PPC.L Regulatory News (PPC)

11 May 2012

PRESIDENT PETROLEUM COMPANY PLC

("President" or "the Company")

Results for the year to 31 December 2011

President Petroleum (AIM : PPC), the oil and gas exploration and production company focused on Argentina but also with producing assets in the USA and exploration licences in Australia, announces its audited results for the year ended 31 December 2011.

Corporate Highlights

·; Successful transition in the Group's strategy to a production oriented business, with exploration upside, and strategically re-focused into South America

·; New strategy commenced with the July 2011 acquisition of a 50% working interest in the Puesto Guardian concession in Argentina with existing oil production, material upside potential, and an estimated 6.6 million barrels of 2P reserves acquired at US$2.2/barrel

·; Increase in estimated Company 2P reserves of 500%, following acquisition

·; Identified exploration target Martinez del Tineo with gross unrisked best recoverable estimates of 570 BCF of gas and 14.5 million barrels of condensate (Gaffney Cline January 2012), valued at 67 pence/share risked (253 pence/share unrisked)

·; Built a substantial Argentine presence, with registration as an Operator and investment in additional staff and office

·; Financial resources sufficient to achieve stated 2012 production objectives

·; Foundation in place for growth prospects and a successful future

Operations

·; First two Argentine wells successful, with 28 and 33 metres of net pay

·; DP-1001 brought onto production at 300 bopd from just the carbonate interval, without stimulation. A6 sand to contribute to production from this well following stimulation. Additional reserves discovered in A5 sand

·; Identification at Puesto Guardian of the potential to use work-overs and artificial stimulation on old shut-in wells to boost production

·; Initial petrophysical review of Puesto Guardian provides scope for material increases in Oil in Place in three fields. Further studies are ongoing, with the potential for an increase in reserves

·; Average Group net production increase of 36% to 252 boepd (2010: 185 boepd), including 6 months contribution from Argentina, and now substantially increasing with the contribution from DP 1001 from May 2012

·; Louisiana production averaged 160 boepd benefiting from high oil prices and low operating expenses, resulting in US$3.6 million of operating contribution 

·; Oil accounted for 95% of group production at year end, with an annual average of 78% (2010: 45%)

Board Changes

·; Peter Levine appointed Executive Chairman effective 11 May, 2012

·; John Hamilton (previously Interim Chairman) remains an Executive Director

·; Dr. David Jenkins appointed on 6 February 2012 as Deputy Chairman and Senior Non-Executive Director

Financial Highlights

·; Revenue increased by 105% to US$7.0 million (2010: US$3.4 million)

·; Contribution from Louisiana to the Group after operating expenses and production taxes increased by 80% to US$3.6 million (2010: US$2 million)

·; Cash balance US$6.3 million at year end (2010: $45.6 million)

·; Loss after tax for the year of US$21.8 million (2010: US$6.7 million) reflecting principally impairment charges at East Lake Verret (shields President from corporate tax)

·; As continued evidence of the support and conviction in President's strategy and prospects, Peter Levine (through a wholly owned subsidiary of Levine Capital Management Limited) has extended an up to US$6.5 million loan facility to President, on fair and reasonable terms, in order to provide the flexibility to maintain momentum and pursue an increasing number of growth opportunities

Outlook

·; Active strategy to capitalise on momentum created in Argentina and on opportunities as they arise

·; Production growth on track as per stated objectives (1300-1500 boepd by around end Q3) underpinning cash generation

·; Recent events in Argentina do not adversely affect President's operations in country

·; President is well positioned to take advantage of the opportunities for growth and continues to work enthusiastically and constructively in Argentina

·; Continue to access low-risk accretive opportunities in Louisiana

·; Evaluation of further prospectivity on PEL 82 licence, South Australia

Commenting on today's announcement, John Hamilton, Interim Chairman said:

"We are extremely pleased to have successfully executed our strategy of focussing on production led activities, having moved beyond our legacy assets. The Puesto Guardian concession is proving to be the perfect start to build a meaningful business in a proven oil basin. Our drilling, geological and petrophysical activity on the concession is yielding production, and increasing confidence that the concession holds substantial upside. We look forward to 2012 continuing on its strong start, as we build a strong foundation based on production, with upside in appraisal and exploration. We also warmly welcome Peter Levine joining as Executive Chairman as of May 11, 2012."

For further information contact:

President Petroleum Company

John Hamilton, Interim Chairman +44 (0) 207 811 0140

Ben Wilkinson, Finance Director +44 (0) 207 811 0140

RBC Capital Markets

Jeremy Low, Stephen Foss, Matthew Coakes +44 (0) 207 653 4000

Jefferies Hoare Govett

Simon Hardy, Max Jones +44 (0) 207 029 8316

Pelham Bell Pottinger +44 (0) 207 861 3232

James Henderson, Mark Antelme

Dr Jonathan M Cohen, FGS, C Geol, Executive Vice President Exploration, meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.

The following financial statements are extracted from the Company's audited consolidated accounts for the year ended 31 December 2011. These accounts will be included in full in the Company's Annual Report which will be posted to shareholders in May 2012 and will be made available on the Company's website www.presidentpc.com at the same time.

Chairman's Statement

Summary

The overriding theme in 2011 was to move from an exploration led model to a production focused company, with exploration and appraisal upside. This has been successfully achieved through our major new acquisition in Argentina, which sets President on a path to material production growth and a foundation on which to build a larger presence.

Argentina

In June, the Company announced the acquisition of a 50% working interest in the Puesto Guardian Concession ("the Concession") in the Noroeste basin in northern Argentina. The acquisition cost US$2.2 per 2P barrel and provided existing production, immediate development opportunities and further reserve exploitation potential.

The drilling of President's first two wells in Argentina, PEE-1001 at the Pozo Escondido Field and DP-1001 at the Dos Puntitas field, have now been completed in H1 2012. PEE-1001 successfully encountered a 32 metre gross oil column at a depth of some 3,420 metres, predominantly in carbonates, which currently produces in an offset well. Based on logs and data from the offset well, President estimates that there is 28 metres of net pay. The second well DP-1001 was also a successful well, encountering 33 metres of net pay in both sandstone and carbonates.

Well DP-1001 has been brought on stream as a producer at 300 bopd gross, with production contribution from just the carbonate interval. Once a frac campaign has been completed, it is expected that this well will also produce commingled with the A6 sands, which President believes will flow at similar rates to the carbonate. These rates suggest that pre drill estimates of 380 bopd (post frac) can be exceeded on this and other wells. The free flow from the carbonate also provides affirmation of the potential from this reservoir across the Concession, where President has preliminarily identified additional oil in place across three fields.

Petrophysical review of many old wells drilled some 30 years ago on the Concession has provided President with encouragement for additional reserve upside in the area. The review to date of three of the five fields on the Concession have yielded internally estimated scoping numbers of additional 66 million barrels of oil in place which were not considered in any previous reserves estimates. Even applying prudent recovery factors to these estimates could have the effect of materially increasing President's reserves. Similar petrophysical studies will be carried out this year for other existing fields on the licence, and indeed on other areas within the Concession boundaries.

A fraccing programme for a number of old shut-in wells is planned for 2012. President believes that this work could generate meaningful production in wells which had been previously shut-in. In parallel with the drilling of new wells and the fraccing programme at Puesto Guardian, President with its partner are expediting a work-over programme on shut-in production wells which will include testing electric submersible pumps for the first time. If successful, a number of shut-in wells would be switched from beam pumps to electrical pumps. This programme, together with the additional work-over activity on shut-in production wells, which have suffered through lack of capital expenditure, is expected to increase and thereafter maintain production from these wells.

Gaffney Cline & Associates were commissioned to report on the exploration potential of the Martinez del Tineo prospect on the Puesto Guardian Consession. Gaffney Cline have estimated mean unrisked gross prospective resources of 570 bcf of natural gas and 14.5 million barrels of condensate. Although this prospect is at this stage an exploration target it is possibly a play opener and does point to the potential of the Concession in addition to the current reserve profile.

President approaches this work with some confidence in the near-term potential of uplifting production and increasing the scope to materially increase President's reserves at Puesto Guardian during 2012.

Net production in Argentina averaged 183 bopd for the six months July through December. Realised oil prices increased steadily during the second half from US$56/barrel to US$70 per barrel (due to government relaxation of controls), and resulted in revenue of US$2.2 million. Drilling and work-over activity in 2012 are expected to generate materially higher daily production.

US Operations

While smaller scale work-overs were performed in the first half of the year, new wells and recompletions commenced mid-year which have contributed to higher production rates. In Louisiana, average daily production in the second half of 2011 was 182 boepd (H1: 136 barrels of oil equivalent). Full year average production was 160 boepd (2010: 185 boepd). At the year end oil accounted for approximately 90% of production, with an annual average of 66% (2010: 45%). The higher oil weighting and realised prices resulted in a 41% increase in US revenue to US$4.8 million (2010: US$3.4 million). Strategically, the US operations have become secondary to our focus in Argentina but remain important as a cash generative asset, contributing US$3.6 million of operating cash flow after tax to the Group. President continues to assess low-risk accretive opportunities in Louisiana.

Australia Operations

In April, the Company announced the drilling results of its Northumberland 2 well on PEL 82 licence, in the Otway Basin, South Australia. While no commercial discovery was made, President has been encouraged by hydrocarbon fluorescence and gas shows. President's current licence commitments on PEL 82 have now been satisfied and the next steps on this licence are being actively considered.

Production and Reserves

The USA reserve reduction relates to proved undeveloped reserves at East Lake Verret. Management has taken the decision not to proceed with the development of wells for which 1P reserves were previously recognised as a consequence of the drilling result of Kafoury 3 and President's primary focus on Argentina.

Financial Summary

Revenue increased to US$7.0 million (2010: US$3.4 million) as a result of higher oil production and realised prices in Louisiana and the inclusion of six months' revenue from Argentina. In aggregate cost of sales remained broadly flat at US$5.1 million (2010: US$5.3 million) resulting in a gross profit of US$2.0 million (2010: gross loss of US$1.9 million). Lower depreciation charges were offset by higher well operating costs, reflecting the fixed cost component of the five field Puesto Guardian Concession in Argentina. As material production growth is delivered the fixed cost component will become less significant, leading to improved margins on incremental barrels.

Group Overheads increased from US$2.4 million to US$8.0 million due to increased staff costs critical to the expansion of the business, the build-out of our Argentine business, costs associated with business development and costs related to restructuring. The key components of administrative expenses were staff costs of US$2.8 million, costs related to business development (including the Argentine acquisition) of US$1.6 million and share based payments of US$0.4 million. Other administrative expenses include advisory fees, corporate structure costs and costs to establish the Argentine office in Buenos Aires.

As stated in the 2011 Interim Report, the Group has recognised an impairment on the unsuccessful well at Kafoury 3 of US$12.9 million, which together with other impairments has contributed to an impairment charge of US$15.8 million. As a result operating loss for the year is US$21.9 million.

Loan finance from Macquarie Bank was repaid during the year and the Group had no debt as at the year end.

As continued evidence of the support and conviction in President's strategy and prospects, Peter Levine (through a wholly owned subsidiary of Levine Capital Management Limited) has extended an up to US$6.5 million loan facility to President, on fair and reasonable terms, in order to provide the flexibility to maintain momentum and pursue an increasing number of growth opportunities.

Outlook

President looks forward with confidence to an exciting 2012 as the Group capitalises on the momentum started in the second half of 2011. This will see President moving towards material production growth and advancing its very promising position in Argentina. President believes that recent events in Argentina are unrelated to its own activities. President remains in a good position to take advantage of the opportunities for growth and will continue to work constructively in the country.

In February 2012 the company successfully raised US$9.4 million, net of expenses, in an equity raising from existing and new shareholders.

As previously announced, Peter Levine has been appointed the Executive Chairman, effective 11 May 2012. The past 12 months have been eventful for President and, with the momentum we now have in Argentina, I trust 2012 will continue to be an exciting time for President and its stakeholders. Finally, I would like to thank our shareholders, staff, advisors and other stakeholders for their meaningful support and contribution during the year.

John Hamilton

Interim Chairman

10 May 2012

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 2011 or 2010 but is derived from the 2011 accounts.

A copy of the statutory accounts for the year to 31 December 2010 has been delivered to the Registrar of Companies, and is also available on the Company's web site. Statutory accounts for 2011 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 2010 nor 2011.

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 in May 2011.

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 2011 financial statements they continue to adopt the going concern basis. See note 9.

At 31 December 2011, 3,425,269 (weighted) potential Ordinary Shares in the Company which underline the Company's share option and share warrant awards, and which may dilute earnings per share in the future, have not been included in the calculation of diluted earnings per share because they are anti-dilutive for the year to 31 December 2011 (and 2010).

6. Segmental analysis

7. Current portion of borrowings and deferred consideration

The liability of US$10.75 million relates to the commitment to pay President's partner's share of capital expenditure for the 2012 drilling programme by way of deferred consideration for the acquisition in Argentina.

8. Acquisition of Argentine assets

On 1 July 2011 the Group acquired a 50 per cent working interest in the CNO-8 "Puesto Guardian" licence in Salta Province, Argentina, and joint control of the related operations for the production and development of the field. The acquisition has been accounted for as a business combination in accordance with IFRS 3.

The provisional amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

The non-controlling interest recognised at acquisition relates to a 5% interest in the A Shares of President Petroleum Holding UK Ltd. No value accrues to the non-controlling interest until the Group has recovered its acquisition costs and capital expenditure costs plus a return from the post-tax profits of the acquired business. Identifiable intangible exploration and evaluation assets

The fair value of the 5,102,041 ordinary shares issued as part of the consideration paid was determined on the basis of the Parent Company's share price on the date of acquisition. Further shares to the value of US$359,000 were issued as part of acquisition-related costs.

The fair value of the 1,000,000 Warrants granted as part of the consideration paid was calculated using the Black-Scholes model.

Acquisition-related costs (included in administrative expenses) amount to $1,168,000.

The purchase consideration equals the aggregate of the fair value of the identifiable assets and liabilities acquired, and therefore no goodwill has been recorded on acquisition. Deferred tax arises in respect of the difference between the assigned fair values and the tax bases of assets acquired and liabilities assumed in a business combination.

The Argentine business contributed $2,231,000 of revenue and added $2,221,000 to the Group's operating loss for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on the first day of the financial year, Group revenues for the period would have increased by $2,256,000 and the Group loss would have increased by $198,000.

9. Going Concern

The Group's cash position at the year-end is US$6.3 million. Post year-end the Company successfully raised US$9.4 million, net of expenses, in an equity raising from existing and new shareholders. A loan facility of up to US$6.5 million has been made available to the Group, which is currently undrawn. The Group is reliant on production revenues from existing producing wells and wells that are in the process of being tested and developed for commercial production. The principal uncertainty in the Group's forecasts and projections relates to the level of future production and consequent revenues. Having considered reasonable possible sensitivities the Directors believe that the Group will be able to operate within its existing committed funding and to meet all commitments as they fall due.

The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

10. Subsequent events

The development well PEE-1001 was successfully drilled on the Pozo Escondido field in Argentina, encountering a 32 metre gross oil column, predominantly in carbonates, at a depth of 3,420 metres, with an estimated 28 metres of net pay.

An independent third party Prospective Resource Statement was commissioned from Gaffney Cline & Associates on the Martinez del Tineo (MDT) Prospect on the Puesto Guardian Concession. Gross Prospective Gas Resources were assessed at mid-case unrisked of 570 billion cubic feet with an additional 14.5 million barrels of condensate. Gaffney Cline & Associates assess a 26% geological chance of success at MDT, providing a gross risked NPV of US$268 million, or US$134 million net to President.

The development well DP-1001 was successfully drilled on the Dos Puntitas field in Argentina, encountering 33 metres of net pay in both sandstone and carbonates. At the time of this report the DP-1001 well has been tested and is being placed on production. The development well DP-1002 has spudded.

In February 2012 the company conducted a successful equity raise using its remaining existing authorities to generate US$9.4 million net of expenses. The raising was supported by President's largest investor Levine Capital Management Limited and its key institutional backers. In addition President was glad to welcome significant new institutional funds to its register.

As part of continued studies on the Puesto Guardian Concession, previously unidentified oil in place has been assessed in cretaceous carbonate reservoirs on the Pozo Escondido, Puesto Guardian and Canada Grande field areas. The combined oil in place number of 66 million barrels has not been included in the current reserves. Potential recovery factors are yet to be determined, and further analysis will be performed.

A loan facility of up to US$6.5 million has been made available to the Group by a subsidiary of Levine Capital Management Limited. The loan provides flexibility for the Group to capitalise on recent drilling success, evaluate growth opportunities and continue with its current campaign in Argentina. The loan is unsecured, has a term of 18 months (to 25th October 2013) and a coupon of 10% per annum. The Company's directors, having consulted with its nominated advisor, RBC Europe Limited, consider that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.

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