Group has built a strong platform from which to become a key E&P player in the North Sea, and we look forward to updating shareholders as we make further progress.

Tom Cross

Executive Chairman

19 November 2015

Notes:

1. Dr Colin Percival, Parkmead's Technical Director, who holds a First Class Honours Degree in Geology and a Ph.D in Sedimentology and has over 30 years of experience in the oil and gas industry, has reviewed and approved the technical information contained in this announcement. Parkmead's evaluation of reserves and resources was completed in accordance with the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers.

Group statement of profit or loss

for the year ended 30 June 2015

Group and company statement of profit or loss and other comprehensive income

for the year ended 30 June 2015

Group and company statement of financial position

as at 30 June 2015

Group statement of changes in equity

for the year ended 30 June 2015

Company statement of changes in equity

for the year ended 30 June 2015

Group and company statement of cashflows

for the year ended 30 June 2015

Notes to the financial information for the year ended 30 June 2015

1. Basis of preparation of the financial information

The financial information set out in this announcement does not comprise the Group and Company's statutory accounts for the years ended 30 June 2015 or 30 June 2014.

The financial information has been extracted from the audited statutory accounts for the years ended 30 June 2015 and 30 June 2014. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The statutory accounts for the year ended 30 June 2014 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2015 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The accounting policies are consistent with those applied in the preparation of the interim results for the period ended 31 December 2014 and the statutory accounts for the year ended 30 June 2014, which have been prepared in accordance with International Financial Reporting Standards ("IFRS").

2. Impairment of property, plant and equipment

An impairment charge of £12,905,000 was recorded in respect of the Athena producing asset in accordance with IAS 36 "Impairment of assets". The impairment reflected the difference between the carrying book value and the estimated future economic value in use as a result of the global collapse in crude oil prices. Full details of the assumptions applied in the impairment review are detailed in Note 14 of the 2015 Annual Report.

3. Administrative expenses

Administration expenses include a credit in respect of a non-cash revaluation of share appreciation rights (SARs) and share based payments totalling £3,695,000 (2014: £2,584,000 expense). The SARs may be settled by cash and are therefore revalued with the movement in share price. The valuation was impacted by the global collapse in oil prices leading to a decline in share price between 30 June 2014 and 30 June 2015.

4. Gain on bargain purchase

The prior year comparative includes a gain on bargain purchase of £5,003,000 in respect of the acquisition of the Lochard Energy Group plc on 26 July 2013. Full details of this business combination were disclosed in the 2014 Annual Report.

5. Profit / (loss) per share

Profit per share attributable to equity holders of the Company arising from continuing operations was as follows:

The calculations were based on the following information:

Profit / (loss) per share is calculated by dividing the profit or loss for the year by the weighted average number of ordinary shares outstanding during the year.

Diluted loss per share

Loss per share requires presentation of diluted loss per share when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. When the Group makes a loss the outstanding share options are therefore anti-dilutive and so are not included in dilutive potential ordinary shares.

6. Notes to the statement of cashflows

Reconciliation of operating (loss) / profit to net cash flow from continuing operations

7. Approval of this preliminary announcement

This announcement was approved by the Board of Directors on 19 November 2015.

8. Posting of annual report and accounts

Copies of the Annual Report and Accounts will be posted to shareholders shortly. The Annual Report and Accounts will be made available to download, along with a copy of this announcement, on the investor relations section of the Company's website www.parkmeadgroup.com