Prospex Oil and Gas Plc / Index: AIM / Epic: PXOG / Sector: Oil and Gas

8 June 2018

Prospex Oil and Gas Plc ('Prospex' or the 'Company')
2017 Annual Results and Notice of AGM

Prospex Oil and Gas Plc, the AIM quoted investment company, announces its audited annual results for the year ended 31 December 2017.  The Company also gives notice that its Annual General Meeting ('AGM') will be held at 10:45 on 3 July 2018 at Peterhouse Corporate Finance Ltd, 3rd Floor, New Liverpool House, 15 Eldon Street, London, EC2M 7LD.  The Financial Results for the year ended 31 December 2017 ('Accounts') together with the Notice of AGM will be available to download today from the Company's website and will also be posted to shareholders on or around 11 June 2018.

Highlights:

·     Acquired material interests in three projects with over 2Tcf of gas resources in line with strategy to build a leading oil and gas investment company focused on high impact European opportunities with short timelines to production:

o  50% economic interest in the Exploration Area of the EIV-1 Suceava Concession, which is located in a producing hydrocarbon basin in North East Romania.

o  17% working interest in the Podere Gallina Exploration Permit in the Po Valley region of Italy, a proven play in a prolific hydrocarbon region - up to 40.6 Bcf of gross unrisked prospective gas resources

o  Acquisition of up to a 49.9% interest in the Tesorillo Project in southern Spain, which contains a known gas discovery with potentially up to 2Tcf of gross unrisked Prospective Resources

·     Participated in the drilling of three wells, two of which resulted in commercial gas discoveries with near term production:

o  Bainet-1 well in Romania encountered 9m of reservoir with 8m of net gas pay and flowed natural gas at ~33,000 cubic standard metres/day in testing ("scm/day") - production due to commence in Q3 2018 subject to final permitting consent

o  Podere Maiar-1d in Italy successfully tested two gas bearing reservoirs at the shut-in Selva gas-field achieving flow rates well in excess of the pre-test target of 100,000 scm/day - Production concession application submitted with first phase production target of 150,000 scm/day- due to come on stream within the next 18 months

·     Strong cash position of £0.85m at year end - £3.1m raised during the period and £1.2m post period end

o  Focus on keeping corporate overheads low ensures as much of the Company's funds as possible are invested in core projects and project evaluation

·     Evaluating additional late stage European onshore investment opportunities that meet management's investment criteria

Edward Dawson, Managing Director of Prospex, said, "In the space of twelve months Prospex has been transformed into a multi-project oil and gas investment company with a long pipeline of gas discoveries and prospects that potentially hold in excess of 2 Tcf of gas.  Thanks to drilling success in both Romania and Italy in Q4 2017, the year ahead should see Prospex transformed once again, this time into a revenue generative multi-project oil and gas investment company, once the Bainet gas discovery in Romania has been brought online in the coming months.  With production in Italy expected within 18 months and a technical programme underway in Spain to de-risk a potentially huge gas discovery, 2018 should not be short of high impact news flow, as we focus on generating significant value for shareholders."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information visit www.prospexoilandgas.com or contact the following:

Chairman's Statement

2017 may well have been just the second full year the current management team has been in place at Prospex but that has not prevented considerable progress being made during the year towards delivering on our corporate objective: to build an oil and gas investment company with a growing portfolio of late stage European projects with short timelines to value trigger events, such as drilling.  Over the course of the year, Prospex acquired material interests in three core projects: Suceava in Romania, Podere Gallina in Italy and Tesorillo in Spain; we have participated in the drilling of three new wells, two of which resulted in gas discoveries in Italy and Romania; and, towards the end of the period, we embarked on a programme to de-risk up to 2Tcf of prospective gas resources at the Tesorillo Project in Spain. 

We have been able to achieve so much in such a short period thanks to our focus on acquiring interests in late stage projects where considerable resources have already been invested.  This not only saves the Company significant expense, it also enables us to apply, at low cost, new techniques and technologies to legacy data, thereby accelerating the process of de-risking existing targets or identifying new plays.  Depending on the results, high impact drilling activity can then be fast tracked.  As our two-out-of-three success rate with the drill bit shows, we are able to achieve this without compromising the quality of the technical work undertaken. Furthermore, a successful well does not begin and end with drilling.  Flow testing, reserves estimates, additional drilling and first production are among major milestones that typically need to be met before the value of an oil and gas project can be fully realised.  A positive well result therefore can lead to a pipeline of near term value trigger events that our shareholders can hopefully look forward to.

This is precisely where we are at with our projects in Italy and Romania. Thanks to the success we enjoyed in the second half of 2017, the year ahead should not be short of high impact activity.  Already 2018 has seen confirmation that the Podere Maiar-1d appraisal/redevelopment well on the Podere Gallina Exploration Permit ('Podere Gallina') in the Po Valley region of Italy is a commercial gas discovery after the testing of two gas bearing reservoirs exceeded expectations: flow rates were well in excess of the pre-test target of 100,000 scm/day, while methane gas content of 99.1% was recorded at both levels.  The permitting process is now underway to bring Podere Maiar-1d into production, and in tandem with this, work is ongoing to generate revised contingent resource and reserve estimates based on analysis of the log and well test results.   This includes reservoir engineering to optimise production from the two gas levels over the field life.

Podere Maiar-1d successfully tested the shut-in Selva gas-field, which was previously operated by ENI and historically produced 80+ Bcf of gas between 1960 and 1984.  Prior to drilling, the well was targeting contingent resources (2C) of 17 Bcf.  In addition to Selva, other targets have been identified on the licence, offering considerable upside of up to 40.6 Bcf of prospective gas resources as detailed in a historical Competent Person's Report ('CPR'). Contingent resource and reserve estimates, first production and potential follow-up drilling all represent additional value drivers that our shareholders can potentially look forward to at Podere Gallina.

It is a similar story at the Exploration Area of the EIV-1 Suceava Concession in onshore Romania.  Here first production from the Bainet gas discovery, which was successfully drilled in Q4 2017 by the Bainet-1 well, is set to commence in in the coming months.  Bainet-1, which was drilled to a total depth of 600m, encountered 9m of reservoir with 8m of net gas pay consisting of a good quality Sarmatian sandstone reservoir, similar to that found in fields producing elsewhere in the concession. During testing, natural gas containing over 99% methane flowed at a rate of approximately 33,000 /day through an 8mm choke.  Production from Bainet-1, which was completed as a producer and lies close to an existing gas processing plant and associated infrastructure, will represent Prospex's first internally generated revenues.  It will also provide the Company with a platform with which to target additional prospects and leads on the concession area. 

Our third core project, Tesorillo in Spain (a 38,000ha permit), may be less advanced in terms of monetisation, but as with our projects in Italy and Romania, it holds a gas discovery. The Almarchal-1 well, drilled in 1956, intersected a thick section of gas pay including some zones which flowed gas to surface on testing. Netherland Sewell and Associates has assigned gross un-risked Prospective Resources of 830 billion cubic feet of gas (Best Estimate) to the permit area in a CPR, with upside in excess of 2 Tcf.  Clearly these are huge numbers and we are very keen to commence de-risking the permit with a technical programme in order to test these known gas bearing sandstone sequences.  An Audio Magnetotellurics ('AMT') survey is due to commence in the near term to evaluate both the subsurface geometry and the presence of gas in the potential traps within the permit area. Audio Magnetotellurics ('AMT') surveys measure subsurface resistivity and can also provide indication of the presence of gas.  As well as holding a historic gas discovery, Tesorillo benefits from having excellent access to nearby infrastructure, offering a fast track route to monetisation.

Financial Review

At the time of our 2016 final results we assigned a carrying value of £3,910,388 to the Company's investment in the Kolo licence in Poland. Following the result of the Boleslaw-1 well in January 2017, the Company took the decision to write down the carrying value of its investment in Hutton Poland to £1,442,011, resulting in an exploration write-off during the six months to 30 June 2017 of £2,308,500. In April 2018, the Company, together with its joint venture partners, decided not to extend the Kolo Licence into its second 2 year term, as a result, the Directors have written down the remaining value to zero at the 2017 year end. This has led to a further loss of £1,543,888 in the 6 month period to the end of 2017 bringing the total write down for the Polish investment in the year to £3,852,388.

In August 2017, the Company announced its entry into Romania with an investment in the Exploration Area of the EIV-1 Suceava Concession. Notwithstanding the positive well result obtained, and the near-term prospect of revenues, the Board has decided to keep the carrying value of this asset at its cost of £1,062,687 at the year-end conservatively awaiting for production to start.

The entry into the Po Valley has got off to a great start. Based on the drilling results of the Podere Maiar well and the better than expected flow results in January, the Board have re-valued the Italian investment, which cost £500,000 upward by £1,667,279. This represents a conservative allocation of the expected value that the Board expects to ultimately realise.

The Company's Spanish investment - the Schuepbach Energy Espania S.r.l share acquisition announced in late December - was completed in January 2018. As a result, no value has been attributed in the 2017 accounts. With the positive reinvigoration of the project, the directors expect a significant uplift in valuation over future periods as the project progresses.

In January 2018, the Company raised £1.2 million via an oversubscribed placing of 200,000,000 ordinary shares at a price of 0.6 pence per New Ordinary Share to fully fund the Company's 2018 basic work programmes across its portfolio. This includes the successful flow testing of the Podere Maiar well in Italy in Q1 2018; the planned commencement of production at the Bainet gas discovery in Romania in Q2 2018; and work to further delineate the gas discovery at Tesorillo in Spain, including the upcoming AMT Survey.

Outlook

Few junior oil and gas companies can lay to claim to having drilled three new wells in three different jurisdictions over a 12 month period, two of which resulted in commercial gas discoveries.   Thanks to the efforts of the executive team, who came on board with the intention of applying their proven expertise and experience within the sector to build a leading oil and gas investment company, Prospex can.  Furthermore, following the progress made during the year under review, Prospex has an excellent platform in place with which to expose shareholders to multiple value trigger events in the year ahead, including the anticipated commencement of the Company's first internally generated cash flows once the Bainet gas discovery comes on line in the coming months. 

With over 2Tcf of gas resources, our existing portfolio of investments already has significant company-making potential.  However, we continue to evaluate additional assets that match our investment criteria: low cost, undervalued, late stage projects located in proven European hydrocarbon jurisdictions where considerable legacy data is accessible and importantly where short timelines to production have been defined.  I look forward to providing further updates on our progress during what promises to be an exciting period for Prospex and our shareholders, one in which we are confident that the disconnect that has opened up between our market valuation and the underlying value of our portfolio will begin to close. 

Finally, I would like to take this opportunity to thank the management team, our advisers and of course our shareholders for their support of the Company during the period.   

Bill Smith

Non-Executive Chairman

* * ENDS * *

For further information visit www.prospexoilandgas.com or contact the following: