PTR.L Regulatory News (PTR)

23 June 2016

PetroNeft Resources plc

("PetroNeft" or the "Group" or the "Company")

2015 Final Results

PetroNeft (AIM: PTR) owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to report its final results for the year ended 31 December 2015. In addition, PetroNeft announces that the Company's Annual Report and Accounts for 2015 and Notice of the 2016 AGM will be mailed to shareholders and will be available online at the Company's website www.petroneft.com on or before Thursday 30 June 2016.

Highlights

· Gross production 737,655 barrels of oil from Licence 61 in 2015

o Average gross production of 2,021 bopd

o Current gross production about 3,000 bopd

· 11 Wells drilled in 2015

· 1,000 km of 2D seismic acquired at Licence 61 in 2015

· 65.5 mmbbls total 2P reserves net to PetroNeft

Outlook

· Further production increases likely from South Arbuzovskoye

· Drilling at Sibkrayevskoye No. 374 due to commence in July 2016 - potential for material increase in reserves

· Active, fully funded work programme planned at Licence 61 in 2016 and 2017

Dennis Francis, Chief Executive Officer of PetroNeft Resources plc, commented:

"2015 was a busy year for PetroNeft, during which the company carried out an extensive drilling programme, in partnership with Oil India, across Licence 61. We have gained significant experience in horizontal drilling, deepened our understanding of the Licence and have identified additional upside at Sibkrayevskoye and South Arbuzovskoye.

After 3 weeks of production the A-214 horizontal well at South Arbuzovskoye is still producing over 850 bopd and the pressure decline is very slow. In the near term we look forward to the A-215 horizontal well results at South Arbuzovskoye and the commencement of drilling on the S-374 delineation well at Sibkrayevskoye."

For further information, contact:

The information contained in this announcement has been reviewed and verified by Mr. Dennis Francis, Director and Chief Executive Officer of PetroNeft, for the purposes of the Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in June 2009. Mr. Francis holds a B.S. Degree in Geophysical Engineering and a M.S. Degree in Geology from the Colorado School of Mines. He has also graduated from the Harvard University Program for Management Development. He is a member of the American Association of Petroleum Geologists and the Society of Exploration Geophysicists. He has over 40 years' experience in oil and gas exploration and development.

PetroNeft Resources plc

Final Results

for the year ended 31 December 2015

Forward Looking Statements

This report contains forward-looking statements. These statements relate to the Group's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial statements.

Chairman's Statement

2015 was a busy year for our Company particularly with our partner, Oil India, at Licence 61 where we drilled wells at Tungolskoye, Arbuzovskoye, Sibkrayevskoye and Lineynoye and completed a major 2D seismic acquisition programme. The work programme saw a mix of successes, challenges and disappointments. 2015 also saw further challenges for the industry as a whole with further significant weakness in the oil price internationally.

Operations

The existing production wells at Lineynoye and Arbuzovskoye performed well during 2015 but continued to decline naturally as expected. The main development programme in the year was bringing the Tungolskoye oil field into production. Unfortunately, the J1-2 horizon was unexpectedly absent from some wells and the oil-water contact on the eastern side of the field is shallower than expected based on previous drilling and seismic data. As a result, the number of wells in the programme was reduced which meant we could not achieve the anticipated production, however, we did gain considerable additional experience in drilling horizontal wells particularly being able to keep the well within a narrow zone over the 1,000 metre horizontal segment.

In late May 2015 we announced the results of a delineation well at Sibkrayevskoye. The S-373 well found net pay of 11.5 metres and achieved a stabilised natural flow of 100 bopd from a cased hole test. This along with the newly acquired 2D seismic has provided further evidence of the quality and size of the Sibkrayevskoye oil field and we are now actively planning for development activities.

2016-17 work programme

Following up on the drilling results at Arbuzovskoye and Sibkrayevskoye in 2014 and 2015 as well as the new seismic data, we will be developing the southern part of the Arbuzovskoye oil field in 2016. We will also drill another delineation well at Sibkrayevskoye in 2016 with a view to commencing development of Sibkrayevskoye in 2017. Oil India have agreed to provide all the funding for these two projects by way of a shareholder loan to the joint venture company. We have already seen some excellent results from the first two wells at South Arbuzovskoye and gross production at Licence 61 is currently about 3,000 bopd (1,500 bopd net to PetroNeft).

Reserves

Ryder Scott have prepared a report as at 1 January 2016 on the reserves of Licence 61. While the reserves have fallen, primarily at Tungolskoye, the report demonstrates the large potential of the Sibkrayevskoye oil field which we expect to start developing in 2017. While the increase in 2P reserves at Sibkrayevskoye as a result of the S-373 well was modest, this was due to its proximity to previous wells. However, the seismic data has shown that the field is likely to be significantly larger and we hope that a successful result from the S-374 well will lead to a more significant increase in 2P reserves.

· Licence 61 as at 31 December 2015 (Ryder Scott report as at 1 January 2016).

· Reserves reflect just PetroNeft's 50% share of reserves for each licence.

· All oil in discovered fields is in the Upper Jurassic section.

· Reserves were determined in accordance with the Society of Petroleum Engineers ("SPE") Petroleum Resources Management System ("PRMS") rules.

· Licence 67 will be co-developed with Arawak Energy and the reserves above reflect PetroNeft's 50% share as per the most recent Ryder Scott report as at 1 January 2011.

Engagement with Natlata

Following extensive engagement with our largest shareholder, Natlata Partners Limited ("Natlata"), during 2015 and in connection with their requisitioned EGM, in April 2016 we announced that we reached an agreement on a new Board composition and structure. This involved the appointment Maxim Korobov as non-executive Director and Anthony Sacca and David Sturt as independent non-executive Directors. David Sanders, Gerry Fagan and Paul Dowling left the Board. Mr. Dowling remains CFO of the Company. The agreement includes a commitment from Natlata that it will support the newly constituted Board for a period of two years.

Also, Pavel Tetyakov of Natlata has joined the Company and will be responsible for new business development in Russia.

I would like to thank David Sanders, who was a founder of the Company, and Gerry Fagan for their many years of service to the Company. I would also like to thank Vakha Sobraliev, who resigned from the Board in September 2015 for his contribution to the Company over the previous ten years.

Review of PetroNeft loss for the year

The loss after taxation for the year was US$8,474,383 (2014: US$8,784,385). The loss included a foreign exchange loss on intra-group loans of US$0.3 million (2014: US$2.4 million) the share of joint venture's net loss in WorldAce Investments of US$8,765,055 which was after an impairment loss within WorldAce of US$4.55 million (US$9.1 million gross). The loss on the disposal of a subsidiary of US$5.6 million in 2014 relates to the farmout of Licence 61 and more details can be found at Note 4 to the financial statements. Finance costs in 2014 of US$1.6 million relate to interest on the loans from Macquarie and Arawak for the period to 3 July 2014 when the loans were repaid in full.

As mentioned above, the Licence 61 Farmout was completed on 3 July 2014. For accounting purposes the results of the WorldAce Group are fully consolidated in the PetroNeft Income statement up to that date. After that date PetroNeft must account for its share of the results of the WorldAce Group using the equity method of accounting. Furthermore, interest receivable on loans to the WorldAce Group, which up to 3 July 2014 would have been eliminated on consolidation, is included as income in the PetroNeft consolidated income statement after that date. The 2015 numbers reflect the new arrangements in full.

Revenue

Revenue in 2015 includes income as operator of both licences and the revenue of PetroNeft's wholly owned subsidiary, Granite Construction in respect of construction services provided in relation to both joint ventures. Revenue in 2014 includes revenues from oil sales for the period to 3 July 2014 of US$17.5m and income as operator of both licences of US$1.7 million.

Income of PetroNeft Group as Operator of Licence 61 and Licence 67

In the joint venture agreements related to both Licence 61 and Licence 67, PetroNeft is designated as the operator of each Licence. This means that PetroNeft employees and management are responsible for the day to day running of both Licences. Major strategic and financial decisions relating to the Licences require unanimous approval by both shareholders in the respective joint venture agreements.

As PetroNeft management and employees are responsible for day to day matters in both Licences, PetroNeft is entitled to recover a portion of its expenses from the joint ventures. In that regard we established a management group of key Russian employees who are employed by the PetroNeft subsidiary Dolomite. Both PetroNeft and Dolomite invoice for their services to the joint ventures based on rates pre-agreed with our respective joint venture partners. The costs associated with this revenue are included in cost of sales.

In 2015 PetroNeft Group charged a total of US$1.6 million (2014: US$1.2 million) to the joint ventures in respect of management services. PetroNeft also owns a small construction company, Granite Construction, which carries out small ad hoc construction projects such as well pads and on-site accommodation on both Licences. In 2015 Granite Construction charged the WorldAce Group US$0.8 million (2014: US$0.5 million) in respect of these services.

Finance Revenue

Most of the finance revenue relates to Interest receivable on loans to joint ventures. During 2015 PetroNeft had interest receivable of US$2,826,303 (2014: US$1,415,202) on its loans to WorldAce Group and US$205,189 (2014: US$117,120) on its loans to Russian BD Holdings B.V.

Key Financial Metrics - WorldAce Group

Because of the above accounting implications it is difficult to extract meaningful metrics from the PetroNeft consolidated income statement. Therefore the metrics below are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the performance of Licence 61:

Net Loss - WorldAce Group

The net loss of WorldAce Group for the full year increased to US$17,530,110 from US$1,621,345 in 2014. The increase in the loss for the year before taxation can be attributed to higher interest payable on loans from shareholders in 2015 as a result of additional loans provided by Oil India Limited to WorldAce as part of the Licence 61 Farmout. Of the US$5.1 million in interest payable by WorldAce, US$2.8 million is payable to PetroNeft. Due to the lower oil price environment and a reduction in reserves at the Lineynoye oil field an impairment of oil and gas properties in the amount of US$9.1 million was required.

Revenue, Cost of Sales and Gross Margin - WorldAce Group

Revenue from oil sales was US$20,600,188 for the year (2014: US$29,288,078). Cost of sales includes depreciation of US$2,856,469 (2014: US$3,547,979), which was lower mainly because of the weaker Rouble. The gross margin fell during the year primarily due to an increase in Mineral Extraction Tax in 2015 but also due to lower oil prices. Operating costs per barrel produced (Cost of Sales excluding depreciation and Mineral Extraction Tax) was steady at US$11.68 (2014: US$11.67 per barrel). We would expect the gross margin to improve in future periods as our facilities and field operations are fully staffed and can handle additional production from the South Arbuzovskoye oil field under the current cost structure and do not expect to add significant additional costs once Sibkrayevskoye comes online. We produced 737,655 barrels of oil (2014: 728,826 barrels) in the year and sold 761,123 barrels of oil (2014: 704,189 barrels) achieving an average oil price of US$27.00 per barrel (2014: US$41.59 per barrel). All oil was sold on the domestic market in Russia.

Finance Costs - WorldAce Group

Finance costs of US$5,144,634 (2014: US$1,818,438) relate to interest on loans from PetroNeft and Oil India.

Taxation - WorldAce Group

The tax credit in 2014 arose on the reversal of a deferred tax charge of US$2,400,000 in relation to temporary differences in Russia. There is no tax payable in 2015.

Future Funding of PetroNeft Group

PetroNeft is currently debt free. As part of Licence 61 Farmout, Oil India provided exploration and development funding of US$45 million through the jointly controlled entity WorldAce. Oil India has also agreed to provide funding for the development of South Arbuzovskoye and Sibkrayevskoye by way of an unsecured shareholder loan to WorldAce Group, thereby removing the funding requirement from PetroNeft for this work. The first tranche of this funding was agreed by way of an unsecured US$10 million shareholder loan from Oil India to WorldAce in March 2016. Principal repayments on the loan will not commence until October 2019. However, should there be a significant change in the management of PetroNeft while the loan is outstanding then Oil India may seek early repayment in full. In such circumstances Petroneft would need to provide its 50% share of the amount outstanding. It is expected that PetroNeft will commence collection of interest receivable on its loans to WorldAce in the second half of 2017.

Summary

We learned a lot in 2015 particularly in the experience gained in horizontal drilling and the additional upside identified at Sibkrayevskoye and South Arbuzovskoye. After 3 weeks of production the A-214 horizontal well at South Arbuzovskoye is still producing over 850 bopd and the pressure decline is very slow. We also now have enough production data at A-213 to register the reserves in the new J1-2 oil pool and will add production from the primary J1-1 interval in this well shortly. Both of these are excellent results. In the near term we look forward to the A-215 horizontal well results at South Arbuzovskoye and the commencement of drilling on the S-374 delineation well at Sibkrayevskoye. The Company is fortunate in that we have quality assets that are economic in a low oil price environment. With an excellent partner in Oil India we are well placed to exploit these opportunities despite the challenging times for our industry.

Annual Report and AGM

The annual report will be mailed to shareholders and published on the Company's website (www.petroneft.com) by 30 June 2016. The AGM will be held in Dublin on 16 September 2016.

Finally, I know that I speak for all the Directors, management and staff of the Group in giving sincere thanks to our shareholders, both old and new, for your continued support throughout the past year.

David Golder

Non-Executive Chairman

Consolidated Income Statement

For the year ended 31 December 2015

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2015

Consolidated Balance Sheet

As at 31 December 2015

Consolidated Statement of Changes in Equity

For the year ended 31 December 2015

Consolidated Cash Flow Statement

For the year ended 31 December 2015

Notes to the Preliminary Financial Statements

For the year ended 31 December 2015

1. Basis of Accounting and Presentation of Financial Information

While the financial information included in this announcement has been prepared in accordance with the Group's accounting policies under International Financial Reporting Standards (IFRS) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The Company is distributing the full financial statements that comply with IFRS on or before 30 June 2016.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts. Both reports were unmodified.

Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations

A number of amendments to existing IFRS (principally related to clarifications and refinements of definitions) became effective for, and have been applied in preparing, these Financial Statements. The application of these amendments did not result in material changes to the results or financial position of the Group or the Company.

Going Concern

As detailed in the Chairman's' Statement, a significant work programme will be carried out at Licence 61 in 2016 and 2017. Oil India have agreed to provide funding for 100% of this work programme by way of a shareholder loan to the joint venture company, WorldAce Investments Limited. This loan is unsecured and capital repayments do not commence until October 2019. However, should there be a significant change in PetroNeft management the loan can be called in and PetroNeft would have to provide its share of funding to WorldAce in order that the loan could be repaid. The recent agreement between the Company and its largest shareholder, Natlata, helps to provide stability in terms of the management team at PetroNeft and the agreement, which is subject to certain conditions, is envisaged to last for two years, thereby mitigating the risk of the loan being called in early.

PetroNeft the holding company recovers some of its costs from the joint ventures it operates and expects to fund the unrecovered costs through existing cash resources and also expects to start receiving interest on its US$45 million loan to WorldAce in 2017.

Management have analysed its cash flow requirements for the Group and the Company for the period to 31 December 2017 in detail. The cash flow includes estimates for a number of key variables including the timing of cash flows of development expenditure, oil price, production rates, exchange rates and management of working capital and is based on the provision of funding by Oil India as described above. The cash flow analysis demonstrates that the Group and Company will be in a position to meet its liabilities as they fall due.

Based on the agreements that are in place with Oil India and Natlata, and after making enquiries, the directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

2. Segment information

At present the Group has one reportable operating segment, which is oil exploration and production through its joint venture undertakings. As a result, there are no further disclosures required in respect of the Group's reporting segment.

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations. This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.

Geographical segments

Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all of the Group's sales and capital expenditures are in Russia.

3. Loss per Ordinary Share

Basic loss per Ordinary Share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year. Basic and diluted earnings per Ordinary Share are the same as the potential Ordinary Shares are anti-dilutive.

The Company has instruments in issue that could potentially dilute basic earnings per Ordinary Share in the future, but are not included in the calculation for the reasons outlined below:

· Employee Share Options -These potential Ordinary Shares are anti-dilutive for the years ended 31 December 2015 and 2014.

· Warrants - At 31 December 2014: 9,900,000 Ordinary Shares were subject to warrants being exercised. These potential Ordinary Shares were anti-dilutive for the year ended 31 December 2014. All warrants expired during 2015.

4. Loss on disposal of subsidiary undertaking

In 2014 a legally-binding contract was entered into by the Company to farmout a 50% non-operated interest in Licence 61. to Oil India Limited ("OIL").

Under the terms of the agreement, OIL subscribed for shares in WorldAce, the holding company for Stimul-T, the entity which holds Licence 61 and all related assets and liabilities; following which, PetroNeft and Oil India both hold 50% of the voting shares of WorldAce. In addition, through the shareholder's agreement, both parties have joint control of WorldAce with PetroNeft continuing as operator (the "Licence 61 Farmout"). The basic terms of this agreement provided for a total investment by OIL of up to US$85 million consisting of:

- US$35 million upfront cash payment;

- US$45 million of exploration and development expenditure on Licence 61;

- US$5 million performance bonus, contingent upon average production from the Sibkrayevskoye Field reaching 7,500 bopd within the next five years.

WorldAce Investments Limited, which was previously a 100% subsidiary of PetroNeft, became a jointly controlled entity, resulting in a loss on disposal of US$5.6 million (after the recycling of the currency translation reserve of US$9.3 million). The deal completed on 3 July 2014.

*US$35 million of the loans receivable from the joint venture noted above were repaid to PetroNeft out of the proceeds of the new share issue by WorldAce to Oil India. A further US$600,000 was repaid from operating cashflows in the second half of 2014.

† The recycling of the currency translation reserve of US$9.3 million relates primarily to the realisation of the cumulative foreign currency losses relating to the retranslation of Russian Rouble denominated assets and liabilities held by Stimul-T whose functional currency is Russian Rouble. As part of the consolidation process in prior periods up to 3 July 2014, those Russian Rouble carrying amounts were converted to US Dollars, the functional currency of PetroNeft, at each period end and the unrealised gain or loss was then recognised through the statement of other comprehensive income and included in the currency translation reserve rather than the retained loss reserve. With the completion of the Licence 61 Farmout in July 2014 this accumulated loss was realised and therefore transferred to the Income Statement and included in the calculation of loss on disposal arising from the Licence 61 Farmout.

6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited

PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited became a joint venture with effect from 3 July 2014. Full details of the transaction and the accounting implications are discussed in Note 4. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia.

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$28,770,819 following a loss in the year of US$17,530,110 together with a negative currency translation adjustment of US$23,174,786. PetroNeft's 50% share is included above and results in a negative carrying value of US$9,516,618. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$9,516,618 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 8).

6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

The currency translation adjustment results from the devaluation of the Russian Rouble during the year. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble depreciated significantly against the US Dollar during the year from RUB56.5:US$1 at 31 December 2014 to RUB73.3:US$1 at 31 December 2015.

6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

The above capital commitments in the joint venture are incurred jointly with Oil India International B.V. The Group has a 50% share of these commitments.

7. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.

PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a jointly controlled entity which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities in Russia.

The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$1,673,580 following a loss in the year of US$629,718 together with a currency translation adjustment (loss) of US$1,774,218. PetroNeft's 50% share is included above and results in a negative carrying value of US$836,790. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$836,790 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 8).

7. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below: