Half Yearly Report

Mercom Oil Sands plc

("Mercom" or "the Company")

Interim results

Mercom Oil Sands plc announces its interim results for the six month period ended 30 September 2014.

Chairman's Statement

I am pleased to present my Chairman's statement for Mercom Oil Sands plc ("the Company") for the six month period ended 30 September 2014.

In the year ended 31 March 2014, the Board secured shareholder support for a new strategy to create shareholder value through the investment of the Company's cash assets in the natural resources and energy sectors, with a focus on oil and gas. 

On 29 May 2014, the Company announced a range of new investments totaling £768,000, of which £400,000 was invested for a 30% interest in Lion Natural Resources Limited, an unquoted company which holds investments in two companies with projects in Sierra Leone and Kenya; £300,000 was invested for a 35% interest in NWT Coal Limited, an unquoted company with two coal concessions in Vietnam; and a small investment of £68,000 was made in 7% convertible debentures of Maverick Petroleum Ltd, an oil company with a focus in the Republic of Chad. These investments will be managed with a view to generating returns for shareholders and, as such, investments may be realised from time to time. As a result of these investments, the Company was deemed to have implemented its investing policy for the purposes of Rule 15 of the AIM Rules for Companies.

On 16 July 2014 the Company announced that the Board had decided to proceed with the share capital reorganisation approved at the General Meeting of the Company held on 24 May 2013. This reorganisation, which wascompleted on 31 July, effectively consolidated every 50 old Ordinary shares of 0.1p each into one new Ordinary share of 0.1p each. The Board considers this will facilitate future investment decisions, and has placed the Company in a position to implement its investment strategy with increasing confidence.

No further investments have yet been made, but the Company is continuing the process of identifying investment opportunities which match the new approved strategy, and of evaluating the potential profitability and risks associated with them. The unaudited interim accounts accordingly show that the Group had cash reserves of £627,816 at 30 September, after corporate expenses of £108,010 had been incurred in the first half year (2013: £133,819). Net cash used in operations amounted to £89,752 (2013: £157,789).

On 21 October 2014, the Board accepted the resignation of Albert Taubi as non-executive director, while expressing its gratitude to Mr Taubi for his efforts to promote the interests of Mercom Oil Sands Plc since its incorporation. As a result of his departure, the Board is now considering the best structure for its future activities and expects to make a further announcement before the end of the financial year.

Dr Patrick Cross

Chairman

18 December 2014

For further information, contact:

MERCOM OIL SANDS PLC

MERCOM OIL SANDS PLC

Approved by the Board on 18 December 2014

K Appleby

Director

MERCOM OIL SANDS PLC

Condensed Interim Consolidated Statement of Cash Flows

For the six month period ended 30 September 2014

MERCOM OIL SANDS PLC

Condensed Interim Consolidated Statement of Changes in Equity

For the six month period ended 30 September 2014

MERCOM OIL SANDS PLC

Notes to Condensed Interim Consolidated Financial Statements

1. BASIS OF PRESENTATION

Basis of presentation and statement of compliance

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 March 2014. These interim financial statements were authorised for issue by the Company's Board of Directors on 16 December 2014.

Basis of consolidation

The Group financial statements include the financial statements of the Company and its subsidiary undertaking Mercom Oil Sands Canada Inc., a company incorporated in Canada. The results of subsidiary undertakings sold or acquired are included in the Consolidated Statement of Comprehensive Income up to, or from the date control passes. Intra group sales and profits are eliminated fully on consolidation.

Functional currency

The presentational and functional currency of the Group and Company is U.K Sterling.

Significant accounting estimates and judgments

The preparation of these financial statements requires management to make judgments and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these judgments and estimates. The financial statements include judgments and estimates which, by their nature, are uncertain. The impacts of such judgments and estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognised in the period in which the estimate is revised and the revision affects both current and future periods.

Significant assumptions about the future and other sources of judgments and estimates that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

· Management's position that there are no income tax considerations required within these audited financial statements; and

· The carrying value of trade and other receivables.

Going concern

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to a going concern, which assume that the Company will be able to realise its assets and discharge its liabilities in the normal course of operations. The Company has no current source of operating revenues and its capacity to operate as a going concern in the near-term will likely depend on its ability to continue raising equity or debt financing. There can be no assurance that the Company will be able to continue to raise funds in which case the Company may be unable to meet its obligations. Should the Company be unable to realise on its assets and discharge its liabilities in the normal course of business, the net realisable value of its assets may be materially less than the amounts recorded in the Consolidated and Company Statements of Financial Position. The financial statements do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

2. SIGNIFICANT ACCOUNTING POLICIES

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 March 2014. The following changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 March 2015.

Changes in accounting policies

The following new standards, amendments to standards or interpretations were mandatory for the Group for the first time for the financial period beginning 1 April 2014, but are not currently considered to be relevant to the Group (although they may affect the accounting for future transactions and events):

· IAS 32 - Financial Instruments: Presentation ("IAS 32") was amended by the IASB in December 2011 to clarify certain aspects of the requirements on offsetting. The amendments focus on the criterion that an entity currently has a legally enforceable right to set off the recognised amounts and the criterion that an entity intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The amendments to IAS 32 became effective for annual periods beginning on or after 1 January 2014.

· IAS 36 - Impairments of Assets ("IAS 36") was amended by the IASB in May 2013 to clarify the requirements to disclose the recoverable amounts of impaired assets and require additional disclosures about the measurement of impaired assets when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. The amendments to IAS 36 became effective for annual periods beginning on or after 1 January 2014.

· IAS 39 - Financial Instruments: Recognition and Measurement ("IAS 39") was amended by the IASB in June 2013 to clarify that novation of a hedging derivative to a clearing counterparty as a consequence of laws or regulations or the introduction of laws or regulations does not terminate hedge accounting. The amendments to IAS 39 became effective for annual periods beginning on or after 1 January 2014.

· IFRIC 21 - Levies ("IFRIC 21") was issued in May 2013. IFRIC 21 provides guidance on the accounting for levies within the scope of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets ("IAS 37"). IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event ("obligating event"). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IFRIC 21 became effective for annual periods commencing on or after 1 January 2014.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial period beginning 1 April 2014 and have not been early adopted:

· IFRS 9, 'Financial instruments', issued in November 2009 and effective from 1 January 2015. IFRS 9 represents the first phase of the IASB's project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. It sets out the classification and measurement criteria for financial assets and liabilities and requires all financial assets, including assets currently classified under IAS 39 as available for sale, to be measured at fair value through profit and loss unless the assets can be classified as held at amortised cost. Qualifying equity investments held at fair value may have their fair value changes taken through other comprehensive income by election.

· IAS 19 - Employee Benefits ("IAS 19") was amended by the IASB in November 2013 to simplify the accounting for contributions from employees or third parties to defined benefit plans that are independent of the number of years of service. The amendments to IAS 19 are effective for annual periods beginning on or after 1 July 2014.

3. CAPITAL AND FINANCIAL RISK MANAGEMENT

The capital of the Group consists of shareholders' equity. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to pursue the development of its mineral properties and to maintain optimal returns to shareholders and benefits for other stakeholders.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Group may attempt to issue new shares or debt, dispose of assets, or adjust the amount of cash and cash equivalents.

The investments in which the Group currently has an interest are in the exploration and evaluation stage; as such the Group is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Group will spend its existing working capital and raise additional amounts as needed. The Group will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Group, is reasonable. There were no changes in the Group's approach to capital management during the period ended 30 September 2014. The Group is not subject to externally imposed capital requirements.

Credit risk

All the Group's cash and cash equivalents are held with well-known and established financial institutions. As such, management considers credit risk related to these financial assets to be minimal. The Group's maximum credit risk exposure is limited to the carrying value of its cash and subscriptions receivable. At 30 September 2014, the Group had no material amounts deemed to be uncollectible.

Commodity price risk

Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in oil and natural gas commodity prices. The nature of the Group's operations will result in exposure to fluctuations in commodity prices. The Group is currently in its development stage and as such the exposure to fluctuations in commodity prices is not actively managed. In the future, the Group may use commodity price contracts to manage exposure to fluctuations in pricing.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Group does not have a material exposure to this risk as there are no outstanding debt facilities.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they come due. The Group ensures, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or harm to the Group's reputation.

The Group utilises authorisation for expenditures to further manage capital expenditures and attempts to match its payment cycle with available cash resources.

Foreign currency risk

The Group is exposed to foreign currency fluctuations on its cash which is denominated in U.K. Sterling and Canadian Dollars.

4. SEGMENTAL REPORTING

5. INVESTMENTS

Other investments

Lion Natural Resources Limited- invested £400,000 for a 30% interest in Lion Natural Resources Limited, which holds investments in two companies with projects in Sierra Leone and Kenya.

NWT Coal Limited - the Company invested £300,000 for a 35% interest in NWT Coal Limited, a Company with two concessions in the Bac Giang Province of Northern Vietnam.

6. EXPLORATION AND EVALUATION ASSETS

On 12 November 2012, the Company announced its withdrawal from the Farm-in agreement with Nordic Petroleum ASA as the Company had been unable to reach a working agreement. The cost of the lease deposit was fully impaired in the year ended 31 March 2013.

On 28 November 2013, the Company finalised an out of court settlement with Nordic Petroleum ASA with regard with its dispute over the Farm-in agreement. The Company agreed to pay a cash sum, together with the issue of 12,954,545 Ordinary shares in the Company, to Nordic Petroleum ASA in full and final settlement of the dispute.

7. TRADE AND OTHER RECEIVABLES

8. TRADE AND OTHER PAYABLES

9. RELATED PARTY TRANSACTIONS AND BALANCES

The Group was charged £7,500 (2013 - £10,425) in consulting fees by AT Investments, a company of which A.E. Taubi (Non-executive Director in the period) is a director of. As at 30 September 2014, the Company owed AT Investments £25,000 (2013 - £2,000).

The Group was charged £12,000 (2013 - £12,000) in consulting fees by Dr P.H. Cross (Non-executive Chairman). At 30 September 2014 the Company owed Dr. P.H. Cross £32,000 (2013 - £4,853).

The Group was charged £12,000 (2013 - £12,000) in consulting fees by Zorcorp Capital Holdings, a company that is controlled by J. Zorbas (Chief Executive Officer). At 30 September 2014 the Company owed Zorcorp Capital Holdings £1,000 (2013 - $nil).

10. SHARE CAPITAL

The fair value of the warrants issued during the period ended 31 March 2013, was estimated at £62,000 using the Black-Scholes option pricing model with the following assumptions:

Risk free interest rate 1.08 %

Expected dividend yield nil

Expected volatility 100 %

Expected life 3 years

There were no warrants issued in the six month period ended 30 September 2014.

The fair value of the options issued during the period ended 30 September 2014, was estimated at £nil using the Black-Scholes option pricing model with the following assumptions:

Risk free interest rate 2.20 %

Expected dividend yield nil

Expected volatility 100 %

Expected life 0 years

Option pricing models require the input of subjective assumptions regarding the expected volatility. Volatility is difficult to ascertain given that the company is still in the development stage, therefore it has been set at 100%. Changes in assumptions can materially affect the estimate of fair value, and therefore, the use of the Black-Scholes option pricing model, as required by IFRS, may not provide a realistic measure of the fair value of the Company's warrants at the date of issue.

There were no warrants issued in the six month period ended 30 September 2014.

11. LOSS PER ORDINARY SHARE

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of Ordinary shares in issue during the period.

Diluted loss per share is calculated by adjusting the weighted average number of Ordinary shares in issue to assume the conversion of all dilutive potential Ordinary shares at the start of the period. The Group's dilutive potential Ordinary shares arise from warrants. In respect of the warrants a calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to the outstanding warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the warrants.

There were no potentially dilutive warrants as the exercise price exceeded the average market price of the Ordinary shares during the period. Any potentially dilutive Ordinary shares would have been anti-dilutive because the Group was loss-making.

12. EVENTS AFTER THE REPORTING DATE

On 28 October 2014, Maverick Petroleum Ltd notified the Company that it is exercising its option on the convertible debenture to convert the debt to common shares of Maverick Petroleum Ltd. Accordingly, the Company will receive 66,026 common shares of Maverick Petroleum Ltd., with an effective date of 30 October 2014.

13.ULTIMATE CONTROLLING PARTY

In the opinion of the Directors there is no ultimate controlling party.