Half-year Report

Anglo African Oil & Gas plc / Index: AIM / Epic: AAOG / Sector: Oil & Gas

27 September 2019

Anglo African Oil & Gas plc

('AAOG' or the 'Company')

Half-year Report

Anglo African Oil & Gas plc, an independent oil and gas developer, is pleased to publish its unaudited results for the six months ended 30 June 2019.

LETTER FROM THE CHAIR

Dear shareholder

These interim accounts cover the six-month period to 30 June 2019, during which the standout event was the successful drilling of the TLP-103C well on the Tilapia licence in the Republic of the Congo, in which the Company has a 56 per cent interest. The well encountered 56 metres of oil columns, including 26 metres in the Mengo formation and a further 12 metres in the deeper Djeno formation. TLP-103C was the first well to target the Djeno at Tilapia, which represents an opportunity to generate significant cash flow and profitability. We plan to capitalise on this opportunity: preparations for drilling a new sidetrack, the TLP-103C-ST, are now finalised and, as we announced earlier this month, well re-entry operations have started.

Team

The drilling of TLP-103C-ST will be overseen by an experienced team, the majority of whom successfully managed operations at TLP-103 over the past twelve months. However, while the technical and operational teams remain in place, there has been a change at board level. Earlier this month, we reported David Sefton's decision to step down from his position as Executive Chairman and as a director of the Company. It goes without saying that David played a major role in getting AAOG to where it is today. In our view, one of his most important contributions has been to put in place a strong board and management structure. Led by our chief executive James Berwick, who has a proven track record in the industry, both operationally and commercially, the board and executive team comprise highly qualified professionals with the industry expertise and knowledge to take the Company into the next phase of its development. 

Outlook

After the positive TLP-103C well results at the beginning of the year, the remainder of the review period and subsequently has been centred on drawing up a comprehensive forward plan to monetise the discovery in the Djeno at the earliest opportunity. With an operational team in place and a funding package finalised, the team is now concentrating on signing a rig contract for the sidetrack into the Djeno. The Company will provide further updates at the appropriate time.

In the meantime, I would like to thank the Board and management team for their hard work during the period and our shareholders for their continued support and patience.

Sarah CopeNon-executive chair

27 September 2019

CHIEF EXECUTIVE'S LETTER

Dear shareholder

This report and accounts cover the six months to 30 June 2019.

Financial results

The loss for the half-year reflects the significant costs that the Company has incurred in building the team to capitalise on the opportunity presented by TLP-103C. While increased production from the existing wells has not materialised as soon as had been originally hoped, the investment that the Company has made during the period has prepared the ground for the sidetrack drilling campaign into TLP-103C-ST. We also incurred costs during the period relating to the preparation for our negotiations for the new licence, the legal dispute with SMP and the aborted reverse take-over involving assets in Tunisia. We expect the second half of the year to show a significant reduction in non-standard operational expenditure.

Operational plan

The operational plan is to re-enter the existing TLP-103C well and drill the new sidetrack just below the Mengo formation to test the Upper Djeno and explore the Middle Djeno formations. The objective is to determine whether the Djeno can be brought into production from either horizon. Depending on the flowrate, some enhancements to topside infrastructure at the Tilapia field will be required.

Of course, drilling activity is never without risk. However, we believe that the sidetrack operations have an attractive risk/reward profile. TLP-103C has already proven the geological model and confirmed the presence of the Djeno at Tilapia. The fallback plan is to produce TLP-103C from the Mengo formation. At current oil prices, a daily production rate of, say, 500/bopd from the Mengo would generate material levels of cash flow for AAOG. It is this combination of the low-risk production story provided by the shallower R1/R2/R3 and Mengo formations, and the significant exploration upside potential offered by the Djeno, that attracted us to Tilapia in the first place. Furthermore, with the licence covering an area of 50.51 sq km, the Company has already identified multiple follow-up drill locations that can be targeted, once well TLP-103C has been brought into production, to generate further cash flow. 

A suitable rig and equipment to carry out the operations are currently being sourced. The production plan is ready to be executed as soon as we have a rig on site.

Operations update

TLP-103C and TLP-103C-ST

The Company has now completed the planning phase of the TLP-103C-ST re-entry into the TLP-103C well and has moved into the operations phase. As we reported earlier this month, we have contracted Wire Group to supply and install an isolation plug, which is required to ensure that there are the necessary barriers in the well and which will enable re-entry.

The well continues to flow oil when bled off and pressure in the well is stable. Negotiations are ongoing with two potential rig providers, both of which have rig units in the Republic of the Congo. The Company is also scouting for other units with minimal mobilisation charges as a fallback option.

TLP-101

The Company has planned a further workover as part of its routine maintenance of well TLP-101. This will see fluids pumped into the well through the annulus in order to remove any potential blockages in the coiled tubing due to the build-up of wax. A similar exercise was completed in 2018 on the top-side flowlines.

Licence negotiations

The Company has held two rounds of negotiations with the Ministry of Hydrocarbons during this reporting period. We have agreed a basic set of terms that will be inserted into the new 25-year production-sharing contract. A final round of negotiations is scheduled for October to ensure that the optimal position for both parties can be finalised.

Financing

During the period under review, the Company completed a placing, in January 2019, raising gross proceeds of £6.0 million through the issue of 60,000,000 ordinary shares of five pence each at a price of ten pence. The Placing provided the Company with the funds required to complete the initial drilling of well TLP-103C. 

Following the period-end, the Company completed a further fundraising for up to £8.25m. This comprised a placing of 49,288,347 ordinary shares of five pence each at a price of 5.2p raising a total of £2,562,994.04 and the entry into an Investor Sharing Agreement between AAOG, YA II PN, Ltd and Riverfort Global Opportunities PCC Limited. The consortium subscribed for 109,331,011 Ordinary Shares at the Issue Price for a total commitment of up to £5,685,212.57, dependent on the AAOG share price and the trading volumes during the twelve-month period of agreement. The funds will be released to the Company over the next 12 months.

These funds, alongside continued anticipated receipts from our partner Société Nationale des Pétroles du Congo ('SNPC'), the Congolese national oil company, are expected to enable the Company to re-enter the TLP-103C well at Tilapia with a view to producing oil from the Djeno horizon. Although AAOG has historically had to finance the majority of the partnership's total expenditure, SNPC has now been making regular cash-call payments since March 2019, with nearly US$4.0 million received by the date of this report.

Summary

The Company has continued to make progress during 2019, albeit not without delays and difficulties. However, I share the enthusiasm of our experienced team for the Tilapia project and I look forward to delivering a result for shareholders that will reward their patience and their investment.

James Berwick

Chief Executive Officer

27 September 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2019 (unaudited)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2019 (unaudited)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2019 (unaudited)

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2019 (unaudited)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2019 (unaudited)

1. REPORTING ENTITY

The Company is incorporated and domiciled in England and Wales. The consolidated interim financial statements for the six months ended 30 June 2019 comprise of the Company and subsidiaries. The Group will continue to be primarily involved in the extraction of and exploration of natural resources in Africa.

2. ACCOUNTING POLICIES

Statement of compliance

This consolidated interim financial report does not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The financial statements are unaudited and do not constitute statutory accounts as defined in section 434(3) of the Companies Act 2006. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial performance and position of the Group since the last annual consolidated financial statements for the year ended 31 December 2018.

A copy of the audited annual report for the year ended 31 December 2018 has been delivered to the Registrar of Companies. The auditor's report on these accounts was unqualified and did not contain statements under s498(2) or s498(3) of the Companies Act 2006.

This consolidated interim financial report was approved by the Board of Directors on 26 September 2019.

3. Significant accounting policies

The accounting policies applied by the Group in this consolidated interim financial report are the same as those applied by the Group in its consolidated financial statements for the year ended 31 December 2018.  IFRS 16 has been adopted for the first time; as all leases are short term, there is no impact from this adoption.

4. OPERATING SEGMENTS

The Company manages a group involved in mineral resources exploration and exploitation in Africa and is, therefore, considered to operate in a single geographical and business segment.

5. LOSS FROM OPERATING ACTIVITIES

The loss before taxation is stated after charging:

The directors are considered to be key management personnel.

* Incurred prior to 31 March 2019

6. BASIC AND DILUTED LOSS PER SHARE

Basic

The calculation of loss per share for the six months to 30 June 2019 is based on the loss for the period attributable to ordinary shareholders of £2,392,737 divided by a weighted average number of ordinary shares in issue of 233,288,154 (December 2018 - £11,830,789/124,376,778).

In the opinion of the directors, all the outstanding share options and warrants are anti-dilutive and, hence, basic and fully diluted loss per share are the same.

7. PROPERTY, PLANT AND EQUIPMENT

8. INTANGIBLE ASSETS

9. TRADE AND OTHER RECEIVABLES

Recoverability of debtor balances

Significant estimation is required in the determination of the fair value of debtor balance due from SNPC, taking account of the payments made by SNPC to the date of this report and the stated intention of SNPC to repay the amount due.

10. SHARE CAPITAL

Allotted, issued and fully paid: 

The holders of deferred shares are not entitled to receive dividends or to vote at meetings of the Company and have no material interest in the Company's residual assets.

On 15 January 2019, the Company issued 60,000,000 ordinary shares at a premium of 5 pence per share.

11. PROVISIONS

12. EVENTS AFTER THE REPORTING PERIOD

On 17 July 2019, the Company completed a further fundraising for up to £8.25m. This comprised a placing of 49,288,347 ordinary shares of five pence each at a price of 5.2p raising a total of £2,562,994.04 and the entry into an Investor Sharing Agreement between AAOG, YA II PN, Ltd and Riverfort Global Opportunities PCC Limited. The consortium subscribed for 109,331,011 Ordinary Shares at the Issue Price for a total commitment of up to £5,685,212.57, dependent on the AAOG share price and the trading volumes during the twelve-month period of agreement. The funds will be released to the Company over the next 12 months.

The interim report will be sent to shareholders on the register. Further copies of this report are available on the Company's website at www.aaog.com.

Market Abuse Regulation (MAR) Disclosure

The information contained within this announcement is deemed by the Company to constitute inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Enquiries

For further information please visit www.aaog.com or contact: