ZOE.L Regulatory News (ZOE)

29 August 2017

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

Placing to Raise £1.56 million

Highlands, the London-listed natural resources company, is pleased to announce a placing of 7,818,000 new ordinary shares at 20 pence per share to raise £1,563,600 (the "Placing") gross. The net proceeds from the Placing will enable the Company to enlarge its current operations at its East Denver Niobrara shale oil and gas project in Colorado (the "East Denver Project"), where drilling is currently underway, to include the completion of two extended lateral wellbores in the Niobrara formation.

Highlands' Chairman and CEO Robert Price said, "Today's over-subscribed Placing enables Highlands to execute an exciting operations programme at East Denver with larger scale and significantly enhanced efficiency. The two-well approach to drilling and hydraulic fracturing minimizes equipment down-time and equipment mobilizations, thereby achieving important savings in both costs and time. The Company also hopes to benefit from additional production data as a two-well completion plan is intended to achieve production from both the Niobrara B and Niobrara C formations, which better enables our forward planning of additional development. Most important, today's Placing in combination with the two major third party funding commitments secured since July have put Highlands on a path to potentially achieve significant oil and gas production in the near term, which I view as being transformational for Highlands and our shareholders."

Background

As announced on 6 July 2017 and set out in its prospectus published on that date, Highlands had raised sufficient funds to drill and complete one well at its East Denver Project. However, with the benefit of the additional proceeds from the Open Offer concluded on 31 July 2017, the Company subsequently upgraded these plans on 11 August 2017 to drill two wells (the Powell and Wildhorse wells) and complete one well. This upgraded approach of sequentially drilling two wells offered significant advantages including added geologic data and operational efficiency.

On 23 August 2017, Highlands announced a participation agreement (the "Participation Agreement") with one of the world's leading oilfield services companies. Pursuant to the Participation Agreement, the oilfield services company has agreed to fund a portion of drilling and completions costs for a minimum of four wells and up to 24 wells at the East Denver Project. This represents a significant development for Highlands and an important third-party validation of the East Denver Project. Furthermore, it also enables Highlands, with only a relatively small amount of supplemental funding, to drill and complete two wells at this stage as illustrated below.

Summary of the East Denver Project

Highlands has access to 3,840 acres in Arapahoe County, Colorado through leases and farm-out agreements secured in 2016, which enable Highlands to drill as many wells as possible by the end of 2018 in acreage highly prospective for the Niobrara shale formation. On this basis, and subject to typical permitting, spacing, unitization, and approval processes in Colorado, the directors believe that up to 24 wells can be drilled in the East Denver Project.

A key attraction of the East Denver Project is that it has the potential for a rapid production profile and repayment term. Based on the comparable data referred to in the RPS competent person's report dated 6 January 2017 (the "RPS CPR") and published in Highlands' prospectus of 6 July 2017, Highlands expects to earn significant revenues within two months of drilling and completion of each well.

The East Denver Project targets the proven Niobrara shale oil and gas reservoir:

· Successful horizontal wells are producing within two miles of Powell and Wildhorse

· Average daily production in 1st month of 992 Barrels of Oil Equivalent per well (mean statistical case from RPS CPR)

· Gross 1P Proved Reserves of 424,167 Barrels Of Oil Equivalent Per Well (most conservative case from RPS CPR dated 6 January 2017)

· Gross 2P Proved plus Probable Reserves of 539,667 Barrels of Oil Equivalent Per Well (mean statistical case from RPS CPR)

· Wells offer potential rapid cash flow, with average anticipated payout period of 15-17 months (RPS CPR)

Drilling costs at the East Denver Project

In order to expand its operation to a two-well completion plan and implement the simultaneous hydraulic fracturing of two wells, the Company requires approximately US$700,000 in additional capital, as outlined below.

The simultaneous approach to drilling and completions achieves significant economic efficiencies summing to approximately US$900,000 across the two-well operation (compared with the cost of two wells drilled and completed separately). Key operational advantages include simplified equipment logistics, greater ability to timely secure key services, operational time savings, greater equipment utilization, and streamlined surface operations.

The Directors believe that the two-well approach would also accelerate revenues by potentially doubling the volumes of oil and gas produced at the outset, and thus the associated revenues. The average expected initial production rate for Highlands' wells in the first month is 992 barrels of oil equivalent per day per well (749 barrels of oil and 1,461 mcf of natural gas per day, based on the RPS CPR Report). As such, by completing two wells at the outset the Directors believe that the Company is potentially able to quickly accelerate the arrival of significant hydrocarbon production volumes and revenues, which would be a major step towards long-term profitability.

Use of Proceeds

The net Placing proceeds will be initially applied to complete the WIldhorse and Powell wells and thereafter will be used to further invest in and advance the development of the East Denver Project and for general corporate purposes.

Outlook

Highlands announced on 18 August 2017 that it has successfully drilled and set surface casing in both the Wildhorse 5-64 15-16-1BHZ ("Wildhorse") and Powell 5-64 15-16-1CHZ ("Powell") wells. Completion of surface casing represents an important operational milestone. Drilling operations for the Powell well are expected to continue for approximately two weeks from the date that surface casing was set with a targeted Total Depth ("TD"), representing the total vertical and horizontal distance drilled in the well, of 18,247 ft. The Company will provide further operational updates to the market after TD is reached on the Powell well. Upon completing the Powell well, the rig will walk back to the Wildhorse well to continue drilling the remainder of the Wildhorse's lateral wellbore over a period of approximately two weeks.

Following drilling operations, the Company will commence completion operations (also called hydraulic fracturing or "fracking"), which will last several weeks from the time of commencement. Following the completions phase, the Company will begin the flow-back process and production process, resulting in definitive oil and gas production results, which the Company will release to the market.

Admission and dealings

Application will be made to the London Stock Exchange for the new ordinary shares issued pursuant to the Placing (the "New Ordinary Shares") to be admitted to trading on the Official List of the UK Listing Authority by way of a Standard Listing and to trading on the London Stock Exchange's Main Market for listed securities. It is expected that such admission will occur at 8.00 a.m. on 5 September, 2017.

Following admission, the New Ordinary Shares will rank pari passu in all respects with the existing ordinary shares of 5 pence each in issue including the right to receive all dividends and other distributions declared and the total number of ordinary shares in Highlands with voting rights will be 104,523,084. This figure may be used by Highlands shareholders as the denominator for calculations to determine if they have a notifiable interest in Highlands under the Disclosure and Transparency Rules, or if such interest has changed.

Following the issue of the above New Ordinary Shares, although the holding of Robert Price, Executive Chairman of Highlands, has not changed, with effect from Admission his existing holding of 12,000,000 ordinary shares now represents 11.48 per cent. of the Company's total voting rights.

THIS RELEASE CONTAINS INSIDE INFORMATION.

**ENDS**

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

Notes to Editors

Highlands (LSE: HNR.L) is a London-listed natural resources company with a portfolio of high-potential oil, gas and helium assets and technologies. The company's core projects include:

· East Denver Niobrara: a farm-in opportunity for horizontal oil and gas wells targeting the Niobrara shale formation in a well-studied area of the Denver Julesburg Basin.

· DT Ultravert: a re-fracking and parent well protection technology with one patent granted and additional patents pending in the United States and internationally. Highlands is advancing commercial conversations with a range of oil and gas operators to create revenue-sharing opportunities for DT Ultravert applications.

· Helios Two: a 105,000+ acre helium and natural gas prospect in SE Montana with drilling and assessment operations ongoing.