ZOE.L Regulatory News (ZOE)

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Highlands Natural Resources plc

Publication of Prospectus, Readmission to Trading on the London Stock Exchange and Placing

Highlands Natural Resources plc ("HNR" or "Highlands Natural Resources" or the "Company") announces that on 28 January 2016 it published a prospectus (the "Prospectus") relating to the acquisition from Diversion Technologies LLC ("Diversion") of an interest in 75 per cent. of certain patent and know how rights associated with 'DT Ultravert', a well stimulation (fracking) diverter technology, announced on 12 May 2015 (the "Acquisition"). The Acquisition was classified as a reverse takeover and resulted in the suspension of the Company's shares from trading on the Official List pending the publication of the Prospectus.

Accordingly, the Directors have applied for the Ordinary Shares to be admitted to the Official List of the UKLA by way of a Standard Listing and to trading on the Main Market of the London Stock Exchange. Re-Admission is expected to take place and unconditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange at 8.00 a.m. on 3 February 2016.

In addition, the Company is pleased to announce that it has raised approximately £765,000 (before expenses) pursuant to a placing (the "Placing") of 6,375,000 Ordinary Shares (the "Placing Shares") at a price of 12 pence per Placing Share. The Placing Price represents a discount of 15.8 per cent. to the closing price of 14.25 pence per Ordinary Share on 25 June 2015 (being the date on which the Ordinary Shares were suspended from trading on the Official List). The size of the Placing discount was determined following discussions with both existing and potential new Shareholders.

Following the issue of the Placing Shares, which represent approximately 29% of the Company's existing issued ordinary share capital and approximately 22.5% of the issued share capital of the Company as enlarged by the Placing, the Company will have 28,373,500 ordinary shares of 5 pence each ("Ordinary Shares") in issue. Application has also been made for the Placing Shares to be admitted to the standard listing segment of the Official List of the UK Listing Authority and to trading on the Main Market for listed securities of the London Stock Exchange ("Admission"). Admission is expected to take place on 3 February 2016.

On 25 September 2015, the Company announced that it had signed indicative terms ("Indicative Terms") for a licence agreement with Schlumberger Technology Corporation ("Schlumberger"), a 100 per cent. owned subsidiary of Schlumberger Limited, the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry.

The net proceeds of the Placing will be applied towards both the expenses and any other costs associated with the field trials to be undertaken in accordance with the Indicative Terms.

The Company commissioned an Independent Technology Report on DT Ultravert from RPS Group PLC, the results of which were published on 2 December 2015 and are set out in Part VIII of the Prospectus. The Independent Technology Report highlighted a series of unique advantages which differentiates DT Ultravert from other competitive solutions and confirmed that, if the technology is successful, it has an ability to provide the industry with a revolutionary change in the way certain wells are stimulated.

Furthermore, the Independent Technology Report assessed the economic returns for the investment in the DT Ultravert technology and confirmed that modelling shows a payback of the initial investment within one year and a NPV(10.5%) project value of $58.3MM considering per job revenue of 2% royalty based on fracturing ticket pricing.

Highlights

· Positive activity undertaken towards the commercialisation of DT Ultravert which is focused on reducing production costs for oil and gas companies, thereby potentially transforming the well stimulation (fracking) industry, which is a multi-billion dollar per year business

· Re-fracking using a diverter technology is an emerging trend due to its potential to increase oil and gas production without the expense of drilling new wells

· Particularly considering the current depressed oil price, the development of innovative oilfield technology may represent a highly disruptive force in the market

· Highlands Natural Resources believes that, with DT Ultravert, it may have a market leading solution - an Independent Technology Report concludes that the DT Ultravert technology provides a series of unique advantages which differentiates it from other competitive solutions

· Indicative terms for a licence agreement were signed between Highlands and Schlumberger Technology Corporation, a 100% owned subsidiary of Schlumberger Ltd, on 25 September 2015 providing for a due diligence period for evaluation of DT Ultravert and outlining the terms for a potential 20-year licensing agreement

· Multiple revenue streams identified - up-front licensing fees; on-going royalty fees; the sale of nitrogen or other gasses to licensees and; eventual production acquisitions or investments with exploration and production companies and oil service companies

· Continued progression of strategy to capitalise on the current oil price environment to acquire assets at a low cost

¾ Highlands Natural Resources acquired a 2,149 gross acres (1,972.8 net acres) exploration lease located in the Williston Basin, North Dakota

· Independent Technology Report on DT Ultravert conducted by RPS highlighted the significant potential of the technology to provide the industry with a revolutionary change in the way certain wells are stimulated and estimated a NPV(10.5%) project value of $58.3MM

Robert Price, Chief Executive Officer of HNR, commented:

"We are delighted that shares in Highlands Natural Resources will be readmitted to trading following the acquisition of a 75% interest in Diversion's patent applications. As the oil price has declined significantly, we believe that there is a clear requirement for the development of transformational new oilfield technologies which dramatically reduce costs for exploration and production companies.

"Considering the results from an Independent Technical Report, published by RPS Group plc, which concludes that the DT Ultravert technology provides a series of unique advantages which differentiates it from other solutions on the market, we believe that DT Ultravert has strong potential to deliver significant savings and to act as a highly disruptive force in the multi-billion dollar per year fracking industry.

"We continue to work closely with Schlumberger as we recognise the potential of the technology, as highlighted by the indicative terms we have signed, and we look forward to demonstrating DT Ultravert's capabilities through field tests in the coming months.

"We are also committed to our strategy to capitalise on the current oil price environment by acquiring assets at low cost and we delivered on this recently through the acquisition of the exploration lease located in the Williston Basin, North Dakota. We will continue to assess other suitable opportunities in the coming months and look forward to updating the market on this. I thank our shareholders for their patience over recent months, and, with our shares now re-admitted to trading, we look forward to developing opportunities for Highlands Natural Resources."

The Prospectus, containing further information, inter alia, about the Acquisition and the Placing, will be posted to Shareholders today and will shortly be available on Highlands Natural Resources' website at www.highlandsnr.com.

Terms and definitions used in this announcement shall have the same meaning as ascribed to them in the Prospectus unless the context requires otherwise.

This summary should be read in conjunction with, and is subject to, the full text of the following announcement including the Appendix.

This announcement does not constitute an offer to sell, or a solicitation of an offer to buy, Ordinary Shares in any jurisdiction in which such offer or solicitation is unlawful. The availability of the Ordinary Shares in, and the release, publication or distribution of this announcement in or into, jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes who are not resident in the United Kingdom should inform themselves about, and observe, any applicable restrictions. Shareholders who are in any doubt regarding such matters should consult an appropriate independent adviser in the relevant jurisdiction without delay. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction.

Cenkos is authorised and regulated in the United Kingdom by the FCA and is advising the Company and no one else in connection with the Placing or Re-Admission (whether or not a recipient of the Prospectus), and is acting exclusively for the Company. Cenkos will not be responsible to any person other than the Company for providing the protections afforded to its customers, nor for providing advice in relation to Re-Admission or the contents of this announcement. In particular, the information contained in this announcement has been prepared solely for the purposes of Re-Admission and is not intended to inform or be relied upon by any subsequent purchasers of Ordinary Shares (whether on or off exchange) and accordingly no duty of care is accepted in relation to them. Without limiting the statutory rights of any person to whom this announcement is issued, no representation or warranty, express or implied, is made by Cenkos as to the contents of the Prospectus. No liability whatsoever is accepted by Cenkos for the accuracy of any information or opinions contained in the Prospectus, for which the Directors are solely responsible, or for the omission of any information from this announcement for which it is not responsible.

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "targets", "believes", "estimates", "anticipates", "expects", "intends", "may", "will", "should" or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout the announcement and include statements regarding the intentions, beliefs or current expectations of the Company and the Board concerning, among other things: (i) the Company's objective, acquisition and financing strategies, results of operations, financial condition, capital resources, prospects, capital appreciation of the Ordinary Shares and dividends; and (ii) future deal flow and implementation of active management strategies. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performances. The Company's actual performance, results of operations, financial condition, distributions to shareholders and the development of its financing strategies may differ materially from the forward-looking statements contained in the Prospectus. In addition, even if the Company's actual performance, results of operations, financial condition, distributions to shareholders and the development of its financing strategies are consistent with the forward-looking statements contained in the Prospectus, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that may cause these differences include, but are not limited to:

· the Company's ability to identify suitable acquisition opportunities;

· the Company's ability to ascertain the merits or risks of the operations of a target company or business;

· the availability and cost of equity or debt capital for future transactions;

· currency exchange rate fluctuations, as well as the success of the Company's hedging strategies in relation to such fluctuations (if such strategies are in fact used); and

· legislative and/or regulatory changes, including changes in taxation regimes.

Copies of the Prospectus will be made available on the Company's website at www.highlandsnr.com and, subject to applicable securities laws, and free of charge during normal business hours at the offices of Smithfield Partners Limited at 3-7 Temple Avenue, London EC4Y 0HP.

The Prospectus will be submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction.

Highlands Natural Resources plc

Publication of Prospectus, Readmission to Trading on the London Stock Exchange and Placing

1. Introduction and Strategy

Highlands Natural Resources was admitted to the standard listing segment of the Official List on 25 March 2015. The Company had been incorporated as a cash shell on 13 November 2014 with an initial capital of £50,000 and, at the time of the Original Admission, raised a further £950,000 (before expenses) pursuant to a placing with a strategy of acquiring quality oil and gas assets with stable income.

The prospectus that Highlands Natural Resources published at the time of the Original Admission set out its acquisition strategy as focusing on acquiring oil and gas producing assets from companies that may wish to dispose of due to internal financial constraints, securing significant acreage farm-outs from independent and larger oil and gas companies, and generating oil and gas acquisition opportunities internally. Subsequent to making such acquisitions, it is Highlands Natural Resources' intention to develop these acquired businesses to ensure that they are well positioned to benefit from any future rise in oil prices.

A particular focus of the Company's strategy has been developed to seek assets which have the capability to produce a stable income even whilst oil prices are weak. Subsequent to the publication of its prospectus at the time of the Original Admission, and in response to feedback from its investors, Highlands Natural Resources announced on 25 March 2015 a clarification of its acquisition strategy whereby it proposed to ultimately achieve an "80/20" model within its portfolio of acquired assets, meaning 80 per cent. of the portfolio should be comprised of production assets capable of providing a stable income to the Company, with the balance of the portfolio providing significant potential upside, albeit at a higher risk, through world-wide oil and gas exploration. It is the Directors' intention to judge a prospective acquisition target's capability of providing a stable income by assessing, amongst other things, its potential return on investment ("ROI") and the Directors intend to target a minimum ROI of 20 per cent.. Further details of the Company's progress to date in respect of its strategy are set out in paragraphs 4 and 5 of this Part VII.

On 12 May 2015, the Company announced that it had broadened its strategic objectives to include the acquisition of oilfield services technologies and, on the same date, announced that it was in advanced discussions to acquire a 75 per cent. interest in US based Diversion's current patent applications. Completion of this acquisition was announced on 26 May 2015 with the consideration being £706,500 to be satisfied by the issue to Diversion of 1,900,000 Ordinary Shares and 30 million Warrants.

Trading in the Ordinary Shares was suspended on 25 June 2015 following an assessment of the Acquisition as a Reverse Takeover. Consequently, Highlands Natural Resources has prepared this prospectus, pursuant to which the Company has applied for the Re-Admission to trading of the Ordinary Shares to the standard listing segment of the Official List.

2. Background to Strategic Objectives

Despite growth in the global economy, Brent crude oil prices and the FTSE AIM Oil & Gas Index are both back to 2009 levels. The Board believes that the current weakness in oil prices and oil company shares will allow the Company to pursue acquisition opportunities at potentially attractive prices and on attractive terms for its Shareholders.

The technologies of horizontal drilling and hydraulic fracturing ("fracking") have taken the US to near oil independence and have produced abundant reserves of oil and gas, consequently putting significant pressure on the OPEC producers. The opportunities that come with an oversupply of oil and gas should continue for some time as US producers continue to be engaged with their efforts in servicing their debt obligations. Moreover, in order to preserve cash for core projects, some major oil and gas companies and independents alike have already announced significant budget decreases, in some cases ranging from 20 - 50 per cent., but the Board believes these cuts are unlikely to compensate for all the debt obligations held in the oil and gas sector. The Directors believe the oversupply of oil will create, potentially, a state of disequilibrium for years, and consequently forcing companies to de-leverage and divest the parts of their portfolios which they deem to be "non-core."

Since its Original Admission in March 2015, the Company has been in discussions with a range of parties regarding acquisition of oil and gas assets which fit its stated strategy of acquiring quality assets with stable income when oil prices are weak.

During this process the Company also identified value opportunities for technologies within the oilfield services industry and, as described above, broadened its strategy to include prospective opportunities within this sub-sector. On 25 May 2015, the Company completed its acquisition of a 75 per cent. interest in US based Diversion's current and future patent applications.

3. Background on Re-fracking

Well stimulation (fracking) is a US$50 billion per year industry (source: Grandview Research report on the hydraulic fracturing market, October 2014) and re-fracking, which is based on recovering additional oil from an already fracked well, is an emerging part of the industry due to the current depressed oil and gas pricing environment. As oil prices have continued to decline, exploration and production ("E&P") companies have challenged the oil and gas service companies to come up with methods to decrease the overall finding costs of oil and gas. Re-fracking has emerged as an economical approach to exploration because hydrocarbons may be recovered without the need to drill new wells.

Well productivity has long been the focus of shale/tight oil players in the US, with the lateral sections of wells being doubled over the past five years, the number of frack stages and volume of water and proppant used increasing exponentially and well spacing dropping significantly. With the recent collapse of global oil prices, discretionary capital expenditure has been curtailed and drilling activity has fallen markedly, with US rig counts down significantly from 2014 highs. Operators are looking at ways of increasing oil and gas production without the expense of drilling new wells. Efforts to maximise returns have redoubled with marginal areas outside of basin sweet spots currently sub-economic given the high operational intensity and associated unit cost of production required in unconventional resources. This has increased interest in re-fracking and growth is expected to be significant in the next few years.

Re-fracking refers to the practice of returning to older fractured wells and stimulating new areas of the reservoir (potentially deploying newer or more effective technology) to increase falling production. The goal of re-fracking is to achieve high rates of production after initial stimulation.

Diverting agents have been developed to help divert the fracture injectants (mostly water) away from the old fractures and direct them instead to under stimulated portions of the reservoir that have not been drained of oil and gas. Most diverting agents are solid forms such as polymers and gels.

Typically, a so-called "diverter" chemical is pumped into the wellbore to temporarily block the flow of oil and gas from existing fractures within the well by impeding frack fluid from re-stimulating them and, instead, diverting it to new rock. Allowing frack fluids to access virgin rock therefore maximises production rates. The diverters developed to date have had some degree of success but a significant breakthrough is needed before the oil and gas industry will make significant investments in refracking.

The technique has been utilised in traditional vertical wells for a number of years but the potential to apply it within modern horizontal wells has now caught the eye of operators and service companies. Re-fracking costs are currently estimated to be approximately 25 - 35 per cent. of the cost of a new well, with absolute expenditure expected to fall with technology improvements (as it has done for new wells).

The re-fracking process is not without risks and, as such, up-front engineering and design is key. Large service companies that provide re-fracking are focused on developing diverting agents in order to gain market control and improve production performance for their customers and the E&P industry. To date, results have been decidedly mixed, although historical (vertical) re-fracks in the Wattenberg gas field and recent efforts from Consol Energy in the Marcellus formation have been notably successful and operators seem increasingly willing to take the risk given the potential for improving economics in the current environment.

Operators in the United States who are known to be investigating the benefits are Marathon Oil (Bakken), BP (Woodford), BHP (Eagle Ford) and Pioneer (Eagle Ford). Interest amongst oilfield services companies is also on the rise, with private equity firm BlackRock proposing to put up US$500 million into Halliburton's re-fracking operations over the next three years. Schlumberger, meanwhile, has said it is willing to change the way it sets up service contracts, and bear the up-front costs of re-fracking as a way to show its confidence in the technology. According to Bloomberg's article "Refracking: Act Two for the Shale Revolution" (published 12 June 2015), there are over 50,000 existing wells in the US that could be candidates for re-fracking.

4. Information on Diversion and DT Ultravert

Diversion is a well stimulation technology company based in Denver, Colorado, USA. Diversion's pending patents involve a method for oilfield stimulation (fracking). Specifically, Diversion's diverter technology, for which its patents are pending, is called DT Ultravert. Diverters are used by the oil and gas industry as a method of enhancing conductivity during fracking by diverting fluids to untreated portions of the reservoir. As explained above, the oil and gas industry has been searching for a breakthrough in diverting technology and Diversion believes that DT Ultravert may be a solution. The company has two Directors; namely Robert Brooks Price and Paul Mendell. It was formed in April 2015 to exploit its novel proprietary re-fracking technology, DT Utravert, which was invented by Paul Mendell, an Advisory Board member of Highlands Natural Resources and a director of Diversion.

Other than the intellectual property rights pertaining to DT Ultravert, Diversion has no other assets except cash which was US$382.48 at 30 June 2015. On 25 May 2015, the Company acquired from Diversion 75 per cent. of the current and future intellectual property rights held by, or to be acquired by, DT Ultravert. The Company will commercially develop DT Ultravert jointly with Diversion on an ongoing 75/25 basis with respect to the revenues and costs associated with the technology.

As described above, the industry's current diverter technologies are largely based on solid forms, including chemical agents to divert fluids such as Halliburton's 'Access Frac' or Schlumberger's 'BroadBand' technology. However, DT Ultravert pending patent technology employs an elegant, simple, non-chemical based approach. The technology employs inert gas, a compressible fluid, to help divert or block liquid frack injectants from entering existing fractures. Gas is pumped ahead of, or alternating with, frack fluids, and serves to fill existing fractures. The Directors believe that Diversion's re-fracking well stimulation technology is a potentially more effective and cheaper method to stimulate conventional and unconventional formations, which the Directors estimate could incur less than 20 per cent. of the original costs currently associated with drilling and completing a well.

Where old diversion technologies typically divert near the well bore, DT Ultravert penetrates into the reservoir and diverts from where oil and gas have already been produced. The DT Ultravert process injects gas into the depleted area of the reservoir and re-pressurises the area, forcing the re-frack fluid to divert to under-depleted areas. It is anticipated that Nitrogen will be, at least initially, the most commonly utilised gas employed by the technology. By diverting the fluid to previously untouched portions of the reservoir, the Directors believe that the re-stimulation will be far more effective. The process utilises existing oilfield service equipment for easy deployment anywhere in the world. Unlike conventional diverters that likely leave behind damaging solids in the reservoir, DT Ultravert uses non-damaging gasses that will easily flow back when the well is put on production.

Considering the potential upside available if the technology proves successful, and the low capex required to roll out this type of business, which has a royalty-based revenue structure, the Board believes this is a very significant opportunity. This technology trend will, in one form or another, reshape an industry that is projected to earn over US$1,100 billion (source: Grandview Research report on the hydraulic fracturing market, October 2014) during the patents' life and could be a disruptive force in the market.

Additionally, Diversion's patent pending portfolio includes an innovative solution to the problem of well bashing (a potentially negative effect associated with all well stimulation activities wherein new fractures can affect adjacent wells resulting in lower pressures and/or increased water production). In Diversion's method, offset wells are charged with high pressure gas to pressurize the existing fractures and prevent bashing from the target well undergoing fracking operations. This method can be employed to preferentially pressurise a portion of the adjacent previously stimulated wells by setting plugs and pressuring only a portion of those wells. This process serves the dual purpose of protecting existing wells from bashing and introducing a preferentially lower pressured zone in the target well to encourage fluids to fracture that portion. This method can target, for example, the toe of the well bore where it is generally difficult to stimulate. This method uses gas pressure in offset wells as an indirect isolation method. This elegant solution also addresses the issue of mechanical well bore isolation methods which have an inherent problem of reducing pumping rate and friction losses.

A. Acquisition Agreement

On 25 May 2015, the Company entered into an agreement with Diversion to acquire a 75 per cent. interest the intellectual property associated with DT Ultravert, including in any revenues arising from the commercialisation of the Patents and all future patents which may be developed relating to DT Utravert. The consideration for the Acquisition was £706,500 which was satisfied by the issue to Diversion of 1,900,000 Ordinary Shares and 30 million Warrants which are exercisable at 25 pence.

Pursuant to the Acquisition Agreement, the parties have agreed to share revenues on a 75/25 basis in favour of the Company arising from licensing, royalty or any other form of revenue directly or indirectly generated by the Patents or future patents rights relating to DT Ultravert or related know how.

Likewise, the parties have agreed to share any costs incurred (by either party) in connection with the Patents on a 75/25 basis. The Directors estimate future patent costs to be in the region of US$114,000 over the following three years, of which the Company will be responsible for 75 per cent..

The Directors believe that the Company may benefit from several revenue streams in respect of the Acquisition:

1. Revenue generated from up-front licensing fees: The Company and Diversion will seek to license the DT Ultravert technology to both oil and gas servicing companies and oil and gas operating companies. The Directors anticipate that potential licensing agreements could include an up-front licensing fee to be paid to the Company and Diversion by the potential licensee. The licensing fee could cover non-exclusive licenses to multiple servicing companies on a per basin basis or the licensing fee could be generated from granting an exclusive license to a single company.

2. Revenue generated from ongoing royalty fees: In the event that the Company and Diversion are successful in licensing the DT Ultravert technology to oil and gas servicing companies, the Directors anticipate that the licensee will pay the Company and Diversion an ongoing royalty fee, which is likely to be on a "per frack" basis for the duration of licence.

3. Revenue generated from the sale of nitrogen or other gasses to licensees: The Company and Diversion may position itself to be able to provide some or all of the gases required to carry out re-fracking operations utilising DT Ultravert. The Directors believe that if the Company and Diversion are able to position themselves as a supplier of such gas they will be able to generate additional revenue from gas sales. The Company and Diversion may reserve the right in their licensing agreements to act as the exclusive provider of nitrogen for its licensees.

4. Enhanced revenue from eventual production acquisitions or investments with exploration and production companies and oil service companies: Although the Company is targeting production acquisitions that will be economical at the time of their acquisition, the Directors believe that DT Ultravert may be used to enhance production on some of the assets that it may acquire. Moreover, the Company plans to partner with exploration and production companies and oil service companies to conduct research and development of DT Ultravert. Along with these research and development partnerships, the Company and Diversion will receive revenue from these wells.

The Board further believes that the DT Ultravert technology may open up further acquisition and development opportunities for Highlands Natural Resources due to the relatively low cost of the technology's application.

Related party transaction

Paul Mendell, the founder of Diversion and the inventor of DT Ultravert is an Advisory Board member of Highlands Natural Resources. Robert B. Price, Chairman and CEO of Highlands Natural Resources, is also a director and shareholder in Diversion, owning 37.5 per cent. of that company.

Breach of Section 593 of the Act

The Acquisition was completed without commissioning an independent valuation report as required pursuant to Section 593 of the Act although the independent Director satisfied himself as to the potential value of the acquisition prior to the Acquisition being completed. The implications of this are described more fully in paragraph 2(p) of Part II: Risk Factors but the Board believes (acting in relation to the Acquisition by its independent Director) that the value ascribed to the 75 per cent. interest in Diversion's patents was correct.

B. Potential Licence Agreement

On 25 September 2015, Highlands Natural Resources announced that it had signed Indicative Terms for a licence agreement with Schlumberger, a 100 per cent. owned subsidiary of Schlumberger Limited, the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry, in relation to DT Ultravert.

The Indicative Terms govern the due diligence period for evaluation of DT Ultravert by Schlumberger and outlines the principal terms for inclusion in any resulting licence agreement. The due diligence period, which has commenced, expires on the completion of five field trials but, in any event, no later than in one year from the date the Indicative Terms. Highlands and Diversion are required to provide Schlumberger with all materials and data resulting from the field trials in order for Schlumberger to be able to properly evaluate DT Ultravert. The field trials will be conducted at the cost and direction of either third party E&P companies or by Highlands and Diversion themselves. The opportunity for Highlands and Diversion to participate in the economic return of the re-fracture provides potential further upside for shareholders. The Group's only continuing financial obligation, under the Indicative Terms, in relation to this technology is to prosecute and maintain the patents.

If a royalty-bearing patent licensing agreement is entered into, it will include patent coverage in the US, UK, Canada and worldwide for a term of 20 years or the date of the last expiring licenced patent in the licenced territory, whichever occurs last.

During the term of the licence agreement, Schlumberger will pay Highlands and Diversion a royalty of 3 per cent. of the frack cost invoiced to the customer for each operation. The Directors estimate that the average frack royalty should be between US$20,000 and US$25,000 per frack.

Investment Option

Highlands and Diversion have also agreed that it may (subject to a formal contract) grant Schlumberger a right of investment in the two companies. Over the following three years, Schlumberger has the right, subject to the provisions of Rule 9 of the City Code, to subscribe for new ordinary shares equivalent to up to 33.3 per cent. of both Highlands and Diversion. The subscription price shall be determined at the time of the investment and will be based upon a mutually acceptable formula using a five year net present value of the royalty income pursuant to the licensing agreement.

C. DT Ultravert's Pending Patents

Diversion has filed the following patents (which are pending and not yet granted):

The Directors know of three companies with relevant, competing technologies:

• Halliburton - AccessFrac®

• Schlumberger - Broadband Sequence™

• Weatherford - TblocksSure™ Agent

When compared to these other competing technologies, the Directors believe that DT Ultravert represents a superior product for four reasons:

1. DT Ultravert has the potential to increase flowback rates by energising the formation with gas and preventing swelling clays from expanding into well fracture networks

2. DT Ultravert has the potential to create far-afield diversion and not just near-wellbore diversion as the current practices do

3. DT Ultravert utilises gas as its diverter and will not leave behind any solid residue that may damage well formations

4. DT Ultravert has the potential to increase initial production rates by stiffening the rock and by making it more brittle thereby causing more complex fractures

D. Independent Technology Report

Highlands Natural Resources commissioned the Independent Technology Report on DT Ultravert from RPS, the results of which were published on 2 December 2015 and are set out in Part VIII of the Prospectus. Investors should read the Independent Technology Report in its entirety but, for ease of reference, the conclusions are set out below.

"The DT Ultravert technology is currently in the field evaluation or pilot well phase and if successful will enter into product commercialization. The field trial phase typically lasts six to 36 months while a sanctioned commercialization phase could last one to 8+ years.

If the technology is successful, this concept has an ability to provide the industry with a revolutionary change in the way certain wells are stimulated. This technology could provide:

• A step increase in well productivity.

• Reduced formation damage.

• Net increase in reservoir contact by individual wells and their associated fracture stages.

• Ease of use and deployment in the right formation.

• Superior well production and large bottom line profit potential.

The DT Ultravert technology provides a series of unique advantages which differentiates it from other competitive solutions

• Minimal formation damage

o Using produced gas (or other gas such as nitrogen etc.) as a diverting agent will reduce the risk of formation damage

o For certain formations this is a significant concern, specifically areas that have very tight pore throat characteristics

• Diversion gas can be reclaimed and produced gas can also aid in well commissioning

o Diversion gas that is produced when wells are opened for production can help lift initial flowback fluids and could be re-used or delivered to sales saving well commissioning costs and reducing overall DT Ultravert deployment costs.

• There are no known formation temperature limitations deploying the technology

• DT Ultravert diversion strategy is inherently simple related to fracturing job design and execution

o Complexity related to formation pressurization and associated job requirements are yet to be evaluated

• The technology has the ability to reach deeper in the reservoir using alternating gas and fluid slugs in the pumping process

The reservoir targets that have high potential to gain value from this technology would be liquid-rich tight formations. Based on EIA reports there are four regions that have these characteristics which accounted for 92% of domestic oil production in 2015. The economic returns for the investment in the DT Ultravert technology could be very rewarding considering the investment in the technology and successful commercial rollout in four major US unconventional basins. The economic model shows a payback of the initial investment within one year and a NPV(10.5%) project value of $58.3MM considering per job revenue of 2% royalty based on fracturing ticket pricing.

The specific formation characteristics that will enable this technology to be a success are still unknown. As field trials move forward, the formation consideration criteria to gain value from this technology will develop beyond the over-generalization currently presented as "tight oil" (also considered shale oil or light tight oil). Techniques and applications as they evolve in the development of this technology could also enable the technology to be used in areas beyond the tight oil constraints, i.e. permeability beyond 0.01 mD."

5. Acquisition Strategy

Since the Company announced on 25 March 2015 its intention to pursue the 80/20 strategy described in paragraph 1 above, it has extensively researched potential acquisitions in line with that business model. The Board adopts a detailed and prudent approach to selecting acquisition candidates that meet its criteria and potential acquisitions that do not meet these criteria are rejected. The Company considers several factors in its determination of potential acquisitions, including, but not limited to: (i) contingent liabilities, (ii) preferable basin, (iii) potential to utilise DT Ultravert on the acquisition and (iv) its target of a minimum ROI of 20 per cent. as referred to in paragraph 1 above.

In its analysis of potential acquisitions, the Board has commissioned engineering reports on several possible targets. To date, the Company has spent approximately US$50,000 on such engineering reports. Based in part on these reports and in part on their own due diligence, the Directors considered it prudent not to proceed with any of the potential acquisitions with which it has been presented, save for the Acquisition which is described above and the acquisition of the land at Williston Basin described below. Some of the potential acquisitions did not pass the Company's minimum target of a ROI of 20 per cent. while others presented potential environmental concerns.

The Board continues to believe that a strategy aimed at pursuing 80 per cent. of its acquisitions to provide steady stream income and 20 per cent. to provide high upside potential will be beneficial to Shareholders. However, it will adhere to its strict criteria. The Board believes that, at current oil price levels, it is likely to see numerous opportunities in the oil and gas industry and so it remains determined not to compromise on quality.

Although, to date, the Company's acquisitions have fallen into the 20 per cent. category which provide high upside potential, these acquisitions are not necessarily indicative of future acquisitions.

Whilst the Company's 80/20 model should be seen by investors as a guideline rather than a strict requirement, the Board is committed to pursuing this strategy and anticipates Highlands Natural Resources building a portfolio of investments in line with this model. The 80/20 strategy should be viewed as a long-term approach to building a successful model for the Company and its shareholders but will be subject to, amongst other things, accessing suitable acquisition targets and raising finance on acceptable terms.

Williston Basin, North Dakota

On 16 November 2015, Highlands Natural Resources announced that, in line with its strategy to capitalise on the current oil price environment to acquire assets at a low cost, it has acquired an exploration lease from Mr Curtis Rohweder covering approximately 2,149 gross acres (1,972.8 net acres) located in the Williston Basin. The Lease comprises land near the town of Linton in Emmons County, North Dakota. The consideration of US$19,728 was satisfied in cash.

The Lease gives Highlands Natural Resources the right to investigate, prospect, explore and produce oil and gas or iodine on the land, together with rights to construct and maintain pipelines and other necessary infrastructure. The Company has no obligations to carry out any of this work but, to the extent it does, the Lease makes provision for certain obligations to make good the land to the owner. The Lease is described in further detail in paragraph 16.8 of Part XII of the Prospectus.

In the Directors' opinion, this land has been acquired at an extremely low cost and due to its location, it fits well with the Company's strategy to take advantage of the oil price environment to acquire quality assets. Based on their research to date, the Directors believe, based on past exploration on the land, that it is possible that biogenic methane exists at shallow depths within this land. However, investors should note that, to date, the Company has carried out no exploration or investigation of the acreage itself and so, whilst the Directors' belief is the rationale for the Company's investment, it would be imprudent to ascribe any meaningful value to the land until such time as it has been thoroughly investigated.

Strata-X, Inc. has previously drilled a test well on the land although it was never perforated or produced. Given the presence of this test well, the Directors believe that the Company's investigations can be carried out by the summer of 2016 and for less than US$50,000 and further announcements will be made in due course.

6. Ongoing Strategy

In addition to the Acquisition and its development of DT Ultravert, the Company intends to acquire controlling interests (but may also consider acquiring interests where it may not be able to obtain a controlling interest) in oil and gas leases (of which the Lease is an example), concessions and/or companies or their subsidiaries either directly or indirectly. It is not intended to acquire portfolios of passive investments and, to the extent non-controlling interests are considered, it is the Company's intention to negotiate terms which will either secure active participation and/or secure a controlling interest in the future by way of options or other instruments to acquire such controlling interests. The Company intends to focus on the following areas:

A. Oil and gas producing acquisitions and/or farm-outs

While the downward pressure on oil prices continues, oil and gas companies will be working through their loan covenants with bondholders and banks, taking focus away from their current acreage holdings. Oil and gas companies seeking ways to meet debt obligations may look to farm-out their acreage or divest their non-core assets. The Board believes the Company is well positioned to acquire farm-outs and production acquisitions for little or no upfront costs either through limited cash or the issuance of shares. The Company intends to structure the farm-outs as joint ventures with other oil and gas companies, partnerships or individuals (the Partners).

Those joint venture opportunities will either be financed by the Partners themselves or be financed by raising of capital by the Company; or by a combination of both.

B. Internally generated ideas

Through his industry contacts, Executive Chairman, Robert B. Price, is regularly sent potential opportunities, some of which may be suitable for adoption by the Company. In addition, potential opportunities may be submitted to the Board by members of the Advisory Board or by contacts of Advisory Board members. These target projects may or may not include a value enhancement component such as helium and/or iodine.

C. The eventual return to higher oil prices

The Directors believe that although oil prices are depressed currently, should global economic growth continue, then, eventually, oil prices should start to rise again. Provided the Company has managed to acquire projects that are viable at the current oil price and are capable of being funded, then the Company should benefit from rising prices in due course.

In the event that the Company makes any further acquisitions (or seeks to develop businesses that it has acquired), then it may, either at the time of the acquisition or subsequently, seek to raise additional capital in either equity or debt. Although Mr. Price is experienced in raising capital for oil and gas projects, the Directors cannot guarantee that any, or sufficient, capital will be raised to exploit the types of opportunities that are described above. In that case, the Company may not be able to proceed with any or all of the opportunities that it develops. However, these opportunities represent an extension to the Company's existing business and Shareholders should note that further capital is not needed for the Company's immediate working capital requirements.

The Directors will investigate potential targets in the USA, European Union, East Asia & South-East Africa. The Directors will primarily seek oil and gas producing acquisitions and/or farm-out agreements.

Once the Company has identified a target, the Board will call upon qualified executives from the Advisory Board (see below) to give specific project advice. Each adviser brings additional expertise in fields particular to the Company's aims, offering particular knowledge of acquisitions, divestments, petroleum engineering, geology, and oil drilling technologies. The Company's Advisory Board members, additionally, each bring an ensemble of valued industry contacts.

As at 30 June 2015, the Group had net cash of £844,813. It is the Company's intention to apply this cash to both develop DT Ultravert and to fund the due diligence and other transaction costs in respect of potential future acquisitions. This due diligence will include legal, financial, technical and operational evaluation of the future acquisitions. As stated above, the Directors will, in time, seek to raise further capital for the Company. However, whilst the Company remains small initially and has no full-time employees, it is expected that general and administrative expenses will be limited to around £300,000 per annum prior to any further acquisitions.

7. Details of the placing

The Placing comprises in aggregate up to 6,375,000 Placing Shares (which represents approximately 29% of the Company's existing issued ordinary share capital) and will raise gross proceeds of £765,000. The Placing Shares will represent approximately 22.5 per cent. of the enlarged issued ordinary share capital immediately following Re-Admission. The Placing Price represents a discount of 15.8 per cent. to the closing price of 14.25 pence per Ordinary Share on 25 June 2015 (being the date on which the Ordinary Shares were suspended from trading on the Official List). The size of the Placing discount was determined following discussions with both existing and potential new Shareholders.

The Placing is conditional upon, inter alia, the Placing Agreement not having been terminated in accordance with its terms prior to Re-Admission and Re-Admission becoming effective.

Applications have been made for the Placing Shares to be admitted to a Standard Listing on the Official List and to trading on the London Stock Exchange's main market for listed securities.

The Placing Shares will, when issued and fully paid, rank pari passu in all respects with the Ordinary Shares., including the right to receive all dividends and other distributions (if any) declared, made or paid by the Company after the date of issue of the Placing Shares.

Cenkos has agreed that it shall use reasonable endeavours to procure placees to subscribe for the Placing Shares at the Placing Price pursuant to the Placing. The Placing is not underwritten. The principal terms of the Placing Agreement are summarised in paragraph 17.5 of Part XII of the Prospectus.

8. Re-Admission to trading on the Official List

The Directors have applied for the Ordinary Shares to be admitted to the Official List of the UKLA by way of a Standard Listing and to trading on the Main Market of the London Stock Exchange.

Re-Admission is expected to take place and unconditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange at 8.00 a.m. on 3 February 2016. Dealings on the London Stock Exchange before Re-Admission will only be settled if Re-Admission takes place. All dealings in Ordinary Shares prior to commencement of unconditional dealings will be at the sole risk of the parties concerned.

The expected date for electronic settlement of such dealings will be 3 February 2016. All dealings between the commencement of conditional dealings and the commencement of unconditional dealings will be on a "when issued basis".

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

1. Definitions

The following definitions shall apply throughout this announcement unless the context requires otherwise:

2. Glossary

The following meanings and interpretations shall apply throughout this announcement unless the context requires otherwise: