Interim results for the six months to 30 June 2014

 15th August 2014

Eland Oil & Gas PLC

 ("Eland" or the "Company")

Interim results for the six months to 30 June 2014

Eland Oil & Gas PLC (AIM: ELA), an oil & gas development and exploration company operating in West Africa with an initial focus on Nigeria, today announces its financial results for the six month period to 30 June 2014.

H1 2014 HIGHLIGHTS

Operational

· Oil production from the Opuama field commenced in February 2014 following successful re-commissioning of existing infrastructure and the re-opening of two existing wells.

· The Opuama field production stabilised at an average rate of over 3,500 bopd although there have been a number of production interruptions since commencement including a prolonged shutdown of the Forcados Terminal and pipeline ruptures due to corrosion and illegal bunkering.

· A sectional repair of the pipeline has recently been completed and an illegal bunkering point is currently being removed. This work is scheduled to be completed in the very near term and following this we expect production to resume in excess of 3,500 bopd with a period of stable production and regularise the monthly crude oil sales.

· Group company Elcrest completed the loading and sale of 46,022 bbls gross of crude through two cargos to Shell Western Supply & Trading Ltd ("Shell") after the reporting period in July and August. The July cargo was Elcrest's maiden lifting.

· Elcrest has received payment from Shell for the July lifting and the payment for the August lifting will be settled in August.

· The crude is sold via a long term lifting agreement with Shell from the Forcados Terminal where the Forcados Blend trades at a premium to dated Brent.

· We have today announced separately the acquisition of a 40% interest in Ubima, a marginal field with significant contingent resources and where we will be the technical partner running the field development and operations.

Financial

· Elcrest received approval in March 2014 of a five year petroleum tax exemption on the OML 40 licence lasting through to Q2 2019.

· Cash and cash equivalents held as at 30 June 2014 of US$19.7 million (30 June 2013: US$11.8 million, 31 December 2013 US$3.8 million). Cash as at 12th August is $21.6 million.

· In February and March 2014 Eland exercised the full balance of options under the Solstice Option Agreement and the Helios Option Agreement at 100 pence per share, resulting in cash proceeds during the period of £16.0 million (US$26.6 million). As at the date of this report, a further £2.0 million (US$3.4m) has been received with the final £2.0 million (US$3.4m) of the Solstice option due to be settled in August.

· The debt facility with Standard Chartered Bank of US$22.0 million was extended in February 2014 for 12 months. Currently the facility remains undrawn.

· Loss after tax of US$12.0 million for six months to 30 June 2014 (1H 2013: US$11.0 million loss, Full year 2013: US$26.1 million loss).

Outlook

· Commence a seven well development drilling programme on the Opuama field with drilling planned to begin in Q4 2014 and the completion of at least one new producing well.

· Expected year end gross production exit rate from OML 40 of approximately 7,000 bopd.

· The Company is currently in advanced discussions with its lenders and will seek to enter a reserve-based lending facility and significantly increase the debt level above the current $22.0 million, in line with the current Competent Person's Report ("CPR").

Leslie Blair, CEO of Eland, commented:

"The completion of our first two liftings of crude oil and the sale to Shell is a significant milestone for Eland. We are now generating cash from OML 40 which together with the five year Pioneer tax incentive granted earlier this year and the current and anticipated debt facility means we expect to be fully funded for our current plans. Going forward we anticipate more prolonged periods of stable production. The benefit of this stability, even at 3,500 bopd, cannot be over emphasised. We have today announced the acquisition of a 40% interest in the Ubima marginal field, the development capex for which we intend to fund from debt secured against the enlarged asset base. With this acquisition and the development opportunities within OML 40 the foundations of our strategy are now in place."

For further information:

Forward-looking statements

This report has been prepared to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Statement should not be relied on by any other party or for any other purpose.

The report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. 

CONDENSED CONSOLIDATED INCOME STATEMENT

*In line with the restatement made in the 31 December 2013 accounts $3,308,000 has been reclassified from administrative expenses to operating expenses to reflect the nature of the costs incurred by the business.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEET

CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

\* The movement in the period relates to the 4,000,000 £1 ordinary shares which Solstice International Investments Inc subscribed for during the period under the share option agreement which were not paid up as at the balance sheet date.CONDENSED CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

General information

Eland Oil & Gas PLC is a limited liability company incorporated in Scotland and listed on the AIM of the London Stock Exchange. The address of the registered office is 34 Albyn Place, Aberdeen, AB10 1FW, United Kingdom. The principal activities of the Company are oil and gas exploration and development, with a focus on West African opportunities for acquisition and development.

The condensed financial statements for the six months ended 30 June 2014 were authorised for issue in accordance with a resolution of the Board of Directors on 14th August2014.

The information for the year ended 31 December 2013 contained within the condensed financial statements does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 but has been derived from those accounts. Statutory accounts for the year ended 31 December 2013 were approved by the Board of Directors on 26 May 2014 and delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying. The report did not contain any statement under section 498(2) or 498(3) of the Companies Act 2006.

The financial information contained in this report is unaudited and has not been reviewed.

Basis of preparation

The condensed financial statements for the six months ended 30 June 2014 have been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report have been prepared in accordance with the accounting policies the Group intends to use in preparing its next annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2013.

The Group incurred a net loss of $12 million during the period to 30 June 2014 and had net assets of $173.0 million as at that date.

After making reasonable enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue operations for the foreseeable future. For that reason, they continue to adopt the going concern basis in the preparation of the accounts.

Accounting policies

The accounting policies applied in these condensed financial statements are consistent with those of the annual financial statements for the year ended 31 December 2013, as described in the 2013 Annual Report. During the current period, IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements have become effective. Their application has not had any significant impact on the amounts reported or the disclosures in these condensed financial statements.

2. LOSS BEFORE TAX

3. FINANCE COSTS

4. TAXATION

On 1 May 2014 Elcrest Exploration & Production Nigeria Limited was granted Pioneer tax status in Nigeria. This resulted in a five year tax holiday from the approval date. As a direct result of this the tax losses as at that date are no longer able to be utilised against future profits and therefore no deferred tax asset has been recognised in respect of these tax losses at 30 June 2014.

5. EARNINGS / (LOSS) PER SHARE

From continuing operations

The calculation of the basic and diluted earnings/ (loss) per share is based on the following data:

6. OTHER INTANGIBLE ASSETS

The balance relates to the cost of granting Pioneer tax status in relation to the OML40 asset which has resulted in a five year tax free period. The cost equates to 2% of the expected tax savings over the next five years.

7. PROPERTY, PLANT AND EQUIPMENT

The Group's Oil and Gas assets at 30 June 2014 principally relate to the Group's interest in OML40 in Nigeria

8. PROVISIONS

The provision for decommissioning is in respect of OML 40. The provision represents the present value of amounts that are expected to be incurred to the end of licence term, discounted to the present value using a 2.75% discount rate.  

9. SHARE CAPITAL

During the period 6,000,000 new £1.00 ordinary shares and 10,000,000 £1.00 non-voting shares were issued, following the Company's exercise of the Solstice Option Agreement and the Helios Option Agreement.

10. RECONCILIATION OF LOSS FOR THE PERIOD/YEAR TO OPERATING CASH FLOW

11. OPERATING LEASE COMMITMENTS

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

12. SHARE BASED PAYMENTS

Equity settled share option scheme

The Company has a share option scheme for all Directors and key personnel of the Group.

2012 Options

Share options were granted on 3 September 2012. 2,669,763 Founder options are exercisable at £1.00 each, 8,210,000 share options are exercisable at £1.00 each and 368,500 share options are exercisable at £1.13 each. The options will be exercisable in full if the average closing price per Share over any continuous thirty (30) day period, ignoring any days which are non-dealing days for AIM, occurring wholly during the period of ten years from the date of grant, is equal to or greater than one hundred and fifty per cent (150%) of the Placing Price. Management has determined a 70% probability of this condition being satisfied. All of the share option, except for the Founder Options which have a vesting period of two years, have a vesting period of three years from the date of grant. The £1.00 Founder options are exercisable for a period of eight years (less one day) from the second anniversary of the date of the grant. The other options are exercisable for a period of seven years (less one day) from the third anniversary of the date of grant. If the options remain unexercised after the day preceding the tenth anniversary of the date of the grant the options expire.

2014 Options

Share options were granted on 16 May 2014. 1,250,000 share options are exercisable at £1.155 each. The options will be exercisable in full if the average closing price per Share over any continuous thirty (30) day period, ignoring any days which are non-dealing days for AIM, occurring wholly during the period of ten years from the date of grant, is equal to or greater than £1.655. Management has determined a 70% probability of this condition being satisfied. All of the share options have a vesting period of three years from the date of grant. The options are exercisable for a period of seven years (less one day) from the third anniversary of the date of grant. If the options remain unexercised after the day preceding the tenth anniversary of the date of the grant the options expire.

Details of the share options outstanding as at 30 June 2014 are as follows.

12. SHARE BASED PAYMENTS (CONTINUED)

The options outstanding at 30 June 2014 had a weighted average remaining contractual life of eight years and five months. The aggregate of the estimated fair values of the options granted to date is £2.79 million.

The inputs into the Black-Scholes model were as follows:

Expected volatility was determined by calculating the historical volatility of the Company's share price from the date of admission to AIM to the financial year end in the case of the 2012 options and from the date of admission to AIM to the date of grant in the case of the 2014 options. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The Group recognised total expenses of $806,000 related to equity settled share based payment transactions for the six months ended June 2014. (six months ended 30 June 2013: $715,000, Full Year 2013: $1,456,000).

13. DIVIDENDS

No interim dividend is proposed and no dividend has been paid in the period to 30 June 2014 (Full Year 2013: US$nil).

14. POST BALANCE SHEET EVENTS

As at 14th August 2014, there were no significant post-balance sheet events, other than those disclosed below.

· Completion of the loading and sale of 46,022 bbls of crude through two cargos to Shell after the reporting period in July and August.

· Receipt of £2m cash proceeds (of the £4m outstanding at 30 June 2014) in July in respect of the exercise of the Solstice share option agreement.

· As announced today Eland, through a wholly owned subsidiary, Wester Ord Oil and Gas Ltd secured a 40% economic interest in the Ubima marginal field within OML 17 in the Niger delta.