Half Yearly Report

Altona Energy Plc / Index: AIM / Epic: ANR / Sector: Exploration & Production

29 March 2011

Altona Energy Plc ('Altona' or 'the Company')

Interim Results for the six months ended 31 December 2010

Altona Energy Plc, the AIM-listed Australia-based energy company, announces its results for the six month period ended 31 December 2010. 

Highlights

·; Bankable Feasibility Study ('BFS') for the Arckaringa Project commenced in conjunction with Joint Venture Partner, CNOOC-NEIA

·; Stage 1 work programme progressed including detailed review of coal deposit geology and hydro-geology

·; Hydro-geological drilling and field programmes scheduled to commence mid-2011 as part of the important groundwater management research and design phase

·; Board strengthened with the appointment of Peter Fagiano as Executive Director, who was previously Director of Operations at Jacob's Engineering UK Limited

·; Financial loss for the Group of £909,000 (2009: £531,000), includes increase in share based payments following the successful completion of the joint venture agreement

Commenting today Chris Lambert, Chairman, of Altona Energy said: "The period marked an important transitional phase for Altona and the Arckaringa Project, with the commencement of the BFS on a large scale clean coal conversion project in conjunction with our JV partner, CNOOC-NEIA. With Stage 1 of the BFS underway we look forward to confirming the exciting technical and economic potential of our estimated 7.8 billion tonne coal energy bank."

Chairman's Statement

The reporting period marked an important transitional phase for Altona, with the commencement of the Arckaringa BFS in conjunction with our joint venture partner, CNOOC-NEIA, a subsidiary of CNOOC, one of China's largest national oil companies.

The relevance of the estimated 7.8 billion tonne Arckaringa coal resource (of which 1.28 billion tonnes is JORC compliant) in South Australia as a world class energy bank is being highlighted by the unrest in the Middle East and North Africa, which has once again placed energy security in the spotlight. 

Having agreed a two phase development budget of A$40 million (circa £24 million) for the completion of the Arckaringa BFS, funded by CNOOC-NEIA, the parties have been progressing the Stage 1 work programme, which includes:

·; detailed review of coal deposit geology and consideration of supplemental drilling;

·; groundwater investigation and verification;

·; groundwater management research and design;

·; environmental baseline studies;

·; open cut coal mining methodology options; and

·; product market research.

As part of this Stage 1 work programme, General Prospecting Institute of the China National Administration for Coal Geology ('CNACG') was appointed to advance technical studies in respect of coal deposit geology, with a technical team from CNACG visiting South Australia and the Arckaringa site. The work undertaken by CNACG included an extensive technical data review, confirming the parameters for the geological database. In addition, CNACG assessed the physical conditions governing the location of the Wintinna mine and supporting infrastructure, including the transport corridor options to link into the nearby national rail and road network. CNACG is currently compiling a Geological Report on licence EL4512 to assist the development of the long term plan for the Wintinna Coal Mine. In addition, CNACG is undertaking geological and hydro-geological research reports to underpin the design of the field drilling programmes that will provide the detailed information needed for mine design and the groundwater management programme. In anticipation of completion of these reports, the JV partners are preparing documentation to gain the required Exploration Works Approval from the South Australian Government and to select the local drilling and hydro-geological companies for the field programmes, which are scheduled to commence in mid 2011. 

The involvement of CNOOC-NEIA with its extensive technical and commercial resources provides exciting potential for development opportunities further to the base case scenario of a 10m tonne per annum coal mine feeding a CTL plant producing 10m barrels per annum of low sulphur distillate and an integrated power plant producing 560MW of electricity for export.

The Company's management team was further strengthened in January 2011 when Peter Fagiano joined as Executive Director responsible for Project Technology. Peter managed a range of techno-economic studies on the Project through his previous role as Director of Operations - Process & Technology at Jacob's Engineering UK Limited, a subsidiary of one of the world's leading engineering firms. Peter as an Altona representative on the Management Committee of the JV with CNOOC-NEIA will be a key member of the technical team. Throughout the course of his 45 year career, Peter has completed major projects for BP, Chevron, Petrobas, Conoco Phillips, Shell, Statoil and Total amongst other international energy companies. His intimate knowledge of the Project and his expertise in synthetic gas applications will be highly valuable in progressing Arckaringa, optimising its expansive potential as well as evaluating additional opportunities to create further value for our investor base. 

As an industry renowned expert in synthetic gas, Peter has seen it evolve into a proven and well established method of harnessing energy from coal. Indeed, its profile is increasing rapidly, in tandem with the demand for cleaner and alternative sources of fuel. Highlighting this was a recent announcement by U.S based clean energy company Rentech outlining its tie up with Solena Group Inc., a zero emission bioenergy company to use the Fisher Tropsch process to produce jet fuel for commercial use. This is the same process as used by Peter's team at Jacob's Engineering during the Pre-feasibility study for the Arckaringa CTL plant. 

The Directors believe the development of the Arckaringa Project would be highly beneficial to South Australia, which imports all of its distillate requirements and faces a significant forecast shortage of base load power. Altona has developed excellent working relationships with the South Australian government, and has been very appreciative of the support received at both state and federal Australian government levels. We were delighted that the importance of the Arckaringa project was acknowledged with the ceremonial signing of the JV at Parliament House in Canberra, Australia, in the presence of Mr Xi Jinping, the visiting Vice President of the People's Republic of China, Australia's Prime Minister at that time, Mr Kevin Rudd, and South Australia's Minister for Mineral Resources Development, Mr Tom Koutsantonis.

The financial loss of the Group for the six months ended 31 December 2010 was £909,000 (2009: £531,000) includes increase in share based payments following the successful completion of the joint venture agreement. 

Stage 1 of the BFS will continue over the course of 2011, and we intend to announce the completion of key milestone during the period. Working with a major Chinese partner, with extensive technical, commercial and financial resources, we look forward to progressing the unlocking of the vast development of the Arckaringa energy bank.

We look forward to updating on our progress and thank all our shareholders for their continued support through this pivotal time for the Company.

Chris Lambert

Chairman

**ENDS**

Notes

Altona Energy Plc is an AIM listed Australian based energy company. Its asset is an estimated 7.8 billion tonne coal resource (non-JORC) in the Arckaringa Basin of South Australia (JORC-compliant: 1.287 billion tonnes). This is considered by the Board to be one of the world's largest untapped energy banks. Per Jacobs Engineering's study for the Company, assuming a 50% conversion of CTL fuels and 50% to synthetic gas ('Syngas'), Arckaringa total coal resources (both JORC and non-JORC) would represent respectively 28% and 29% of current North Sea remaining proven reserves of 10,900mb of oil and 114,800 bcf of natural gas.

Altona has already accomplished a number of key phases in its development:

·; The Company has agreed the terms of a joint venture agreement with CNOOC-NEI, a subsidiary of Chinese oil major China National Offshore Oil Corporation, to accelerate the Arckaringa Project towards commercialisation. 

·; Under the terms of the agreement, CNOOC-NEI will fund the bankable feasibility study ('BFS') for a coal mine and an integrated value-added project. 

·; The current base case is a 10mb per year CTL plant and 560MW co-generation power facility. 

·; CNOOC-NEI will also act as the operator and take responsibility for assessing the full potential of the coal resource, in return for a 51% interest in the exploration licences. 

·; It is envisaged that numerous new additional projects may also be opened up to create a multi-project, multi-national business. 

CTL

The quality of the Company's coal is suitable for conversion to synthetic gas ('Syngas'), using existing commercial CTL technologies. The process involves two major stages;

1. gasification to produce Syngas rich in hydrogen and carbon,

2. a liquefaction stage where the Syngas is reacted over a catalyst to produce high quality, ultraclean synthetic fuels and chemical feedstocks. 

CTL is a prime example of clean coal technology - the associated combined cycle units produce negligible sulphur oxides, significantly less nitrogen oxides and 10-20% less CO2 per unit of power generated than a conventional coal fired plant, whilst carbon capture and storage offers the potential to reduce the overall greenhouse gas emissions from CTL to below the 'well to wheel' level of fuels derived from crude oil. The technology is best demonstrated in South Africa, where currently 30% of the country's gasoline and diesel fuel needs are met through CTL plants. 

Consolidated Statement of Comprehensive Income

For the half year ended 31 December 2010

Consolidated Balance Sheet

At 31 December 2010

Consolidated Cash Flow Statement

For the half year ended 31 December 2010

Consolidated Statement of Changes in Equity

For the half year ended 31 December 2010

Notes to the Interim Report

For the half year ending 31 December 2010

1. GENERAL INFORMATION

Altona Energy Plc (the "Company") is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the six months ended 31 December 2010 comprise the result of the Company and its subsidiaries (together referred to as the "Group"). 

The condensed interim financial information for the period 1 July 2010 to 31 December 2010 is unaudited. In the opinion of the Directors the condensed interim financial information for the period presents fairly the financial position, and results from operations and cash flows for the period in conformity with the generally accepted accounting principles consistently applied. The condensed interim financial information incorporates unaudited comparative figures for the interim period 1 July 2009 to 31 December 2009 and extracts from the audited financial statements for the year to 30 June 2010.

The financial information contained in this interim report does not constitute statutory accounts as defined by section 435 of the Companies Act 2006.

The comparatives for the full year ended 30 June 2010 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) - (3) of the Companies Act 2006.

2. ACCOUNTING POLICIES

The condensed interim financial information has been prepared using International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. The condensed interim financial information has been prepared using the accounting policies which will be applied in the Group's statutory financial information for the year ended 30 June 2011.

Basis of preparation

The accounts have been prepared on a going concern basis. As is common with many junior mining companies, the Company raises money for exploration and capital projects as and when required. There can be no assurance that the Group's projects will be fully developed in accordance with current plans or completed on time or to budget. Future work on the development of these projects, the levels of production and financial returns arising there from may be adversely affected by factors outside the control of the Group.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, except as described below:

Changes in accounting policies

3. TAXATION

The Group has recognised a £Nil tax credit (31/12/09: a £149,000 and 30/06/10:£156,000) in respect of the concession for research and development available to the Group. No current taxation has been provided due to losses in the period.

4. LOSS PER SHARE

The basic loss per share is derived by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of shares in issue.

As the inclusion of the potential ordinary shares would result in a decrease in the loss per share they are considered to be anti-dilutive and, as such, the diluted loss per share calculation is the same as the basic loss per share.

5. INTANGIBLE ASSET

The Intangible Asset relates to Project of Company's 100% subsidiary Arckaringa Energy Pty Limited.

The Company's wholly owned subsidiary, Arckaringa Energy Pty Ltd and CNOOC-NEIA have entered into an Unincorporated Evaluation Joint Venture ('UEJV'). Under the terms of the UEJV, CNOOC-NEIA will fund the estimated cost (AUD$40m) of the bankable feasibility study ('BFS') for the Arckaringa Project and will act as the operator, not only to carry out the staged evaluation work under the BFS, but also to take responsibility for assessing the full potential of the coal resource and bringing projects to development, in return for a 51% interest in Arckaringa Energy's exploration licences. If the parties decide to adopt and implement the Mining Development Project or a Nominated Project, they will then negotiate and enter into a development agreement in relation to each project, under which CNOOC-NEIA's interest in the relevant project can increase to 70%.

6. TRADE AND OTHER RECEIVABLES

7. CALLED UP SHARE CAPITAL

Allotted, called up and fully paid

During the period the Company issued the following Ordinary 0.1 pence fully paid shares for cash:

Share options and warrants

8. SHARE BASED PAYMENTS

The assessed fair value at the grant date has been determined using the Black-Scholes Model that takes into account the exercise price, the term of the option, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. Share based payments are recognised over the vesting period of the options.

During the previous period, the Company granted options to Directors, management and consultants as tabled below. 

The inputs into the Black Scholes model are as follows:

Expected volatility was determined by calculating the historical volatility of the Group's share price since listing.

The Group recognised £133,000 (year ended 30 June 2010: £2,531,000; 31 December 2009: £19,000) related to equity-settled share based payment transactions during the year, of which £Nil (year ended 30 June 2010: £1,432,000; 31 December 2009: £Nil) was capitalised to intangibles. 

9. CONTINGENT LIABILITIES

In November 2005, the Group acquired the subsidiary Arckaringa Energy Pty Ltd. At that time Arckaringa Energy Pty Ltd was the holder of three exploration licences in South Australia. The Group obtained advice that this acquisition could be assessed as not subject to the land rich stamp duty provisions relating to South Australian property. Revenue SA has been reviewing this acquisition and at the reporting date, the Group has not yet received an assessment. The advice provided to the Group indicates that should stamp duty ultimately be payable it may amount to AUD$252,000 (GBP £165,000).

In the event that an additional stamp duty payment is required the amount paid would represent an increase in the amount recognised as capitalised exploration and evaluation expenditure.

The Group has not recognised a liability in connection to additional stamp duty as the Directors believe that no further stamp duty is payable in connection to this matter, based on professional advice received at the time of acquisition and subsequently, and in the absence of further details from Revenue SA.