4 February 2010 - Interim Results to 31 December 2009

Press Release

For immediate release: 4 February 2010

EnCore Oil plc (‘EnCore’ or ‘the Company’)

Interim Results to 31 December 2009

EnCore Oil plc (LSE: EO.) announces its interim results for the six months ended 31 December 2009.

Highlights:

• Rig agreements signed for Cladhan and Catcher wells to be drilled in H1 2010
• Transaction with Egdon Resources expected to complete in H1 2010
• Gas storage reservoir simulation model results received and confirm suitability for gas injection and withdrawal in both reservoirs – marketing of project now underway
• Celtic Sea collaboration agreement signed with Valhalla Oil & Gas Limited
• £43 million cash and debt free; profit for the period of £17.4 million
• Over 17 million shares bought back to date

For further information, please contact:

Chief Executive’s Review

The latter half of 2009 laid the foundations for an active first half in 2010.  We completed the sale of a major asset for cash; contracted two drilling rigs (one post period end) for drilling in the first half of 2010; negotiated the divestment of our onshore assets for equity in an experienced onshore player which is due to complete in the first half of 2010; signed a collaboration agreement relating to our Irish assets; and commenced a share buy-back programme.

Portfolio Activity

Offshore

In August 2009 we completed the sale to RWE Dea of our 15 per cent. interest in the Breagh gas field in the UK Southern North Sea.  A cash consideration of approximately US$68.8 million was received in total, for the one per cent. licence interest held by EnCore Petroleum Ltd, and for the entire share capital of Encore (SNS) Ltd which held a 14 per cent. licence interest.  20 per cent. of the amount received for the sale of EnCore (SNS) Ltd (US$12.8 million) is being held in an interest bearing escrow account until August 2010 as security against any potential warranty or indemnity claims by the purchaser.  The disposal of EnCore (SNS) Ltd is free of tax under the substantial shareholding exemption.

Plans for an appraisal well at Cladhan (UK Northern North Sea blocks 210/29a & 210/30a) firmed up with the signing, in December 2009, of a Letter of Agreement for the semi-submersible J.W. MacLean rig to commence drilling within the period from late May to early July 2010.  The well will appraise the southward extension of a stratigraphically trapped 110ft light oil column made during the original discovery in November 2008.  We aim to gain a better understanding of the extent and thickness of the Upper Jurassic reservoir sands, which, if hydrocarbon bearing and of reasonable thickness, will be tested with a possible sidetrack undertaken.  EnCore has a 16.6 per cent. interest in Cladhan and we estimate the range of potential volumes from sub-commercial through to very significant.  The expected net cost to EnCore of the well on an untested, non-sidetracked basis is £1.9 million.

Catcher, in UK Central North Sea block 28/9 on which we are Operator, is expected to be drilled in late March / early April 2010.  During the period, a seabed survey was completed which determined that the well can be drilled using a heavy duty jack-up rig.  Since the period end, a Letter of Agreement has been signed for the Transocean Galaxy II jack-up rig.  Should hydrocarbons be encountered, it is expected that either well testing or sidetracking into the immediately adjacent ‘Catcher East’ Eocene Tay sand prospect will be undertaken.  EnCore holds 15 per cent. of the block and our costs of the well are being carried by our partners Premier Oil (uncapped) and Wintershall (capped).

Along with our partner Centrica, we expect Ceres (UK Southern North Sea block 47/9c) in which we have a 10 per cent. interest, to come on stream within weeks.  Start-up of production has been delayed from late 2009 due to postponement of planned shutdowns of the BP infrastructure which are required to complete the tie-in of Ceres.  However, given our current cash position, our overall strategy and the modest cash flow generated from a small equity interest in Ceres once it starts production, we believe that the transfer of our interest to another party will yield more value for our shareholders, hence its inclusion in our proposed transaction with Egdon Resources plc (“Egdon”) which is discussed further below.

Our remaining offshore UK exploration and appraisal licences have been the subject of activity to attract interested parties to individual or packaged licences and this will continue in 2010.  We view this work as a way to give greater transparency and value to our exploration assets and will endeavour to replicate the type of arrangement we are in the process of negotiating with Egdon to this end, providing we see ultimate value creation for our shareholders.

Gas Storage

Gas storage became a much discussed topic towards the end of the period and in early 2010 due to the inclement UK weather and related gas supply issues.  The value of Esmond, our potential gas storage project located in UK Southern North Sea block 43/13, remains uncertain but work has been done during the period which has helped further refine the project.  A third party study of the revised development scheme carried out by Helix RDS confirmed the technical specifics of the project and the result of a reservoir simulation model study, undertaken by Senergy, has also confirmed suitability for gas injection and withdrawal in both reservoirs.  Alongside these studies, we commenced the application to the Crown Estate for a lease and to the Department of Energy and Climate Change (DECC) for one of the recently established Gas Storage licences.  Marketing of the project is now underway, and it is only as the process progresses that we will be able to determine the value to EnCore.  For the purposes of managing expectations, we intend only to release further information on gas storage on a material change to the status of the project or following the conclusion of the marketing process.

Onshore

In September 2009, we announced that we were in advanced negotiations with Egdon in respect of our onshore UK and onshore France portfolio, along with our equity in the Ceres gas field.  The transaction, which is progressing well, will see our onshore assets and equity in Ceres transferred to Egdon in return for EnCore assuming a significant shareholding, up to a maximum of 29.9 per cent., in the enlarged Egdon.  The advantage to EnCore of the transaction is three fold - it rationalises our portfolio of assets, it places a value on our previously overlooked onshore portfolio, and it leaves us exposed to the upside of a significant shareholding in an experienced onshore player.  The transaction is expected to complete in the first half of 2010.

Ireland

Work on our Celtic Sea assets has seen little progress in the period whilst uncertainty surrounds the Operator, Island Oil & Gas plc (“Island”).  With this in mind, we signed a collaboration agreement in December 2009 with Valhalla Oil and Gas Limited, our joint venture partners in Schull and Old Head of Kinsale in which we have 12.5 per cent. and 15 per cent. equity respectively.  The agreement is intended to allow us to extract the maximum value for our shareholders from our Celtic Sea assets and we are monitoring the situation with Island in order that we can move forward on the licences.

Financial position

We ended the period with a cash balance, including restricted cash, of £43.0 million (30 June 2009: £5.4 million) and debt free (30 June 2009: debt free).  We made a profit for the period of £17.4 million (31 December 2008: loss of £0.1 million and 30 June 2009: loss of £1.5 million).  This profit figure reflects both the profit on sale of Breagh of £22.9 million and a write down of certain UK onshore assets of £5.7 million (after crediting a deferred tax reversal), principally representing Kirkleatham and Westerdale.  Indicative terms of the negotiations with Egdon and the impact of the current economic climate on the perceived value of Kirkleatham and Westerdale have led us to the conclusion that a write down of those assets is prudent at this stage.

Share buy-back

As at the period end on 31 December 2009, we had bought back 17,123,975 ordinary shares all of which have been cancelled.  We have spent £2.5 million since approval was granted at our AGM on 17 September 2009, and all shares have been purchased in the open market and at below the value of cash per share.  It is our intention to continue with the share buy-back programme, subject to pricing and the rules on close periods.

Board changes

Our inaugural Chairman, Mike Lynch chose to leave the Company in September 2009 for personal reasons after over four years in the role, and was replaced by former Non-Executive Director, Christine Wheeler OBE.  Additionally, in early October, we welcomed two new Directors to the Board.  Keith Hughes, a partner at our legal advisers, Dewey & LeBoeuf became a Non-Executive Director and James Clark became Commercial Director having been with the Company since its inception as Commercial and Tax Manager.  We wish Mike all the best in the future and look forward to advancing the Company under Christine’s chairmanship with the support of the expanded Board.

Outlook

Our strategy, as outlined at the AGM in September, is to focus our near-term capital expenditure only on those assets which, if successful, have the potential to make a material difference to our asset and market values.  We identified those assets as Catcher, Cladhan and Gas Storage, all of which require only a limited amount of capital.  As we discussed at the time, we expect to understand better what their potential values could be during the first half of 2010, and indeed we and our co-venturers have now procured rigs for both Catcher (late March to early April spud) and Cladhan (late May to early July spud).  Additionally, we have started to market our Gas Storage project, and we also expect that the transaction with Egdon will be finalised in the first half.

We recognise that some of our shareholders would like us to continue to expose them to high risk, high reward exploration and appraisal drilling, while others, understandably, wish us to preserve our capital, with a view to returning it through a capital reconstruction later in 2010, or at the time when we have greater certainty over our three principal assets.  We continue to seek farm-in partners for a number of our exploration/appraisal licences, although the market remains difficult, particularly for high risk/high reward targets.  Our strategy to return value to our shareholders means that we would not wish, at this stage, to commit more of our capital to a number of these prospects.  Alongside seeking farm-in partners, we are considering alternative options for what we believe to be an attractive appraisal and exploration portfolio.

Alan Booth

Chief Executive Officer

4 February 2010

Click here for pdf of announcement

Thursday, February 04, 2010