PPC.L Regulatory News (PPC)

27 May 2016

PRESIDENT ENERGY PLC

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

Results for the year ended 31 December 2015

President (AIM: PPC), the oil and gas exploration and production company focused on Paraguay and Argentina announces its full year audited results for the year ended 31 December 2015.

Corporate & Financial Highlights

· Daily production increased in 2015 by 15% to 490 boepd (2014: 426 boepd);

· EBITDA for the year from USA and Argentina continuing operations US$1.6 million (2014: US$ 4.6 million)

· Revenue of US$10.1 million (2014: US$12.6 million), reflecting lower average oil prices in Louisiana of US$43/boe (2014: US$85/boe)

· Operating loss before impairments of $6.6 million (2014: $2.3 million)

· 2P oil reserves increased by 28% to a record 18.1 mmboe (2014: 14.1 mmboe)

· Cash balances of US$0.2 million at the year-end (2014: US$1.5 million)

· Conservative approach to asset valuations with non-cash impairments in Paraguay and Louisiana

· Concession term for Puesto Guardian, Argentina extended to 2050

· Remaining 36% of Pirity Concession, Paraguay, acquired giving President 100% of the Concession. Paraguay partner litigation from H1 2015 settled

· US$18 million fundraisings completed in 2015 to fund seismic and workover programmes and assist with working capital

· IYA loan facility extended to April 2017 (now further extended to end June 2017) and US$4 million of debt re-designated to a convertible loan with a reduced interest rate

Argentina Operations

· Revised Gaffney Cline & Associates ("GCA") report showed:

- 2P oil reserves increased by 28% to 18.1 mmbbls of which 1P reserves increased by 21% to 11 mmbbls

- 2P oil reserves now valued by GCA at NPV10 US$329 million (2014: US$297 million) (before corporate taxes)

· Two successful workover programmes completed in Q2 and Q4 2015

· Average production increased by 32% to 271 bopd (2014: 205 bopd) with current production being built up in 2016

· Average oil sales in 2015 US$67 per barrel (2014: US$76 per barrel), currently US$58 per barrel the effect of the reduction being cushioned by the recent depreciation of the Argentine Peso

· Continued programme of upgrading and maintenance of field processing facilities

· MDT deep gas prospect in the Puesto Guardian Concession assessed by Management to have Best Estimated Prospective Resources of 6.6 Tcf gas and 166 mmbbls condensate

· Post year-end extension of Matorras and Ocultar exploration licence work programmes to March 2017

Paraguay Operations

· 607km of new 2D seismic acquired over Hernandarias Block showing several potential large hydrocarbon bearing structures 

· Pirity Concession exploration work programme term extended to September 2017 with possibility to extend for a further six months

· Hernandarias Concession separated into Hernandarias itself and a new Don Quijote Prospection Area

· Contract for Pilcomayo Prospection Area granted

· Continued technical work in all areas of President's interest in country

Louisiana

· Small acquisitions to incrementally offset natural declines

· 2015 production of 219 boepd (2014: 222 bopd)

· Average oil sales in 2015 US$ 47 per barrel, currently running at US$40 per barrel reflecting challenging WTI prices

Outlook

· Successful Q2 2016 workover campaign raised Puesto Guardian production to an initial level of 500 bopd with a further workover programme currently being conducted on another two producing wells

· At Puesto Guardian planning continues for drilling of three new production wells in H2 2016 targeted to materially uplift production with loan funding in principle in place

· President continues with technical work in Paraguay with further consideration of options in Paraguay

Further information

The extension of the maturity date for both the IYA loan facility and the convertible loan from April 2017 to the end of June 2017 is classified as a related party transaction under the AIM Rules. The Directors, excluding Peter Levine, who is not considered to be independent by virtue of his relationship with IYA, having consulted with Peel Hunt LLP in its capacity as the Company's nominated adviser, consider that the terms of the IYA loan extension and convertible loan extension are fair and reasonable in so far as the Company's shareholders are concerned.

 Commenting on today's announcement, Peter Levine, Chairman said:

"2015 was a challenging year during which, despite macro and micro headwinds, the foundations for the good progress being made today were laid.

The emphasis in 2016 will be to increase production, cash generation and margins. The focus is therefore on the new drilling programme in Argentina in the second half of the year. As we have rationalised central overheads we have been investing in new key management competence in Argentina and we continue to make progress in this regard.

Finally I would like to express gratitude to all our current management and employees and the supportive shareholders who have stood with us in challenging times. We are optimistic that patience will finally be rewarded and that is why I am pleased to continue my financial support for the Company as the sole Lender to the Group."

Chairman's Statement

Summary

The year 2015 was one of consolidation and focused actions after the significant activity of the previous year with solid progress and headline financial results reflecting the oil price decline during the year.

Attention centered on production in Argentina, growing reserves, consolidating our tenure of the assets and laying the groundwork for unlocking the potential in President's oil fields, which is now being demonstrated by the uplift in production since the beginning of 2016.

In tandem, President continued value added work in Paraguay with a significant seismic programme which successfully identified more structures and furthered our understanding of the basin.

In Louisiana small accretive acquisitions to production and revenue were made in relation to this cash generative asset although this had little effect on the negative impact of the reducing oil price in 2015.

The results therefore show revenue for the year down 20% to US$10.1 million despite overall daily average production up 15% year on year to 490 boepd.

In corporate developments, the litigation claims by our former partners in the Pirity Concession, Paraguay were settled, and subsequently we acquired their residual 36% ownership in the Concession for an initial nominal sum. The time for completion of the exploration work programme in that Block was also extended.

Two fundraisings took place in 2015, in the Spring and late Autumn, to fund the seismic acquisition in Paraguay, work in Argentina and for general working capital purposes. In parallel with the fundraising in November, the current IYA loan facility was extended (now revised again to end June 2017) and US$4 million of the facility was re-designated to a convertible loan note paying a lesser interest rate than the main facility.

The present year 2016 has seen progress move at a quickened pace. Benefitting from new workovers, production in Argentina has increased, with one programme completed in April and another one currently in progress. Detailed planning is now taking place for a significant new drilling programme commencing in H2 2016. Louisiana's contribution to Group production remains profitable although at relatively low levels. Technical work continues in Paraguay.

Argentina

At the outset, by way of reminder it is worthy of note that it was only in 2014 that President acquired the operated 50% of its' Argentine Puesto Guardian Concession with its five producing fields for a total cash consideration paid to the vendor of US$5.7 million.

In 2015, the 2P oil reserves of those fields were independently assessed by Gaffney Cline & Associates at 18.1 mmbbls, of which 11 mmbbls were 1P (proven) reserves with a 2P NPV10 value of US$329 million (before corporate taxes). This represents an increase of 28% in 2P oil reserves over the previous year.

Further detailed technical work was carried out with regard to the MDT deep gas prospect and its associated prospects resulting in the Management assessing the aggregated, unrisked recoverable Best Estimate Prospective Resource of 6.6 Tcf of Gas and 166 mmbbls of Condensate.

During 2015, two sets of workovers of old wells were successfully completed. These were the first workover programmes, being carried out by President as Operator, and provided valuable background data pursuant to which the recent April 2016 work took place and further to which a rolling programme of continued workovers, as well as a new drilling programme, is being implemented.

The value of the Concession was reinforced by the extension of the production term by 24 years to 2050 under a new Non-Conventional Concession, the first to be granted in the Salta Province in Argentina.

Continuing improvements in the Argentine economy and the improving international perception of Argentina to investors gives us confidence in building on the work carried out this year as we look to invest in our operations in 2016.

Louisiana

Production in 2015 was 219 boepd compared to 222 boepd in the previous year. The level of production was supported by small accretive acquisitions of production and revenue interest respectively in the operated Simmons well and our processing facility. Natural declines occurred in all wells in both the East Lake Verret and East White Lake fields. This was in part mitigated by those small acquisitions and the revenue interest in the Eagle Crest well commencing in mid-2015.

The profitability of Louisiana was materially impacted by the fall in oil prices. Oil prices remain volatile and the reduced contribution to Group from Louisiana is set to continue nevertheless as natural field decline rates continue.

With increased focus on profitable production in Argentina, it is appropriate that the Group should hence forth neither rely on nor consider Louisiana a core contributing asset in the medium to longer term.

Paraguay

The main work carried out in Paraguay in 2015 was the 607 km of new 2D seismic acquired over the Hernandarias Block in which President currently has a 40% registered interest, with a further 40% to be earned on paying a further currently assessed sum of US$9.7 million towards the cost of drilling and working capital. The results of the seismic survey identified several drillable Palaeozoic prospects at 2,500m-3,000m depth approximately 1,000m shallower than the two exploration wells drilled in 2014. The first candidate for a well has been determined to be the Boqueron Prospect.

In January 2016, the Ministry of Public Works and Communications agreed that the time for fulfilment of the exploration work programme in the Pirity Concession be extended to September 2017 with a possibility of a further extension of six months.

The Hernandarias Concession, in line with legal requirements after the relevant prospection period and seismic work, was narrowed down to an area of approximately 7,982 sq km with the balance of the former area of some 10,437 sq km hived off into a new Don Quijote contract area for which President is the contracting party. President has further been awarded a prospection contract for a small  610 sq km area between Hernandarias and Pirity Concession named Pilcomayo.

In April 2016, the term of the Dermattei Concession expired with no extension being granted. President had previously relinquished its right to further farm-in to that area and whilst on expiration, it held 10%, it does not consider this a material event. It is understood that the Operator of that Block, Crescent Global Oil, has made certain claims to the Paraguay courts against the relevant Government Ministry in relation to the Concession. President is not party to any such litigation. The US$10.9 million incurred on acquisition, seismic and overhead related cost for that Block has been valuable for understanding regional geology, however notwithstanding this the Company has prudently determined to take an impairment for its full cost at this stage.

On a strategic level, consideration is still being given as to future actions in Paraguay. President remains supportive and enthusiastic of the prospects in Paraguay and after the upcoming drilling programme in Argentina gains traction, the Company will re-focus on exploration activity in Paraguay.

Australia

No material events have taken place in Australia on the area known as PEL82. Notwithstanding this the licence term was extended for a further period expiring on 3 March 2017. President is still open minded as to this asset and its prospectivity although the current oil price environment has impacted on the potential attraction of interest in PEL82. Whilst it is not a core asset, particularly in today's investment climate and has been written off in President's books, in a recovering market environment, it may have potential future value to the Company.

Corporate

In March and November 2015 President raised in total US$18.0 million from new and existing shareholding to fund new seismic acquisition in Paraguay, work in Argentina and for general working capital purposes.

In Paraguay, the balance of the ownership in the Pirity Concession, being 36% was acquired from our former partners for a cash consideration paid to the seller of US$500,000.

The focus on cost rationalisation in 2015 has delivered a 20% reduction in underlying administrative costs with further reductions anticipated in 2016. This is not apparent in the reported net administration cost as allocations and one off costs distort the measures that have been taken.

Finally 2015 and 2016 saw the departure of Board Members, John Hamilton, Ben Wilkinson, Richard Hubbard, David Jenkins, David Wake-Walker and Alistair Burt with the associated material saving of costs and the appointment of two new non-executives, Rob Shepherd and Jorge Bongiovanni to a rationalised and focused Board with myself taking on the additional Chief Executive Role.

Financial Review

In 2015, the Group recognised a gross loss of US$0.2 million (2014: profit US$3.1 million) due to the lower oil price environment. After administrative expenses of US$6.4 million (2014: US$5.4 million) are taken in to account, this led to operating loss before impairment of US$6.6 million (2014: US$2.3 million). The Loss for the year from continuing operations of US$18.5 million (2014: Profit US$14.5 million loss) reflects the impairments which is largely due to the write down of the Demattei licence in Paraguay of US$10.9 million.

Revenue was reduced against the prior year by 20% to US$10.1 million (2014: US$12.6 million), reflecting lower average oil prices for the period of US$56/boe (2014: US$81/boe). Overall Group production increased by 15% to 490 boepd (2014: 426 boepd) as 2015 includes a full year of production from the acquisition of an additional 50% in Puesto Guardian in July 2014.

The Company has continued to focus investment on Paraguay and Argentina. Intangible fixed asset additions amounted to US$11.3 million (2014: US$55.1 million) predominantly the completion of Pirity Concession drilling and the Hernandarias seismic survey in Paraguay. In October 2015 President acquired the remaining 36% of the Pirity Concession for US$0.9 million, clearing the way for the farm out process to begin in 2016. Investment in Property, Plant and Equipment in the year amounted to US$3.9 million (US$ 1.3 million) mainly on capital workovers in Argentina.

Production and reserves

Reserve movements in Argentina are a consequence of the extension of the licence term to 2050 and the subsequent independent reserve report.

Detailed Financial Review

In 2015, the Group recognised a gross loss of US$0.2 million (2014: profit US$3.1 million) due to the lower oil price environment. After administrative expenses of US$6.4 million (2014: US$5.4 million) are taken in to account, this led to operating loss before impairment of US$6.6 million (2014: US$2.3 million). The Loss for the year from continuing operations of US$18.5 million (2014: Profit US$14.5 million loss) reflects the impairments which is largely due to the write down of the Demattei licence in Paraguay of US$10.9 million.

Revenue was reduced against the prior year by 20% to US$10.1 million (2014: US$12.6 million), reflecting lower average oil prices for the period of US$56/boe (2014: US$81/boe). Overall Group production increased by 15% to 490 boepd (2014: 426 boepd) as 2015 includes a full year of production from the acquisition of an additional 50% in Puesto Guardian in July 2014. Cost of sales of US$10.2 million (2014: US$9.5 million) were correspondingly higher but reduced operating costs and depreciation in the USA offset the stepped increase from Argentina.

Production in Argentina increased to 98,781 bbls (2014: 74,856 bbls) due to the consolidation of the remaining 50% not already owned in the Puesto Guardian Concession from 29 July 2014. Gross field production for 2015 was 271 bopd (2014: 304 bopd). Having taken over operatorship and carried out the required technical work, President undertook a workover programme in June and December 2015 to increase production. This resulted in a 36% increase in gross production to 312 bopd in second half of 2015. Further workovers have been carried out in March 2016 which increased gross production to 500 bopd. Despite the change in global oil prices, sales under the regulated price regime in Argentina averaged US$67 per bbl (2014: US$76 per bbl).

While production from the USA has remained stable at 219 boepd (2014: 222 boepd) revenues fell by around 50% in line with the down turn in oil prices. The EBITDA contribution was reduced to US$2.2 million (2014: US$4.4 million) as prices dropped to an average US$43/boe (2014: US$85/boe). Operating costs were reduced by US$0.6 million due to lower repairs and fewer workovers. Depreciation was also reduced by US$0.7 million due to the change in the production mix to reflect wells with low carrying values and a one-off credit relating to revised abandonment estimates on the East Lake Verret Field.

Although gross administrative expenses have fallen, reduced allocations and one off expenses incurred in the period have resulted in the reported administrative expense rising to US$6.4 million (2014: US$5.4 million). In 2014, expenses attributable directly to the drilling campaign in Paraguay were capitalised. With reduced operations the amount allocated has fallen to US$1.0 million (2014: US$3.1 million). As well as lower allocations, one-off costs incurred in 2015 have contributed to the rise in overall administrative expense. Legal costs incurred with respect to disputes connected to the Pirity Concession in Paraguay amounted to US$0.6 million before all matters were resolved.

Other gains in the year arise from the settlement of deferred consideration associated with the Puesto Guardian acquisition in 2014 on favourable terms and from minor asset disposals. The gains in 2014 arose on the fair value of the newly acquired 50% interest in the Puesto Guardian concession under IFRS 3. The gain of US$29.3 million reflected the bargain purchase gain on acquisition of US$22.6 million and the gain on the required revaluation of the existing 50% held by President in the Puesto Guardian concession of US$6.7 million.

An impairment charge on intangible assets of US$11.0 million has been recorded in the year principally on the expiration of the Demattei licence in Paraguay (President 10% interest). President resigned as operator and terminated the Farm-out Agreement in December 2015 and the licence subsequently expired in April 2016. In 2014, an impairment charge of US$11.9 million was recorded of which US$11.5 million related to the PEL 82 licence in Australia. An impairment to Property, Plant and Equipment of US$0.4m (2014: nil) has been made as lower prices and lower reserves on the East White Lake field in the USA adversely impacted the value of the field.

The key feature of the year was contraction and consolidation in the face of the challenging price environment. A focus on cost reduction saw administrative directors and staff cost reduced by more than 20% with office closures in London and Asuncion. With support from existing and new shareholders the Company raised US$18.0 million of net equity in 2015 to provide working capital and allow the business to continue to develop in Paraguay and Argentina. In November 2015, the existing loan facility with IYA Limited was restructured by re-designating US$4.0 million into an unsecured Convertible Loan and the original facility was reduced to US$10 million. At the year end, total borrowings under these facilities amounted to US$8.4 million (2014: US$9.7 million) with the facilities extended until June 2017.

Despite the challenging commercial environment the Company has continued to focus investment on Paraguay and Argentina. Intangible fixed asset additions amounted to US$11.3 million (2014: US$55.1 million) as drilling operations on the Pirity Concession and the Hernandarias seismic survey in Paraguay were completed. The technical evaluation of the Matorras/Occultar block in Argentina continued. In October 2015, President acquired the remaining 36% in the Pirity Concession for US$0.9 million clearing the way for the farm out process to begin in 2016.

Investment in Property, Plant and Equipment in the year amounted to US$4.0 million (US$ 1.3 million). The majority of this was capital workovers in Argentina US$3.3 million which significantly boosted production. In the USA, the A55 development well was drilled and suspended on East White Lake field pending further evaluation in 2016 and minor interests on the East Lake Verret Field were acquired taking the net revenue percentage to 34.2%. The fall in value of the Argentine Peso relative to the US dollar, accentuated by the devaluation in December 2015, resulted in a reduction in the carrying value of the assets as presented in the Group financial statements.

The fall in value of receivables of US$3.6 million (2014: US$14.3 million) and payables of US$3.1 million (2014: US$11.9 million) reflects the unwinding of timing differences for prepayment balances, including funds held in escrow, and accrued expenses following the end of the Paraguay drilling programme.

Year-end cash balances were US$0.2 million (2014: US$1.5 million), the reduction reflecting exchange losses on cash and cash equivalents of US$0.4 million, as well as the investment and financing elements described above.

Consolidated Statement of Comprehensive Income

Year ended 31 December 2015

Consolidated Statement of Financial Position

31 December 2015

Consolidated Statement of Changes in Equity

Year ended 31 December 2015

Attributable to the owners of the Company

Consolidated Statement of Cash Flows

Year ended 31 December 2015

Notes

1 Accounting policies and basis of preparation

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014 but is derived from the 2015 accounts.

A copy of the statutory accounts for the year to 31 December 2014 has been delivered to the Registrar of Companies, and is also available on the Company's web site. Statutory accounts for 2015 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2013 nor 2014.

Whilst the financial statements from which this preliminary announcement is derived have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the EU, this announcement does not itself contain sufficient information to comply with IFRS. The Annual Report, containing full financial statements that comply with IFRS, will be sent out to shareholders later in May 2016.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, in the preparation of the 2014 financial statements they continue to adopt the going concern basis.

To allow for meaningful comparison, staff costs, share based payments and depreciation expenses are reflected gross before the effect of capitalising relevant costs to the balance sheet assets. Other expenses are shown net of the effect of US$1.0 million (2014: US$3.1 million) being capitalised and are therefore displaying a negative balance for the year 2014.

As well as lower allocations, one-off costs incurred in 2015 have contributed to the rise in overall administrative expense. Legal costs incurred with respect to disputes connected to the Pirity Concession in Paraguay amounted to US$0.6 million before all matters were resolved.

The Group acquired the remaining 50% interest in the Puesto Guardian Concession in July 2014 resulting in $22.6 million of gains on acquisition and on settlement. As a result of acquisition, the pre-existing assets were revalued at fair value resulting in a gain of $6.7 million.

Foreign currency translation reserves associated with the pre-existing interest have not been recycled to the consolidated income statement as the acquisition was effected by President Petroleum SA a subsidiary with a Peso functional currency.

The gain arising in 2015 on the Argentine acquisition arises on the settlement of monetary liabilities associated with the acquisition on favourable terms.

At 31 December 2015, 76,174,896 (2014: 21,838,269) weighted potential ordinary shares in the Company which underlie the Company's share option and share warrant awards and may dilute earnings per share in the future, have been included in the calculation of diluted earnings per share. No dilution per share was calculated for 2015 as with the reported loss they are anti-dilutive.

7 Segment reporting

Segment assets can be reconciled to the Group as follows: