ZOE.L Regulatory News (ZOE)

20 September 2016

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

Operations Update

Highlands Natural Resources, the London-listed natural resources company, is pleased to provide an operational update with regards to recent progress at its onshore U.S. projects.

The Company has prepared a presentation providing an overview of its projects, including the matters set out in this announcement, which will be available on its website, www.highlandsnr.com, from 9.00 a.m. today.

Highlights

· Testing of DT Ultravert in the Piceance Basin, U.S. has commenced in cooperation with Laramie Energy ('Laramie'), Schlumberger Limited ('Schlumberger') and Calfrac Well Services Corp. ('Calfrac')

o Focused on testing the application of DT Ultravert to protect existing wells from "bashing" ('Parent Well Protection Campaign')

· Independent Probable Reserves Report received on East Denver Niobrara farm-in project indicating NPV10 of US$21.5 million with an IRR of 92% and a payback in approximately 11 months for six horizontal wells

Highlands CEO Robert B. Price said, "I am proud of the work completed by the Highlands team over the past several months. We are making good progress on the testing and commercialisation of DT Ultravert having commenced this Parent Well Protection Campaign. In parallel with testing of the technology, Highlands has advanced conversations with Schlumberger regarding an extension of the original licensing agreement with enhanced optionality for Highlands if Schlumberger crews are unavailable for any reason to complete a DT Ultravert project in the future. We will provide the market with additional updates on our progress with the Schlumberger license extension in due course.

"It is also very positive to receive a third-party engineering report indicating attractive economics at our East Denver Niobrara project, which we continue to pursue in tandem with potential project finance partners. In our third significant project, we announced yesterday the commencement of drilling operations at our Helios Two natural gas and helium prospect in Montana. I look forward to meeting shareholders at our Annual General Meeting today and introducing them to members of the Highlands team."

DT Ultravert Testing

Highlands is pleased to confirm that DT Ultravert tests have commenced in cooperation with Laramie, Schlumberger and Calfrac.

As previously announced, the Company has identified two potential applications for DT Ultravert: to facilitate re-fracking of horizontal wells, and to protect existing wells (known as 'parent wells') from damage caused by a new threat that has emerged to the industry, known as 'bashing'. Bashing, which occurs during fracking operations when the frac fluid of an adjacent well ('child well') infiltrates the wellbores of nearby parent wells, is a growing concern in the U.S. shale oil and gas industry. Bashing reduces or destroys the production and reserves associated with the parent wells. As well spacing decreases due to infill drilling, the density of wellbores is increasing across many major shale plays. It is a potentially serious problem as public oil and gas companies that experience bashing must reduce their publicly announced reserves proportionately, and banks also reduce their lending limits in proportion to destruction of reserves and production.

In the Piceance Basin, wells are drilled and fracked in close proximity (as dense as one well per 10 acres). Having experienced issues related to "bashing" previously, Laramie and Highlands collaboratively decided to test the application of DT Ultravert diverter technology as a way of protecting parent wells from being damaged in this way in the future.

Therefore, on 18 September 2016, the Company commenced its Parent Well Protection Campaign. Schlumberger-operated pumping crews began injecting nitrogen into two existing natural gas wells in the Laramie-operated Piceance Basin natural gas field in western Colorado, U.S.. Simultaneously, two new adjacent child wells were fracked by Calfrac. With data from the effects of bashing in other nearby wells, Laramie has a control group for comparison purposes. Therefore Highlands' and Schlumberger's technical teams will be able to compare the well production results of the protected parent wells to nearby bashed parent wells in order to quantify any beneficial effects of DT Ultravert. Highlands will release additional details about the tests, including well performance and comparisons to nearby bashed wells, once the results have been analysed.

Highlands is financing all of the parent well protection costs as part of its R&D and commercialisation efforts related to DT Ultravert. The Company has an existing agreement with Schlumberger in respect to testing DT Ultravert's role in the re-fracking of horizontal wells and is currently negotiating an extension of this agreement to include its Parent Well Protection Campaign.

Highlands continues to advance towards additional testing and commercial applications of DT Ultravert in both parent well protection and re-frac applications.

East Denver Niobrara Reserve Report

Highlands has commissioned and received an independent engineering report from MaCartney Engineering, LLC for its East Denver Niobrara farm-in project. As previously announced, Highlands acquired the right to drill up to six wells in the Niobrara formation on three sections in Arapahoe County, Colorado from Renegade Oil and Gas Company. Highlands has subsequently filed spacing unit applications with the relevant authorities, which if successful, will enable up to two-mile horizontal well bores originating from the farm-in locations controlled by Highlands. These extended lateral wells are designed to further enhance well economics and productivity.

MaCartney Engineering, LLC was retained to provide an independent assessment of the economic potential of six 9,000-foot horizontal wells. The report gives an NPV10 figure for the Probable Category (a category of potential oil and gas production that is inferred from nearby production but not yet proven) of oil and gas reserves of US$21.5 million with an IRR of 92% and a payback in approximately 11 months. This report is based on NYMEX strip oil and gas pricing as of 12 August 2016 and offset production data comes from nearby Conoco wells.

Highlands is continuing to advance conversations with potential industry and financing partners to fully develop the East Denver Niobrara opportunity.

THIS RELEASE CONTAINS INSIDE INFORMATION.

**ENDS**

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