ROSE.L Regulatory News (ROSE)

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

1 May 2020

Rose Petroleum plc

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

Operations and Strategy Update

Rose Petroleum plc (AIM: ROSE), the Rocky Mountain-focused oil and gas company, is pleased to provide an operations and strategy update.

In view of the very challenging economic environment, the Board has taken a number of steps to: 1) conserve existing cash balances; 2) safeguard the existing asset base; and 3) position the Company for growth via value-orientated acquisition opportunities, details of which are set out below.

Highlights

· Negotiated an extension to the proposed acquisition of a working interest in the McCoy lease, a 317-acre leaseholding in the Denver-Julesburg Basin ("DJ Basin") in Weld County, Colorado, U.S. (the "McCoy lease" or "McCoy"). The period to close the initial acquisition, as well to exercise an option to increase working interest percentage, has now been extended until 31 December 2020, allowing the Company more time to assess market conditions prior to making an investment decision. The extension was granted at no additional financial cost to the Company.

· Continued development of proprietary technological tools developed to increase screening efficiency, type curve predictability and valuation accuracy as related to potential acquisitions. In addition, the Company is in active discussions with industry and financial partners regarding deal flow and funding options.

· Ongoing partnership with the U.S. Department of Energy ("DOE") on a government-funded study to, amongst other things, increase the wider visibility of the area which includes our project in the Paradox Basin, Utah (the "Paradox project").

· In order to maintain financial flexibility, a further cost reduction programme has been implemented across the Group. This is in addition to the significant cost reductions already made in the last calendar year and includes significant reductions to the cash compensation of all the Company's Directors and executive management team.

· In light of the comprehensive restructuring undertaken over the last year, it is the Board's intention, subject to Shareholder approval at the Company's 2020 Annual General Meeting, to change the Company name to Zephyr Energy plc.

Colin Harrington, Rose CEO, commented: "During these challenging times, I'd first like to reiterate that our primary concern is the safety of all the Company's stakeholders and employees. We truly hope for good health for all.

"Secondly, on the back of this extraordinary global turmoil, our focus has been to protect the Company and its existing assets by implementing further cost reductions, which will enable the Company to continue trading effectively for the foreseeable future while retaining its operational focus and capability. This objective has now been achieved, and the work undertaken in the last 12 months to restructure the Group - and in particular the land position and cost structure of the Paradox project - has proved to be absolutely critical as we position the Company for the future. With no debt, very low fixed costs and no near-term capital commitments, Rose is well positioned to weather the fallout occurring across all sectors of the economy, and particularly ours.

"The US oil and gas industry had challenges prior to the Covid-19 outbreak, and the recent commodity price drop has meant increasing disarray, especially amongst smaller producers However, even in this challenging environment, we believe that attractive, value-additive acquisitions exist - and a disciplined focus on cash generation and value to shareholders will be central to all our investment decisions.

"Rose is now positioned as a clean, low-overhead, unlevered and value-focused vehicle from which to build. The upcoming change in name to Zephyr Energy plc denotes the wholesale changes made in the last 12 months as well as the growing potential going forward. Our team has a long track record of involvement in successful acquisitions, and we are in active pursuit of opportunities that have arisen. We are also in ongoing dialogue with like-minded partners who see the same potential for growth in these uncertain times.

"The Rose team will continue to work diligently to build value for all, and I'd like to especially thank our existing shareholders for their support as we do so."

Operations and Strategy Update

Extension of the McCoy Lease option

On 10 February 2020, the Company provided an update on the progress made in respect of its proposed working interest acquisition in the McCoy lease.

In that announcement, the Company announced that it had extended its option period for the acquisition until the end of April 2020.

Given the current market conditions, the Company has now agreed with Captiva Energy Holdings II, LLC ("CEH") to extend until 31 December 2020 the period in which to close the initial acquisition, as well as the time to exercise Rose's option to increase its working interest in the McCoy lease. We now believe that the development of this asset, operated by Great Western Energy, will commence in the first half of 2021 subject to commodity price and service cost conditions. Although commodity prices in the current environment would not support the development of McCoy today, the Company has already seen signs that the projected cost to drill wells in the DJ Basin has been significantly reduced. By extending the deadline at no cost to the Company, Rose will retain exposure to a low-risk development opportunity for a period of time during which we can monitor both commodity prices and costs. Should the value proposition improve through better prices and/or reduced costs, Rose would likely seek to maximise its participation in the project.

Business Development

As mentioned above, the Board feels that the current market turmoil will deliver multiple attractive investment opportunities for the Company, and the Company is currently working with both industry and financial partners to identify the highest value targets.

In an effort to build increased predictability, accuracy and efficiency into our screening and valuation process, management has developed a series of proprietary tools for use in evaluating assets in our region of focus. Led by the Rose technical team, and building from datasets compiled by independent analytics providers, Rose is creating a comprehensive geological basin model which allows the Company to quickly review and rank operators, locations and wells in order to focus on targets perceived as having the highest value. This technology-led strategy has already proven useful, both as a deal identification and rapid screening tool, as well as demonstrating the value Rose brings to potential investor and industry partnerships.

We also continue to assist the DOE and the University of Utah in a study designed to fully characterise, quantify and interpret the geological, structural, and geomechanical settings of the northern Paradox oil play. We believe the increased understanding and visibility generated by the study will assist our long-term efforts to realise value from our Paradox Basin holdings.

Cost reduction programme

The dual impact of coronavirus and recent OPEC activity has had a momentous impact on the U.S. oil and gas sector and in recent weeks the Board has implemented a further substantial cost reduction programme to conserve the Company's existing cash resources during this difficult period. These recent cost reductions are in addition to the significant savings that the Company realised over the past year through its Group reorganisation.

The additional cost saving measures include significant cash reductions to the compensation of all the Company's Directors and executive management team; all Directors and senior management will be taking salary cuts of at least 50% until such time that the Board deems prudent.

The Board believes that the best compensation structures are those which align the interests of a Company's management team with the broader shareholder base. New members of Rose's Board have invested significant funds into the Company over the past year by purchasing shares equivalent to more than 25% of Rose's issued share capital, signifying its commitment to this approach.

Having now significantly reduced cash compensation to the team, the Company will be looking at implementing a long-term remuneration scheme to both conserve the Company's cash reserves and maximise alignment between the management team and the Company's Shareholders and to closely link compensation to the Company's performance.

The recent cost reductions not only impact Directors and employees but also the Company's advisers and suppliers. The Board would like to thank those impacted by this process for their historical contributions and ongoing support to the Company at this exceptionally difficult time.

Group restructuring and rebranding

Following the comprehensive restructuring and refocusing of the Company over the last 12 months, the Board has elected to use this period of transition to rebrand and reposition the Company. The Company has changed significantly - four of five board members were appointed in the last year, including our new Chairman and new CEO - and Directors have purchased shares equivalent to over 25% of Rose's issued share capital. The Company has since focused its activity on the upstream business in the Rocky Mountain region, has announced a first potential acquisition, has extended the term and moved to direct ownership of its Paradox acreage, and has closed the chapter on the legacy mining and Cuban operations.

The change in name to Zephyr Energy plc will mark the final stage in the transition of positioning the Company for the future, and shareholders will be asked to approve this name change at the Company's 2020 Annual General Meeting, which will be scheduled later this year.