PXOG.L Regulatory News (PXOG)

Prospex Oil and Gas Plc / Index: AIM / Epic: PXOG / Sector: Oil and Gas

27 September 2017

Prospex Oil and Gas Plc ('Prospex' or the 'Company')Half Year Report

Prospex Oil and Gas Plc, the AIM quoted investment company, announces its results for the six months ended 30 June 2017.

Highlights:

· Delivering on strategy to build a leading oil and gas investment company focused on high impact European opportunities with short timelines to production

· Post period end acquired a 50% economic interest in the Exploration Area of the EIV-1 Suceava Concession, which is located in a producing hydrocarbon basin in North East Romania:

o a proven field with multiple low cost, low risk opportunities to rapidly start production in the short term

o on track to drill at least one well in 2017 - targeting the Bainet gas prospect

· Strong cash position of £0.895m - £0.85m raised during the period and £0.65m post

· Continued focus on corporate overheads to ensure as much of the Company's funds as possible are invested in value adding activities

· Evaluating multiple investment opportunities that meet management's investment criteria

Edward Dawson, Managing Director of Prospex, said, "Thanks to a low cost base, supportive shareholders and a management team with a proven track record of value creation within the oil and gas sector, Prospex is able to act swiftly to not only identify and secure new projects that match our investment criteria, but also to progress these towards value trigger events such as drilling. This is what we have done in Romania, where drilling operations at the Bainet gas prospect at the producing Suceava field remain on track to commence in the near term. In tandem with this, we continue to evaluate additional projects that represent highly attractive opportunities on a risk/reward basis. I look forward to providing further updates on our progress, as we look to build a multi-project, European focused oil and gas investment company."

For further information visit www.prospexoilandgas.com or contact the following:

Chairman's Statement

Our strategy is to build a leading multi-asset oil and gas investment company focused on high impact European projects at various stages of the development cycle and which represent highly attractive opportunities on a risk / reward basis. Our objective is to expose our shareholders to value trigger events. For junior oil and gas companies, drilling is one such value trigger. In 2016, we participated in the drilling of the Boleslaw prospect, onshore Poland. In 2017, thanks to the work we put in during the half year culminating in the post-period end acquisition of a 50% interest in the Exploration Area of the EIV-1Suceava Concession ('Suceava') in Romania, shareholders will be exposed to another potential value trigger in H2, the drilling of an exploratory well targeting a gas prospect in Romania.

Suceava is located on a proven play and close to markets in North East Romania, a country with a rich heritage of oil and gas production. Several discoveries (excluded from the acquisition), prospects and leads have already been mapped on existing seismic, including Bainet, a shallow, 600m biogenic gas target covered by 3D seismic, which the Company and its partner Raffles Energy SRL ('Raffles') intend to drill in the near term. Bainet has an excellent location, lying on trend with similar fields which are producing from Salmatian reservoirs on Suceava, as well as with analogue gas fields producing conventional high-calorific value natural gas in the adjoining Bilca Gas Production Area on the bordering EIII-1 Brodina Block. Bainet has internal gross prospective resources of approximately 1.5bcf recoverable and subject to success, Raffles plans to get Bainet on production via a short tie in to the flow line which connects Suceava's existing Climauti gas field to the Bilca gas processing plant. Once all relevant permits are in place, this process is expected to take approximately three months to complete.

In addition to Bainet, and subject to securing land access in time, we intend to workover and recomplete as a gas producer an existing discovery well on Suceava. The Grancesti SE-1 well, which was originally drilled in 2005, flowed gas at a rate of 1.2MMscfpd/d over a limited short test from the Sarmatian reservoir at a depth of ca 550m. Importantly it is located close to a high pressure pipeline grid operated by Transgaz. Furthermore, there remains significant scope to drill further low cost, low risk gas wells at Suceava in 2018 and beyond, subject to licence extension.

Based on the €750,000 cost for our 50% interest and commitments of up to €550,000, for our share of H2 2017's work programme that includes €400,000 (net) for drilling a well at Bainet, completed for production, Suceava represents a highly attractive opportunity on a risk/reward basis.

Subject to successful outcomes at both Bainet and Grancesti, Prospex could be generating material cash flows from gas production in the near term. For a small company with tight cost controls in place, these cash flows will go far and will enable us to invest in additional work programmes at Suceava and / or new projects. Suceava therefore has the potential to be an excellent platform with which to build a significant presence, not only in a country with prolific petroleum systems and a diverse range of hydrocarbon plays, but also in the wider region.

Suceava is just one of a number of projects we have been evaluating during the period and we continue to pursue a number of these in line with our strategy to build a portfolio of European oil and gas investments. As it stands today, Suceava sits alongside our first oil and gas investment: a 49% interest in Hutton Poland Limited, the holder of the Kolo licence, onshore Poland. In December 2016, drilling operations commenced at the low cost Boleslaw-1 well targeting a conventional gas prospect, which was described by AGR TRACS in a Competent Person's report as "a worthwhile and attractive exploration opportunity". Operations at Boleslaw were completed on time and on budget in January 2017, but unfortunately not all of the ingredients were in place for a commercial discovery to be made. However, the Boleslaw-1 well serves to demonstrate how management is able to identify, evaluate and advance projects in short order to the point of a potential value driving event, such as drilling. As with Suceava, the Kolo licence is not a one prospect play. Additional prospectivity exists, including a deeper oil lead, the case for which was not dependant on a positive outcome at Boleslaw. Our interest in Kolo therefore remains high.

Financial Review

At the time of our 2016 final results we assigned a carrying value of £3,910,388 to the Company's investment in the Kolo licence in Poland. Following the result of the Boleslaw-1 well in January 2017, the Company has taken the decision to write down the carrying value of its Investment in Hutton Poland to £1,442,011, resulting in an exploration write-off during the six months to 30 June 2016 of £2,494,794. This accounts for the lion share of the £2,849,444 loss we are reporting for the period, the difference being £380,968 in administrative expenses incurred which, in our view, highlight Prospex's credentials as a low cost investment company.

Outlook

The six months under review encapsulate what we are trying to achieve with Prospex. At the beginning of the period, we were participating in drilling operations onshore Poland. Six months later and after much due diligence we secured another investment, which will see Prospex participate in at least one new well in Romania before the end of 2017. Our tight control over costs, strong capital base, and low monthly cash burn allow Prospex to act swiftly to secure projects, undertake technical analysis and then if appropriate commence drilling activity. We are building a pipeline of drilling opportunities, which are based on robust technical work, are attractive on a risk / reward basis and which have the potential to serve as the value trigger event we are focused on exposing our shareholders to. With a strong technical case based on an extensive dataset, its location on a proven play, and low drilling costs, the upcoming Bainet well is one such opportunity and I look forward to providing further updates on our progress in the weeks ahead.

Finally, I would like to take this opportunity to thank our shareholders for their support of the Company and team during the period.

Bill Smith

Non-Executive Chairman

Consolidated statement of comprehensive income

Consolidated statement of financial position

As at 30 June 2017

Statement of changes in equity

For the six months ended 30 June 2017

Cash flow statement

For the six months ended 30 June 2017

 Notes to the interim financial statements

1 General information

Prospex Oil and Gas Plc is a company incorporated in the United Kingdom, which is listed on the Alternative Investment Market of the London Stock Exchange Plc. The address of its registered office is Stonebridge House, Chelmsford Road, Hatfield Heath, Essex CM22 7BD. The Group is primarily involved in the exploration for gold.

2 Financial information

The interim financial information for the six months ended 30 June 2017 has not been audited or reviewed and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The comparative financial information for the year ended 31 December 2016 has been derived from the audited financial statements for that period. A copy of those statutory financial statements for the year ended 31 December 2016 has been delivered to the Registrar of Companies. The report of the independent auditors on those financial statements was unqualified and did not contain a statement under Sections 498 (2) or (3) of the Companies Act 2006.

The interim financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS and under the historical cost convention. They have also been on a basis consistent with the accounting policies expected to be applied for the year ending 31 December 2017 and which are also consistent with those set out in the statutory accounts of the Company for the year ended 31 December 2016, except for the adoption of new standards and interpretations.

3 Taxation

On the basis of these accounts there is no tax charge for the period.

4 Earnings per share

The earnings and number of shares used in the calculation of earnings per share are as follows:

There was no dilutive effect in respect of the share options outstanding during the period.

5 Non-current investment

The Group owns 49% of the equity share capital of Hutton Poland Limited. The investment is accounted for at fair value through the profit and loss, as the Company is deemed to be an Investment Entity.

The carrying value of the Group's investment in Hutton Poland was as follows:

6 Dividends

The directors do not propose to declare a dividend for the period.

7 Copies of interim results

Copies of the interim results can be obtained from the website www.prospexoilandgas.com. From this site you may access our financial reports and presentations, recent press releases and details about the company and its operations.

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