Increases Interest in Horizon Project, Oklahoma

NORTHCOTE ENERGY LIMITED - Increases Interest in Horizon Project, Oklahoma

PR Newswire

London, February 12

13 February 2013

Exercise of Option to Increase Interest in Horizon Project, Oklahoma

Northcote (AIM: NCT), an onshore US oil and gas exploration and productioncompany, is pleased to announce that it has exercised two of its options, asdescribed in the Company's AIM Admission Document, to acquire an additional 10per cent. working interest (the `Horizon Option') and an average 2.2 per cent.royalty interest (the `WCR Royalty Option') in the Horizon Project in OsageCounty, Oklahoma (the`Project') which includes nine producing wells in theproven Mississippi Lime Formation.

Key Highlights

Northcote's Chief Executive Officer Randy Connally said, "We are delighted tohave exercised these options to increase our interests in the Horizon Projectwhich will have an immediate positive impact on our net reserves and productionand is in line with our stated strategy. Importantly it will enable Northcoteto increase its exposure to the development programme currently underway acrossHorizon's portfolio which has already resulted in a doubling of dailyproduction in one well, and is targeting a substantial jump in net productionand revenues. This is an important step towards meeting our end of yearproduction target.

"We are also pleased with the vendors' decision to accept the majority of theconsideration in equity, which we view as a vote of confidence in our businessmodel and highly experienced team. Looking ahead, Northcote is now betterplaced to capture more of the potential value uplift achievable through ourupcoming fracture stimulation programme which is due to commence late February/early March."

Horizon Option

Horizon Drilling Partners, LP (`Horizon') granted Northcote's wholly ownedsubsidiary, Northcote USA Inc, an option to acquire an additional 10 per cent.working interest in the nine unfracked horizontal wells and surfaceinfrastructure in Osage County for US$800,000. This option is more fullydescribed in paragraph 13.2(e) of Part V of the Company's AIM AdmissionDocument.

Northcote USA has now exercised this option and the parties have agreed thatthe consideration outstanding after pre-payments shall be satisfied as follows:

1. US$500,000 by the issue of 18,083,183 fully paid Shares in Northcote at a

price of 1.75p per Share to rank pari passu with existing Shares in issue;

and

2. US$192,500 by the issue of a promissory note on the terms set out below.

The new Shares issued to Horizon will be subject to the same lock in andorderly market arrangements as their existing Shares (until 14 January 2014)which are described in the AIM Admission Document.

WCR Royalty Option

WCR Royalties LLC (`WCR') granted Northcote's wholly owned subsidiary,Northcote USA Inc, an option to acquire an average 2.2 per cent. royaltyinterest in the nine unfracked horizontal wells in Osage County for US$300,000.The option is more fully described in paragraph 13.2(f) of Part V of theCompany's AIM Admission Document.

Northcote USA has exercised the option and the parties have agreed that theconsideration outstanding after pre-payments shall be satisfied as follows:

1. a cash payment of US$50,000;

2. US$150,000 by the issue of 5,424,955 fully paid Shares in Northcote at a

price of 1.75p per Share to rank pari passu with existing Shares in issue;

and

3. US$49,000 by the issue of a promissory note on the terms set out below.

Promissory Notes

The promissory notes are unsecured and shall mature five years from the date ofdelivery of the assignment of the relevant interest. Interest shall accrue at4.5 per cent. per annum and is payable monthly. After three years, monthlypayments of 2 per cent. of the original principal shall be payable. Theoutstanding principal and interest is payable at maturity.

Reserves and Resources

Detailed below are the net reserves attributable to Northcote's interest afterthe exercises of the WCR and Horizon Options:

All reserve estimates have been prepared using standard engineering practicesgenerally accepted by the petroleum industry and conform to the guidelinesadopted by the Society of Petroleum Engineers.

All of the technical information, including information in relation to reservesand resources that is contained in this announcement has been reviewedinternally by the Company's Technical Director, Mr. Kevin Green. Mr. KevinGreen is a Petroleum Geologist who is a suitably qualified person with over 30years' experience in assessing hydrocarbon reserves and has reviewed therelease and consents to the inclusion of the technical information.

Share Capital

Application will be made for the 23,508,138 new Shares to be admitted totrading on AIM (`Admission') in due course, details of which will be includedin a further announcement. Following the issue of the new Shares, the Company'sissued share capital consists of 890,412,716 Shares.

Additionally, Horizon will be the holder of 85,025,917 fully paid Sharesrepresenting approximately 9.55 per cent. of the enlarged issued share capitalof the Company and WCR will be the holder of 5,424,955 fully paid Sharesrepresenting approximately 0.61% of the enlarged issued share capital of theCompany.

For further information and the full Admission document visitwww.northcoteenergy.com, see below or contact the following:

Northcote Energy Ltd is a revenue generative US onshore oil and gas productioncompany focussed on the rapidly emerging Mississippi Lime formation inOklahoma. The Company participates with leading operators, including MidstatesPetroleum and Chesapeake Energy, in low risk development plays where advancedtechniques, such as horizontal drilling and fracking, are used to unlock knownoil accumulations and dramatically improve recovery rates. Management isfocused on increasing production through a multi-well drilling and frackingcampaign in 2013.

The Horizon Project, Osage County Oklahoma

Northcote's interests in Osage County comprise working interests in 10producing wells, of which nine are unfracked horizontal wells producing fromthe Mississippian formation and one is a vertical well producing from theshallower Layton formation (Burkhart #3).

The workover programme was initiated based on evaluation of wells andbottomhole pressure tests run in December 2012 in preparation for the fracturestimulation programme. As part of the evaluation of wells, it was determinedthat Northcote could materially increase production from wells that were notpart of the planned four well fracture stimulation programme through a workoverprogramme that consisted of, depending on the well, re-acidizing, pumping downfluid levels and in some cases installing larger submersible pumps.

Northcote intends to utilise hydraulic fracturing techniques in relation to theunfracked horizontal wells. Hydraulic fracturing (`fracking') is the primarychoice for enhancing production, and typically has the effect of increasingproductivity 2 to 30 times compared to an untreated well, by increasing theamount of contact that the well bore has with high quality reservoir rock.

The Company has commenced an evaluation of a number of low cost opportunitiesto develop other prospective formations on Northcote's existing lease portfolioand other properties. As with the successfully producing vertical Burkhart #3well, new well opportunities are targeted based on information obtained throughthe on-going Mississippian programme and are undertaken only in situationswhere Northcote believes the well will generate compelling economics toNorthcote shareholders.