2017 Preliminary Results

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

Cabot Energy Plc

("Cabot Energy" or "the Group")

Preliminary Results for the Year Ended 31 December 2017

Cabot Energy Plc (AIM:CAB), the AIM quoted oil and gas company focused on production led growth balanced with high impact exploration and appraisal opportunities, announces its Preliminary Results for the year ended 31 December 2017.

2017 Preliminary Results Highlights

Production and reserves

§ December gross average production up 181% to 653 bopd (December 2016: 232 bopd)

§ Average annual gross production up 42% to 411 bopd (2016: 290 bopd)

§ Gross 2P reserves up 53% to 2.9 mmboe

§ Gross 2P NPV(10) value up 57% to $36 million

Operations

§ 30 wells worked over and brought back into production

§ Two new sidetrack wells drilled and brought into production

§ Subsurface project initiated in Canada to identify potential of additional hydrocarbon bearing horizons

§ Environmental study for the acquisition of 2D seismic submitted by operator Shell Italia in the Po Valley, Italy

Financial

§ Revenue up 33% to $4.8 million (2016: $3.6 million)

§ Production cost excluding royalty of $34 per barrel

§ Administration expenses of $2.9 million (2016: $2.3 million)

§ Loss before tax for 2017 of $4.0 million (2016 loss of $2.5 million)

§ Unaudited cash on the balance sheet of $10.3 million as at 31 March 2018 (31 December 2017: $1.8 million)

Corporate

§ Acquisition of six wells and additional production facility in Rainbow area, Canada

§ Acquisition of the Civita gas field, a high value production asset onshore Italy, subject to regulatory approval

§ Group rebranded as Cabot Energy Plc and board strengthened with the addition of Paul Lafferty

Post year end activity

§ Successful equity raise of US$16 million to fund 2018 work programme

§ Acquisition of 25% of the Canadian assets to take Group ownership to 100%

§ Four wells drilled in Canada and production increased to approximately 950 bopd

§ Up to six further wells being planned for 2018 in Canada

§ Group on track to achieve production guidance

§ Marine monitoring programme completed offshore Italy and data submitted to regulator in advance of 3D seismic campaign, planned for later in the year, subject to regulatory approval

Keith Bush, Chief Executive Officer of Cabot Energy Plc, commented:

"The Group has made great progress throughout 2017, both in the development of the Canadian assets and by steadily moving the Italian assets through the regulatory process. The significant increase in production in Canada, fundamental to the Group strategy, is evidence of the potential of the assets. With progress accelerating in 2018, production is on target to double again by the end of this year and will provide significant positive cashflow for investment both in Canada and in other Group assets.

"The experience the Group has gained working within the Italian oil and gas industry has been invaluable in moving the existing asset base forward. Progress with the high potential exploration and appraisal assets has been enhanced with the acquisition of the Civita production asset and the Group is now well positioned to realise the value growth that operations in Italy will bring.

"With 2018 set to be the most operationally active year to date, the Group is set to deliver significant growth in production, which will in turn lead to material growth in the value of the business."

For further information please contact:

Chairman's and Chief Executive Officer's Statement

The improving industry environment and strong performance of the Group's assets made 2017 a year of progress for Cabot Energy. After the most prolonged industry downturn for 30 years, exaggerated by the world macro-economic climate, the oil and gas industry turned a corner, supported by gradually increasing commodity prices. This environment enabled the Group to move forward into the start of a period of significant growth, with a strengthened balance sheet, increased reserve position and production growth pathway.

To reinforce this new period and recognise the development of the Group, the Group rebranded as Cabot Energy Plc. John Cabot, an explorer from Italy who came to England to seek funding for a voyage that ultimately discovered Canada, is synonymous with the areas of the world in which the Group works and using his name reflects the focus applied to both the Canadian and Italian assets within the Group.

The improvement in the oil price has further validated the Group's strategy of production led growth. Strong shareholder support for this strategy enabled the Group to raise the necessary capital at the end of 2016 to invest in the production assets in Canada. This allowed the operations team to carry out an ambitious 2017 work programme, with production through the year more than doubling from the end of 2016.

Canada - year of production growth and technical de-risking

Continuing to build on the production growth made in 2016, the work programme during 2017 very much centred on restarting existing wells and improving the production throughput of the facilities. The opportunities to do this were enhanced with the acquisition of an additional production facility and six wells in the Rainbow area, near the Group's existing operations. In line with other Group acquisitions, there was no capital cost, with the Group assuming the abandonment liability of the wells and facility. The facility also came with a connection point into the national Canadian pipeline system, providing an additional route to market for the Group's oil.

The Group executed 30 well workovers and restarts during the year, including five of the six wells from the acquisition. The additional production from this workover campaign proved a very cost-effective way of increasing the Group's core production.

As the understanding of the asset base improved during the year, additional development opportunities were identified by the technical team, particularly sidetrack wells, to allow new production from the identified resource base. Towards the end of the year, two of the sidetrack opportunities were drilled to test the interpretation of the subsurface information; both wells gave good results and have subsequently been put on production. The lessons learned during the drilling of these wells have already been taken successfully into the 2018 winter drilling campaign.

Technical work on the assets has led to the identification not only of additional opportunities comparable to the sidetrack wells drilled in 2017, but has also given rise to the re-interpretation of an existing play that should generate multiple drilling opportunities over the next few years. Technical work and operations will aim to test this play in 2018 while still developing the already identified well opportunities.

The result of the capital work programme during the year saw gross asset production increase from an average of 232 bopd during December 2016 to 653 bopd during December 2017. It also meant that average gross production for 2017 was greater than 400 bopd compared with 290 bopd in 2016.

The growth in Canadian operations meant that additional expertise was required in the Canadian office. The Group Chief Operating Officer, Paul Lafferty, transferred to the Calgary office to run Cabot Energy Inc., the Group's Canadian subsidiary. Paul's extensive experience of production operations will be invaluable in implementing the future growth plans effectively. The team in Calgary has also benefited from additional engineering and operational staff to supplement the existing skillset.

Italy - progress in balancing portfolio

While production and operations were growing in Canada, the Group has also been making progress in Italy, particularly with a first step into production operations with the acquisition of a 100 per cent. interest in certain onshore assets. The acquisition included valuable gas production of approximately 130 boepd from the Civita gas field, along with two other production concessions with the capacity to restart production or redevelop the fields. The gas market in Italy maintains a very attractive pricing structure for producers and is a natural offset to Canadian oil production. The acquisition is currently going through the regulatory approval process and is expected to complete in 2018.

Progress has been made with the Group exploration and appraisal assets in Italy, although at a slower pace than in Canada. Shell Italia, the operator of the Cascina Alberto permit in the western Po Valley submitted an Environmental Impact Assessment for the acquisition of additional 2D seismic at the end of the year. The seismic programme will further define the exploration prospects within the permit in advance of drilling a possible exploration well.

Preparation work for a 3D seismic programme on the southern Adriatic permits continued. In the second half of the year, the Group started a tender process to identify the preferred contractor for the programme. In conjunction with this, a marine mammal monitoring programme, required before the seismic acquisition can commence, was planned and resourced, with operations starting in early January 2018. Additionally, subsurface technical review work during the year identified further prospectivity in the southern Adriatic permits with deeper targets identified for both the Giove and Medusa discoveries. This work allows the Group to apply for a combined work programme for both the F.R39 and F.R40 permits, which if granted, will enable both permits to be taken into the next phase of exploration with the drilling of one well.

The Group remains committed to creating value from the Italian portfolio. The completion of the Civita acquisition will provide not only valuable cashflow, but also an operating base and capability that will allow further expansion in the area. 

Business Development - increased asset ownership and acquisitions

As the results of the work programmes in Canada continued to be successful, it became clear that extending the potential of the assets would require additional capital. Therefore, during the fourth quarter, discussions with the Group's major shareholders took place to determine the level of the investment that was available. Support for the Group from the three major shareholders was strong, and particularly from High Power Petroleum LLC ("H2P"), who were keen on investing in the Group to a greater level than they had previously done. The Group also considered that production from the Canadian assets was important to maintain and grow, and that rather than have H2P as a joint venture partner with a 50 per cent. holding in the assets, it would be better for the Group to own 100 per cent. at the asset level and for H2P to invest more in the equity of the Group.

The result of these discussions was that the Group reacquired H2P's 25 per cent. share of the Canadian assets along with their option to buy an additional 25 per cent. In addition to this, H2P invested $12 million in equity, which, when combined with investment from both City Financial, Cavendish Asset Management and other institutional and private shareholders resulted in a total equity fund raise of approximately $16 million, completed in early January 2018. The investment from H2P meant that their holding in the Group exceeded 30 per cent. and therefore required independent shareholder approval, which was duly received.

With the additional shareholding, H2P became eligible to appoint a further board member. Petro Mychalkiw, who has a strong background in finance, was appointed in early 2018.

Outlook - sustained production growth and cash generation

Looking forward into 2018 and beyond, the capital raised early in the year enables the Group to pursue an aggressive development programme. The success of 2017 was emulated with four sidetrack wells drilled in the first quarter of 2018. These all produced strongly under test and when placed on production. The aim of the 2018 work programme is to more than double production from the start of the year to the end of the year with up to six further sidetrack wells to be drilled later in the year. The exit rate for 2018 is expected to be in the range of 1,600 to 2,000 bopd and an average rate for the year of 1,000 to 1,200 bopd.

Beyond 2018, the Group is looking to establish multiple drilling opportunities in the existing Canadian asset base which will provide low risk production growth. In Italy, the completion of the Civita production acquisition will provide impetus to develop further production opportunities in country, while the longer term high reward exploration and appraisal opportunities continue to mature.

The continued support of shareholders has allowed the Group to come through the prolonged industry downturn and the Group is now in a position to grow value in the improving industry environment.

We appreciate the hard work that delivered positive results in 2017 and thank all staff and contractors for their contribution to this success.

Jon Murphy

Chairman

Keith Bush

Chief Executive Officer

Review of Operations

Canada2017 Activity

Total oil production for the year from the Rainbow and Virgo assets amounted to approximately 150,000 bbls gross, equating to 411 bopd average for the full year, an increase of over 40 per cent. on 2016 gross full year production average. Gross production during December 2017 peaked at 850 bopd during the first two weeks, showing the potential of the assets that had been developed during the successful 2017 work programmes. The average production for December was 653 bopd due to extreme adverse weather during the second half of the month.

Operating expenditure during the year retained the savings seen during 2016 due to a combination of the Group owning production facilities, which significantly reduced third party processing fees, and the industry wide reduction in service company costs reflecting the lower oil price environment.

The two work programmes executed during the year focused mainly on the Rainbow assets. During the campaign, 30 wells were successfully worked over, having been previously shut in as a result of mechanical issues, and two sidetrack wells were drilled, targeting oil in un-swept sections of Keg River reefs.

Subsurface activity concentrated on identifying sidetrack well candidates in the Rainbow area and mapping the areas covered by existing Group lands in the Virgo area, to identify future development opportunities. Additional seismic data was purchased to allow mapping from well data to be tied to the seismic. Significant steps forward were taken in the understanding of both the Keg River and Zama member reservoir units, which has enabled the identification of possible drilling opportunities, likely to be tested during the 2018 drilling programme.

In September 2017 the Group commissioned McDaniel and Associates Consultants Ltd to perform an independent reserves evaluation taking into consideration the results of the two work programmes. As of 30 September 2017, total Proven and Probable reserves were 2.1 mmboe net to the Group (2.9 mmboe gross), an increase of over 50 per cent. in gross reserves over the previous year and in addition to the production during the year.

In March 2017, the Group acquired the 13-06 processing facility comprising six shut-in production wells, a water disposal well and processing and tank storage facilities located near to existing Group owned infrastructure in the Rainbow area. Five of the production wells plus the water disposal well were brought into production during the year and the facility was connected to the Plains pipeline system in early 2018 giving the Group a second oil export route to market.

Health, safety and environmental performance was satisfactory for the Canadian assets during 2017 with one lost time incident in over 65,000 manhours worked. There was one reportable oil spill that was subsequently cleaned up with remediation activities agreed and implemented with the local regulatory authorities. The Group also embarked on a significant pipeline integrity project in the Rainbow area running In Line Inspections ("ILI") using intelligent pigging for major in-field pipelines. This will give the asset a base line assurance for the future condition and integrity monitoring of this important infrastructure while reducing the risk of any harm to the environment.

2018 Activity

Activities in early 2018 have been focused on a winter work programme comprising the drilling of four sidetrack wells which are now on production at a combined rate of approximately 450 bopd.

Planning has commenced for a summer work programme, comprising up to a further six sidetrack wells. In addition, by the end of March 2018 the Group had completed the ILI programme on the key pipelines in the Rainbow asset and completed the tie-in of the export route for the 13-06 facility acquired during 2017.

Italy

Offshore

The main focus offshore Italy has been on the Giove discovery and Cygnus prospect in the southern Adriatic, where approval by the Ministry of Environment was obtained for the required noise propagation study, enabling the preparation of the marine survey over the seismic acquisition area and the issue of Invitations to Tender ("ITT") for the seismic acquisition programme.

By the year end the contract for the marine survey had been awarded and work commenced offshore in early January 2018. ITTs for the seismic acquisition have now been received and are presently being evaluated with a view to performing the surveys in the autumn of 2018 subject to suitable commercial terms being agreed.

Work continues on combining the work programmes for permits F.R39 and F.R40. This will allow one well to move both permits into the second exploration licence period.

Onshore Shell Italia, the operator of the Cascina Alberto permit in the Po Valley, has made good progress on the exploration work programme and submitted an Environmental Impact Assessment for the acquisition of further 2D seismic. The Group has a 20 per cent. interest in the permit and is carried for 2D seismic costs up to $4 million and for costs relating to a single exploration well up to $50 million.

The acquisition of the Civita gas field and other production concessions was announced in June 2017. Since then the Group has had close cooperation with the current operator of the concessions in order to prepare to assume operatorship of the field once regulatory approval has been received from the Italian authorities. This approval is expected during 2018 and will add approximately 130 boepd to the Group's production and provide an operating base in country to assist with future onshore as well as offshore exploration, development and production activities.

Australia

During the year the Group carried out a technical review of the data on the license and proposed a work plan to the Australian government. The review identified conventional gas prospectivity on the permit and the Group has been granted a license suspension until 1 June 2018 to conduct further technical evaluation work.

Group Financial Review

Overview

The Group began the year with the completion of an equity financing which provided the investment capital for two work programmes during the year. The work programmes comprised the workover of existing wells to return them to production, facility and infrastructure upgrades and the drilling of two sidetrack wells.

In March, the completion of an asset acquisition in Canada saw the realisation of a bargain consideration with the net profit of $2.0 million booked to the profit or loss account as other income.

In June, the Group announced the acquisition of production and development assets in Italy subject to regulatory approval, which is still outstanding. The accounting recognition of this acquisition will occur following completion. The net benefit of the production associated with these assets is accruing to the benefit of the Group since 1 January 2017 and will be paid to the Group on the completion of the acquisition.

An equity capital raise and the reacquisition of the 25 per cent. of the Canadian assets owned by H2P was announced in December, but did not complete until January 2018 and therefore has no effect on the 2017 financial results.

Revenue and costs

Revenues increased in 2017 to $4.8 million (2016: $3.6 million) due to a 42 per cent. increase in gross production, less 25 per cent. which was sold to H2P, and a higher commodity price. Production costs of $4.4 million (2016: $3.5 million) included royalty costs of $0.7 million (2016: $0.4 million), maintenance expense on infrastructure and Canadian and UK staff costs written to operations.

A gross profit, before the deduction of depletion and amortisation, of $0.3 million, or $3 per barrel, was realised in 2017. This is in line with management's expectation that the Rainbow assets breakeven at approximately 400 bopd with a WTI commodity price of $50 per barrel. Even with the increase in operational activity, the increase in administration charges was limited to $0.6 million, resulting in a total administrative expense for 2017 of $2.9 million in 2017 (2016: $2.3 million).

During the year the clean up of a small amount of produced saltwater, which mainly related to an old pipeline breach was undertaken. The entire cost of this exercise, totalling $1.2 million, has been expensed to the income statement as other operating expense. The Group has made a claim under its insurance policy which is still ongoing and therefore the Group has not recognised a sum in respect of the amount it expects to recover.

Other operating income - Canadian asset acquisition

In March 2017, the Group announced the acquisition of a facility and six wells in the Rainbow area. In consideration for the assets, the Group assumed the abandonment liability associated with the wells and facilities. The Group calculated that the fair value of the assets and liabilities acquired exceeded the cost of purchasing the assets by $2.0 million, which has been booked as a profit under other operating income. This bargain consideration arose since the vendor considered the assets to be non-core to their business.

Other operating expense - impairment and abandonment

Carrying values for intangible and tangible assets are grouped into cash generating units and reviewed every year against market values as calculated by independent reserve auditors, where possible. If the carrying value is in excess of the estimated market value, or an asset is no longer likely to be developed to commerciality, an impairment is considered. The carrying value of three single well batteries in Canada have been impaired. In addition, costs incurred on two abandonment activities were in excess of the provisions held on the balance sheet relating to these abandonments and an increase in the provision for one well was deemed necessary. All these costs, totalling $0.7 million, are expensed to the profit or loss account.

The Group recorded a loss before tax for the year of $4.0 million (2016 loss of $2.5 million).

Balance Sheet

Investment in Canada was deployed over two work programmes and contributed to the majority of the increase in property, plant and equipment. The capital was used to workover wells and drill two new sidetrack wells during the year. The increase of $7.6 million in trade and other payables under current liabilities reflects the costs incurred drilling the two new sidetrack wells during the last quarter of 2017, which were not paid until after the year end. The payables amount also includes the amounts owed by the Group's partners in Canada, which is offset in the current trade and other receivables balance.

Post year end

In January 2018, the Group closed the equity financing and open offer announced in December 2017, raising equity capital of approximately $16 million before expenses. The 2018 winter work programme was conducted during the first quarter with four sidetrack wells drilled and tested during January, February and March. Unaudited cash on the balance sheet as at 31 March 2018 was approximately $10.3 million.

Accounting policies

This financial information have been prepared by the Board using accounting policies consistent with those used in 2016. There have been no new or revised International Financial Reporting Standards adopted during the year which have had a material impact on the numbers reported.

Nick Morgan

Finance Director 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2017

Consolidated Statement of Financial Positionas at 31 December 2017

Consolidated Cash Flow Statementfor the year ended 31 December 2017

Consolidated Statement of Changes in Equityfor the year ended 31 December 2017

Notes to the Financial Informationfor the year ended 31 December 2017 

1. Basis of preparation

The financial information which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and related notes is derived from the full Group consolidated financial statements for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2017 and are not the Group's statutory accounts. The accounting policies are detailed in the Group's consolidated financial statements for the year ended 31 December 2017 which will be presented on the Group's website (www.cabot-energy.com).

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2017 or 2016. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditor has reported on those accounts; their report for the year ended 31 December 2017 was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The functional currency of the Parent Company is considered to be the US Dollar and the Group financial information is presented in US Dollars.

Going concern basis of preparation

The Group's business activities, together with the factors likely to affect its future development and performance are set out in the Chairman's and Chief Executive Officer's Statement and the Review of Operations. The financial position of the Group, its net cash position and liabilities are described in the Group Financial Review. Taking into consideration the Group's year end cash position of $1.8 million, the capital raised in January 2018 and future revenue from existing oil and gas fields, the Group has adequate financial resources and the Directors believe that the Group is positioned to meet the costs of the Group's current financial commitments. The Board's review of the accounts, budgets and financial plan lead the Directors to believe that the Group has sufficient resources to continue in operation at least until the end of 2019 and they will consider all forms of finance to further accelerate growth if successful operations support increased development. The financial information is therefore prepared on a going concern basis.

2. Other Operating Costs

Environmental remediation costs

During the year the Group discovered that one of the Rainbow area pipelines acquired in late 2015 had suffered corrosion in the past which had resulted in pin hole leaks. Fluid, mainly salt water, had seeped into the surrounding earth . The Group's Canadian subsidiary worked with the Alberta Energy Regulator and specialist environmental contractors to clean up and remediate the effects of the leaks. The cost of the clean up during 2017 was $1,198,000 (2016: $nil). The Group has made a claim under its insurance policy which is still ongoing and therefore the Group has not recognised a sum in respect of the amount it expects to recover.

Business acquisition costs

Rockhopper Civita Limited

On 8 June 2017, the Company announced the acquisition of Rockhopper Civita Limited, a UK company with an Italian branch, which owns onshore production and development gas assets in Italy from Rockhopper Mediterranean Limited, a wholly owned subsidiary of Rockhopper Exploration Plc.

The acquired assets comprise the Aglavizza production concession, which contains the producing Civita gas field and associated processing facilities and pipeline, a local operations base, and the following production concessions, containing suspended wells, and an exploration permit: Scanzano Concession (100% interest), Torrente Celone Concession (50% interest), Monte Verdese Concession (60% interest), San Basile Concession (85% interest) and Civita Permit (100% interest / exploration).

Civita, which is tied into the national gas network, was commissioned in late 2015 and averaged gas production of 130 boepd during 2016. The field is estimated to contain approximately 1 bcf of recoverable gas according to internal estimates. Rockhopper will pay US$1.6 million on completion of the acquisition as a partial contribution to the abandonment liabilities transferred. This is subject to inter alia Italian regulatory approval and is expected to occur in 2018. The acquisition has an economic effective date of 1 January 2017. Legal and professional expenses of $196,000 incurred during 2017 in relation to the proposed acquisition have been expensed as incurred in accordance with IFRS 3 "Business Combinations".

High Power Petroleum (NOP) UK Limited ("H2P NOP") and its 100% subsidiary High Power Petroleum Canada Limited ("H2P Canada")

On 19 December 2017 the Group announced that it had agreed acquire, H2P NOP, and by doing so take 100% control of its Canadian production and development portfolio in the Rainbow and Virgo regions of north west Alberta through the indirect acquisition of H2P NOP's 100% subsidiary H2P Canada, the holder of 25% of the Canadian Assets; and an option held by H2P to acquire a further 25% of the Canadian Assets at an exercise price of $4.0 million (the "H2P Option").

The consideration of $8.7 million for the acquisition was based upon 50% of the net present value, at a 10% discount rate, of the proven reserves as calculated by McDaniel & Associates Ltd in their report dated 30 September 2017; less the cost of exercising the H2P Option; and less certain long term abandonment liabilities and taxes. No adjustment was made to the consideration for the fourth quarter 2017 production from the Canadian Assets.

The acquisition was subject to shareholder approval which was given at the general meeting held on 5 January 2018. Gross production, cashflow and reserves from the project will accrue to the Company from 1 January 2018. Legal and professional expenses of $60,000 incurred during 2017 in relation to the proposed acquisition have been expensed as incurred in accordance with IFRS 3 "Business Combinations".

3. Other Operating Income

On 8 March 2017 the Group's Canadian subsidiary Cabot Energy Inc. acquired a number of Rainbow area leases in Alberta, Canada. In accordance with IFRS 3 "Business Combinations", the assets acquired were recognised at their fair value using an internal financial model based on information from the Group's due diligence. A discount rate of 10% was used in the fair value calculation. The Group calculated that the fair value of the assets acquired exceeded the cost of purchasing the assets by $2,787,000, the bargain consideration. On acquisition the assets have been included at their fair value in plant, property and equipment and the value of the bargain consideration has been credited to the statement of comprehensive income as part of other operating income. A deferred tax liability of $752,000 in respect of temporary differences arises on the bargain consideration and has been netted from the total shown above.

During the prior year, on 21 January 2016 the Group's Canadian subsidiary Cabot Energy Inc. acquired a number of Rainbow area leases in Alberta, Canada. The Group calculated that the fair value of the assets acquired exceeded the cost of purchasing the assets by $2,730,000, the 2016 bargain consideration. A deferred tax liability of $719,000 in respect of temporary differences arose on the bargain consideration was netted from the total shown above.

In March 2017 the Group received a payment of €608,000 ($674,000) in respect of a debtor arising from the drilling of the Savio 1x well in Italy. The Savio 1x debtor had been written off, transferred to intangible assets and then subsequently impaired in the 2014 accounts, as both the timing and recoverability of the debtor were uncertain. With the recovery of €608,000 in 2017, this amount was recognised as a debtor at 31 December 2016 and a credit recorded in other income.

4. Intangible Assets

a) Exploration and Evaluation Assets

Intangible assets consist of the Group's exploration projects which are pending determination of technical feasibility and commercial viability of extracting a mineral resource.

The disposals in Other of $157,000 arise from expiry of licences in Spain operated by third parties over which the Group had certain royalty interests.

The Group tests intangible assets for impairment when there is an indication that assets might be impaired. In performing impairment tests the Group compares the carrying value of intangible assets to their recoverable amount and also where the Group has tangible oil and gas assets with commercial reserves, the carrying value is compared to recoverable amount of both intangible and tangible assets. An additional impairment loss of $23,000 has been recognised against the costs capitalised in respect of the Australian PEL629 licence. The licence is currently in suspension. Following the drilling of a successful well on the adjoining licence in January 2018, the Directors are considering bringing the licence out of suspension. An additional impairment loss of $1,000 has been recognised against the costs capitalised in respect of the Sicily Channel licences, CR146 and CR149. These licences are currently in suspension awaiting Italian Environment Ministry approval to drill a well.

The carrying value of the permits in the southern Adriatic has not been impaired based on the potential value of the permits following any successful exploration and appraisal, and the continued level of interest in the permits by industry participants. An impairment reversal credit of $2,000 has been recognised against the French Guiana cost pool. The French Guiana permit expired in June 2016 and the Group is considering ways to monetise the value of the data owned by its 55.9% subsidiary, Northpet Investments Limited. In the meantime the Directors have decided to continue to fully impair the French Guiana cost pool. In line with the Group's accounting policy for intangible E&E assets, the Directors have assessed the carrying value of the Canadian E&E assets and have concluded that that there are no facts or circumstances to suggest that the carrying value of the assets exceeds its future recoverable amount.

At the year end the contractual commitments for capital expenditure in respect of intangible assets in Italy was $138,000 (2016: $nil), of which the Group's share was $138,000 (2016: $nil).

The comparative tables for 2016 are detailed below:

An impairment loss of $11,000 was recognised against the costs capitalised in respect of the Sicily Channel licences, CR146 and CR149. These licences are currently in suspension awaiting EIA approval to drill a well. The carrying value of the permits in the southern Adriatic was not impaired based on the potential value of the permits following any successful exploration and appraisal, and the continued level of interest in the permits by industry participants. An impairment loss of $44,000 was recognised against the French Guiana cost pool. The French Guiana permit expired in June 2016 and the Group is considering ways to monetise the value of the data owned by its 55.9% subsidiary, Northpet Investments Limited. In the meantime the Directors decided to continue to fully impair the French Guiana cost pool. In line with the Group's accounting policy for intangible E&E assets, the Directors have assessed the carrying value of the Canadian E&E assets and concluded that that there were no facts or circumstances to suggest that the carrying value of the assets exceeds its future recoverable amount.

b) Computer software

5. Property, Plant and Equipment

a) Oil and Gas Assets

Canadian developed acquisitions of $3,581,000 in the year relate to the fair value of Rainbow assets acquired in March 2017, including the associated abandonment liabilities. Developed additions in the year of $8,064,000 relate to the Rainbow assets as the Group invested in increasing production.

Changes in estimates in the year of $310,000 relates to changes in abandonment liabilities for the Rainbow and Virgo area wells, reflecting either increased estimates for changes in the condition of wells or actual costs incurred in abandonment over and above the original estimates. The Group matches abandonment estimates calculations made by the Alberta Energy Regulator ("AER") in measuring operators' liabilities for abandonment in the province.

2017 Impairment

The Group tests assets for impairment when there is an indication that assets might be impaired. In performing impairment tests the Group compares the carrying value of property, plant and equipment cash generating units to their recoverable amount. Four wells which are in the process of being abandoned and have no reserves were fully impaired by $239,000 as a result of writing off increases in their carrying value brought about as a result of the changes in estimates for abandonment. Two wells were impaired by a total of $424,000 to their value in use where capital expenditure was incurred, but reserves did not subsequently increase and further work is required, but is not included in current work programmes. All impairments were calculated using a value-in-use technique with post-tax cash flows calculated based on proven and probable reserves using a post-tax discount rate of 10%. The oil price per barrel used was a weighted average over the overall life of the field of $76 per barrel (WTI) based on prices ranging from $53 in Q4 2017 to $89 beyond 2031.

At the year end the contractual commitments for capital expenditure in respect of property, plant and equipment was $nil (2016: $nil), of which the Group's share was $nil (2016: $nil).

6. Rainbow acquisition

On 8 March 2017, the AER transferred a number of additional Rainbow area leases in Alberta, Canada to the Group's Canadian subsidiary, Cabot Energy Inc. ("CEI") following the deposit by CEI with the AER of approximately $0.7 million. CEI assumed a 75% interest in the leases, with High Power Petroleum Canada Limited, CEI's existing Canadian partner, acquiring the other 25%. The payment of an abandonment deposit to the AER was a final step in the regulatory approval of the acquisition of the leases following the payment of a nominal cash consideration to the vendor. The acquisition of the additional Rainbow leases has enabled the Group to increase its asset base in Alberta and add additional processing and oil handling capacity in the same area as CEI's existing assets. The new Rainbow assets include a total of six operated production wells a water disposal well and their associated facilities. All the wells were suspended at the time of acquisition and the Group has brought, or has plans to bring, all wells back into production. Five of the wells were brought back into production between March and September 2017.

The assets acquired are an integrated set of activities and assets that are capable of being conducted and managed for the purpose of providing a return. In accordance with IFRS 3 "Business Combinations", the assets acquired were recognised at their "fair value" using an internal financial model based on information from the Group's due diligence. A post tax discount rate of 10% was used in the fair value calculation. This represents a Level 3 valuation in the IFRS 13 fair value hierarchy as it is based on certain judgements and estimates made by the Directors. The Group calculated that the fair value of the assets and liabilities acquired exceeded the cost of purchasing the assets by $2,787,000, the "bargain consideration" and was credited to the statement of comprehensive income. It is likely that the bargain consideration arose because the vendor, who is a large group, had decided to sell a non-core business for strategic reasons and after trying to dispose of the business for a number of years, was minded to accept an offer lower than the fair value of the business in order to divest itself of the risks and responsibilities of ownership. On acquisition the assets have been included at their fair value in plant, property and equipment and the value of the bargain consideration has been credited to the statement of comprehensive income as part of other operating income. A deferred tax liability of $752,000 was recognised and offset against the bargain consideration. The liabilities include the provisions for future abandonment of the wells and facilities.

Consideration:

Identifiable assets acquired and liabilities assumed:

No significant acquisition related costs have been incurred.

The revenue generated and expenses incurred by this operation since the date of acquisition (8 March 2017) were $806,000 and $903,000 respectively. Of the $903,000 expenses, $538,000 relates to production costs, $344,000 relates to depletion and amortisation of plant property and equipment and $21,000 relates to finance costs for the unwinding of discount on decommissioning provisions. Cash outflow from the operation post acquisition was $426,000 and comprised net revenue and investments in oil and gas assets. If the acquisition had occurred on 1 January 2017, management estimates that consolidated revenue would have been no higher and the consolidated costs for the year would have been $10,000 higher as the wells were suspended at the start of the year.

7. Post Balance Sheet Events

Between the balance sheet date of 31 December 2017 and the date that the 2017 financial information has been signed, the following developments have been announced which have a material impact on, or the understanding of, this financial information:

On 19 December 2017 the Group announced that it had agreed, subject to shareholder approval, to take 100% control of its Canadian production and development portfolio in the Canadian Assets by acquiring the remaining 25% held by H2P and the H2P Option.

The agreed consideration of $8.7 million for the acquisition was based upon 50% of the net present value, at a 10% discount rate, of the proven reserves as calculated by McDaniel & Associates Ltd, less the cost of exercising the H2P Option, and less certain long term abandonment liabilities and taxes. $1.75 million of the consideration is payable in cash in 12 instalments during 2018, the balance being settled by the issue of new 1 pence Ordinary Shares in the Company.

At the same time the Group announced an equity capital raise comprising a subscription with H2P, a placing of Ordinary Shares, and an open offer on the basis of 1 Open Offer Share for every 8 existing 1 pence Ordinary Shares. The funds raised were proposed to be invested in the winter and summer work programmes in Canada with the objective of substantially increasing production by the end of 2018. The Issue Price of 5 pence per Ordinary Share represented a discount of 2.5% to the closing mid-market price of 5.125 pence on 18 December 2017.

The acquisition was subject to takeover panel and shareholder approval which was given at the general meeting held on 5 January 2018. 100% of gross production, cashflow and reserves from the project will accrue to the Group from 1 January 2018. On 8 January 2018 310,996,081 new shares were admitted to trading on AIM and on 16 January 2018 the 21,634,406 open offer shares were admitted to trading on AIM. The total amount raised was approximately $16 million before expenses.

Following the subscription, H2P hold a 58.09% interest in the Company and became the parent company of Cabot Energy Plc. H2P is itself part of the I-Pulse Inc. Group and as such the Company's ultimate parent company is now I-Pulse Inc, whose registered office is 2711 Centerville Road, Suite 400 Wilmington, DE 19808 USA (for further information on I-Pulse Inc. see https://www.ipulse-group.com/).

As a result of its increased shareholding, H2P became eligible for a further board member. Petro Mychalkiw was appointed to the Board in January 2018. As part of the new agreement with H2P, the remuneration of H2P appointed Non-Executive directors will be borne by the Company from 1 January 2018.

Availability of Annual report and accounts and investor presentation

The Group's Annual report and accounts and the notice of the annual general meeting of the Company will be dispatched to shareholders as soon as is practicable. Copies will also be available on the Company's website www.cabot-energy.com and on request from the Company at, Chester House, Unit 3.01, Kennington Park, 1-3 Brixton Road, London SW9 6DE. The latest presentation for investors is also available on the Company's website.