ZOE.L Regulatory News (ZOE)

Highlands Natural Resources plc ('Highlands' or 'the Company')

Helios Two Leasing and Development Update

Highlands Natural Resources, the London-listed natural resources company, is pleased to announce an update on its recent progress in developing the Helios Two natural gas and helium prospect in southeast Montana.

Highlights

· Filing permits and bonds with the State of Montana in anticipation of commencing drilling of two new wells in the next 30 days

· Pilot drilling programme, planned based on a significant amount of historic data, will target natural gas and helium; the programme aims to demonstrate the technical and economic viability of the proposed dewatering technique to potentially unlock significant bypassed resource

· Entry into two transactions to acquire a further 29,953 acres in the Helios Two area; on completion of transactions, Highlands' total acreage position in the Helios Two prospect area will be approximately 104,652 acres

· Highlands is in conversations with several parties including international industrial gas companies and oil and gas companies as potential JV partners

Highlands CEO Robert B. Price said, "I am pleased to report the continued efforts of the Highlands team in securing and enhancing its existing lease position in the Helios Two project, and in progressing it to a drillable status. Subject to receipt of permit and other approvals, we are now prepared to commence drilling and dewatering operations in order to validate the economics of potential natural gas and helium resources at Helios Two.

"Highlands' engineering and operations teams are working to permit and mobilise a drilling programme targeting an area of the Helios Two prospect selected on the basis of offsetting well data. This nearby well data enables our team to understand the petrophysical and geologic conditions expected in the reservoir, which in turn facilitates planning of well locations and dewatering operations. We are encouraged that similar well data extends across broad portions of the Helios Two prospect, thereby facilitating full-field development planning in the case of a successful pilot programme. Soon after commencement of pumping, we expect to gather and release important technical data from the pilot programme, including gas analyses and initial reservoir performance metrics. I look forward to providing the market with further updates as drilling operations commence and results become available."

Drilling and Development Update 

Highlands is in the process of filing permits and bonds with the State of Montana in anticipation of drilling commencing in the next 30 days. Highlands intends to drill and complete two successive wells into the Muddy Sandstone formation, each of which is anticipated to take approximately 10 days each to drill.

Drilling locations have been selected on the basis of geologic and petrophysical conditions as evaluated through numerous nearby drill stem tests, a gas analysis and well logs. Specifically, within four miles to the south of Highlands' drilling locations, a well drilled in 1968 produced a 2-3' gas flare from a drill stem test yielding gas-cut water. Four miles west of Highlands' locations, a well drilled in 1968 showed vigorously bubbling gas-cut flammable water. Two miles to the southeast of Highlands' locations, a well drilled in 1969 showed 480' of gas-cut water with gas analysis revealing helium concentrations of 0.36%.

These drill stem tests and gas analysis will be made available on the Highlands website. The posted data comes from wells drilled in the 1960's, prior to the development and refinement of dewatering techniques employed today. As a result, previous operators shut in the wells due to the presence of water. Today, Highlands benefits from de-watering methodologies demonstrated in numerous projects in the US and internationally, as outlined in the RPS Knowledge Reservoir Competent Persons Report dated 23 June 2016 ('the RPS CPR').

As previously announced and as outlined in the RPS CPR and previous RNS announcements, Highlands intends to de-water the Muddy Sandstone reservoir by pumping water from the formation and ultimately re-injecting the produced water into deeper horizons. Highlands expects that de-watering the reservoir will reduce pressure, thereby allowing gas volumes to expand and result in a more continuous gas phase. The targeted result of Highlands' pilot programme is to demonstrate the technical and economic viability of dewatering, validate the engineering and economics outlined in the RPS CPR, and affirm RPS' projections of the long-term economic potential of the Helios Two prospect. Highlands expects to release initial quantitative results to the market on an on-going basis once production commences.

Leasing Update

On 16 August 2016 Highlands acquired 9,942.81 acres in Custer County from a private lessor for total consideration of US$49,714.03, paid in cash to the lessor. Additionally, Highlands has conditionally agreed to acquire up to 19,011 acres from private lessors in Custer County for total consideration of up to US$50,131.70, subject to on-going title verification. Acreage leased in these transactions is located in close proximity to drills stem tests and a gas analysis showing natural gas and helium; these acquisitions enhance Highlands' existing acreage position in the Helios Two prospect area.

Highlands' total acreage position in the Helios Two prospect area will be approximately 104,651.79 acres following the two announced transactions. This position represents a significant holding in the regional Helios Two prospect that may extend across a broader regional area as outlined in the RPS CPR. Highlands is also in on-going negotiations with additional potential lessors within the Helios Two prospect area as well as potential industry partners.

THIS RELEASE CONTAINS INSIDE INFORMATION.

**ENDS**

For further information, please visit www.highlandsnr.com, or contact: