Tern Regulatory News (TERN)

31 July 2012

Silvermere Energy PLC

("Silvermere" or the "Company")

Final results for the year ended 31 December 2012

Silvermere, the independent oil and gas company focusing principally on appraisal and production opportunities in the US, announces its preliminary results for the year ended 31 December 2012.

--ENDS--

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Chairman's Statement

For much of the year under review, the Company appeared to be making steady progress and seemed positioned to escape from the several challenges that it had experienced before, during and after its admission to trading on 31 August 2011. The Board is therefore disappointed to have to report that events since the end of the year turned against us.

The year 2012 saw the Company making further progress in the development of its asset base acquired in August 2011, the Company's pipeline of business development opportunities had grown further and additional new capital had been raised, laying the groundwork for future expansion and development. Sadly, technical problems with the well, associated costs and partial failure of a subscription in early 2013 set in motion a series of events which unravelled the good work that went before and which have led to the need for a Company Voluntary Arrangement ("CVA").

Further background covering the need for a CVA, together with details of the associated proposals, are set out in the Circular that was recently sent to shareholders. These do not make happy reading for shareholders, or for creditors. However, they do offer an opportunity which is better than the alternative of total loss.

The Board and shareholders are all disappointed by this outcome. We trust shareholders will accept that the Board has played its hand as professionally as possible. We would like to thank the Board of Mineral and Financial Investments Ltd ("MAFI"), our major creditor, for its commitment to finding a resolution and we wish the incoming Board good fortune in creating value for all shareholders.

Financial Results

No substantial production was achieved during the year. The Group reported no turnover during the twelve months ended 31 December 2012 (2011: Nil) and made a loss before tax of £5,035,018 (2011: loss of £1,370,555) after taking into account administrative costs of £994,871 (2011: £786,603), and exceptional items of £3,850,000 (2011: £505,978). The exceptional costs in 2012 relate to an impairment provision against the value of the Group's Mustang Island asset. In 2011 the exceptional costs related to professional fees incurred in relation to the acquisition of the Mustang Island asset and to the Company's re-admission to AIM.

During the period the Company invested approximately £0.75 million in the development of its Mustang Island asset, (2011: £0.5 million).

Following a placing raising £629,000 in June 2012, the Company ended the year with cash and cash equivalents of £19,248 (2011: £202,352). A subscription aiming to raise a further £371,000 was completed on 11 January 2013 to fund the Company's share of outstanding development costs in respect of pipeline and shore facilities at Mustang Island and for general working capital purposes.

Operational difficulties at the I-1 Well resulted in additional expenses and no revenues during the second quarter of 2013 (see below) which was exacerbated by the partially failed placing in January 2013 which left the Company dependent upon the support of its directors and creditors. The Company's financial position was further complicated by a condition placed by subscribers to the January 2013 subscription not to accept a proposal from MAFI (formerly known as Athol Gold and Value Ltd) to reschedule and partially convert an unsecured loan note which was due for repayment in an amount of £660,000 on 1 July 2013.

The same factors combined to put downward pressure on the share price and to make it ultimately impossible for the Company to complete any acquisitions which could have provided an opportunity to raise additional funds and to mitigate operational risk.

Once it became clear that fresh equity could not be secured to resolve the Company's financial position, discussions were held with MAFI and third parties with a view to arranging a loan to be secured on the Company's interest in the I-1 well. A number of parties expressed interest but in each case the investment did not pass technical due diligence. On 9 May the Company requested that trading in its shares be suspended while it considered the next steps.

Working alongside major creditor MAFI, the Company determined that the best way forward would be to dispose of all or part of the Mustang Island asset to the operator in consideration for a release from past and future obligations and to turn the Company into a clean shell through a CVA. A number of parties expressed interest in financing a CVA and investing in the resulting shell and on 9 July 2013 the Company signed Heads of Terms and entered into exclusive discussions with a consortium of investors.

The proposed arrangements for the CVA and the terms of the investment by that consortium are set out in the Circular that has been sent to shareholders and posted on the website.

Review of Operations

During 2012 the Company was primarily focused on preparations for first production from the I-1 well and the building of its portfolio of business development opportunities as a basis for future expansion. Operations at Mustang Island were conducted under the supervision of the designated operator, Dominion Production Company LLC.

Load-out of the first barge, containing the platform jacket for the I-1 well, from its base at a Galveston shipyard was completed on 29 June and the I-1 well production platform was completed in all material respects on 4 August and connection of the pipeline between the platform and sub-sea tie-in point was subsequently completed on 18 August.

Production from the I-1 well commenced on 29 August under supervised and choked (deliberately limited flow) conditions. Gas and condensate were produced along with quantities of drilling mud and other solid material during the clean-up phase. The completion of the tie-in and resumption of production on 29 August signalled the satisfaction of the Company's obligations to carry the residual working interest of the original asset vendors.

The well was shut in on the afternoon of 5 September after a small leak was detected on a neighbouring abandoned platform that is connected to the same pipeline. The authorities responsible for the abandoned platform were notified and an operation to seal off the pipeline connection from that platform was devised. The lift-boat required to perform the work was mobilised on 27 September.

On 28 September, announced the appointment of Rockflow Resources Ltd ("Rockflow") (www.rocflo.com) as technical advisers to the Company.

The well was re-opened to flow on 2 October under supervised conditions. System pressure was gradually increased over the subsequent days and by 13 October the system was operating under continuous and unmanned conditions. A 24-hour flow-test was conducted on 15 October during which time production was 155 bopd plus 700,000 scfpd of associated gas and zero water. The well was then shut in at the request of the pipeline operator to enable them to attend to a further repair on the pipeline riser at one of the neighbouring abandoned platforms. This repair was completed on 30 October and the well returned to continuous operation. Having achieved the necessary operating pressure to supply the transmission network, the first oil and gas sales were recorded on 1 December 2012.

The next day the operator was advised that the main interconnect pipeline operated by Exxon Mobil was being immediately shut down for urgent repairs. The repairs were successfully completed on 5 January 2013 and the sales line from the Mustang Island 818-L Field was re-opened on 7 January.

Operations during the next month were interrupted a few times by the need to clean up accumulated drilling mud and debris from the platform equipment and it is clear that the well remained in clean-up phase. Well performance improved during February with the well flowing for 73% of the time. During March the well continued to experience restricted flow rates due to obstructions in the well-bore. Pipeline operating pressure from platform to shore was reduced in an attempt to improve pressure differentials and flow conditions, but this did not resolve the matter. It was therefore agreed by the partners that a work-over should be conducted in order to investigate and remedy the blockages that had extended the clean-up period longer than had been expected.

Following mobilisation of the required equipment to the platform on 1 April, work-over operations commenced. Initially, the work-over was conducted using the platform's on-board crane. As at the date of this report the well remains shut in pending definition and funding of the next steps. Under the terms of the CVA, this will be a matter for Dominion and the remaining working interest partners.

Frank H. Moxon

Non-executive Chairman

Group Income Statement and Statement of Comprehensive Income

Group and Company Statements of Financial Position

Group Statement of Changes in Equity

Group and company Statement of Cash Flow

Notes

1. The financial information set out herein does not constitute the Group's statutory accounts within the meaning of section 435 of the Companies Act 2006 for the years ended 31 December 2012 and 31 December 2011. Statutory accounts for the years ended 31 December 2012 and 31 December 2011 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2012 was unqualified and did not contain a statement under 237(2) or 237(3) of the Companies Act 1985. The audit report for the year ended 31 December 2012 included an emphasis of matter in respect of a material uncertainty in respect of the Group's ability to continue as a going concern. The Independent Auditors' Report on the Annual Report and Financial Statements for 2011 was unqualified but also included an emphasis of matter with respect to the Group's ability to continue as a going concern.

Statutory accounts for the year ended 31 December 2011 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2012 will be delivered to the Registrar in due course.

2. Basis of preparation

The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union (EU) and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies set out below have been consistently applied to all periods presented, except where stated.

3. Going Concern

As at 30 June 2013 the Company had current liabilities of approximately £1,365,000 and cash balances of approximately £18,000. The Directors are taking the following actions in order to maintain the Company as a going concern.

1. An agreement is being negotiated for the disposal of the Group's wholly owned subsidiary Silvermere Energy LLC including all the Group's interests in the Mustang Asset including the I-1 well in exchange for the release from current and future obligations to the operator.

2. Published at the same time as this report, there is a circular to shareholders setting out proposals for a CVA, which shareholders are being asked to approve at the Company's forthcoming AGM.

3. Conditional upon the above disposal being concluded and the shareholders' approval of the CVA proposals a group of new investors have undertaken to invest £300,000 in the Company.

On the basis that the processes set out above are successfully concluded, and that no expenditure is undertaken except that required to maintain the Company's listing on AIM, unless additional funds are raised, the Directors have formed a judgement at the time of approving the financial statements that the Company has adequate funds to continue in operational existence for the foreseeable future and have continued to adopt the going concern basis in preparing the financial statements.

If the Directors are unable to successfully conclude their negotiations for the introduction of additional capital, over which there is significant uncertainty, the carrying value of the assets of the Company may be impaired. In addition, other costs may arise in the course of realising the assets of the Company.

4. Earnings per Share

5. Investments

*On 16 April 2013 the Company announced that it was in default of significant outstanding commitments on its I-1 Well which could prejudice the Company's interest in the Well, in respect of which it had received a default notice. Following this announcement the directors consider that an impairment provision is required to reduce the value of the Company's assets to what the directors believe to be their net realisable value.

6. Trade and Other Receivables

7. Post Year End Events

8. Copies of the Report and Accounts

Copies of the Report and Accounts will be posted to shareholders in due course and will be available from the Company's registered office 31 Harley Street, London W1G 9QS and on the Company's website www.silvermere-energy.com.