Operational / Financing Update & Strategic Review

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

THIS ANNOUNCEMENT IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.5 OF THE IRISH TAKEOVER PANEL ACT, TAKEOVER RULES 2013 ("IRISH TAKEOVER RULES") AND THERE CAN BE NO CERTAINTY THAT AN OFFER WILL BE MADE, NOR AS TO THE TERMS ON WHICH ANY OFFER WILL BE MADE.

Dublin

23 December 2015

PETROCELTIC INTERNATIONAL PLC

Operational and Financing Update

Initiation of Strategic Review and commencement of Offer Period

The Board of Petroceltic International plc (AIM: PCI) ("Petroceltic" or the "Company" or the "Group"), the oil and gas exploration, development and production company focused on the North Africa and the Mediterranean region, today provides an operating and financial update, and announces that it has initiated a formal strategic review of the Company's business and assets with a view to considering all options to maximise value for shareholders and stakeholders.

 Operating Update

Since the announcement of the Group's 2015 Half Year Results on 30 September 2015, production and development have continued in accordance with expectations, and the Company confirms that it expects full year production to average approximately 14.4 Mboepd, in line with earlier guidance.

Algeria

Development activities in relation to the Ain Tsila project are progressing. Plans to commence development drilling are at an advanced stage, with operating teams in the field and civil works and preparation of well sites on-going. The Sinopec development drilling rig has arrived in Algeria and is currently being mobilised to the first wellsite. Development drilling is expected to commence by early February 2016. In parallel, the Front End Engineering and Design (FEED) process has concluded and the tender process in relation to the award of the major Engineering, Procurement and Construction ("EPC") contract is continuing. It is currently anticipated that the EPC award will be made during Q3 2016; based on this timeline, the current best estimate for first gas production is now early 2019. The Sonatrach carry of Petroceltic's development obligations pursuant to the 2014 farm-out agreement remains fully effective and based on this amended schedule is forecast to cover all of Petroceltic's project costs until Q3 2016. Amounts remaining to be claimed under the carry stood at approximately $89.6 million at end November 2015.

Egypt

In Egypt, Petroceltic has reached an agreement to sell its interests in the North Thekah, North Port Fouad and South Idku exploration licenses to its joint venture partner Edison International S.p.A ("Edison") for a net cash consideration of US$9.5 million, after working capital adjustments of approximately $5.8 million. Edison is the operator of North Thekah and North Port Fouad and a joint venture partner in South Idku.

The transaction remains subject to the receipt of Government approvals and the waiver of pre-emption rights held by the Egyptian Natural Gas Holding Company ("EGAS") and is expected to complete in the first quarter of 2016. The sale of these interests will reduce Petroceltic's exploration expenditure obligations in 2016 by approximately US$20 million. Petroceltic expects to record a loss of approximately $1.5 million on this transaction and the proceeds of the sale will be applied to repayment of debt.

Italy/Greece

The environmental approval process in respect of the Carisio licence, onshore Po Valley, is proceeding as expected; Petroceltic has concluded a farm-out in relation to this prospect which, upon completion, would result in substantially all its costs in relation to the drilling of this high impact prospect being carried. The permitting process in relation to the Elsa discovery offshore Abruzzo is also progressing and Petroceltic understands that all conditions within its control for the issue of the Ministerial decree in relation to the project have been satisfied. A number of amendments to legislation are currently under consideration by the Italian Parliament which may have the potential to impact the Elsa project and the Company is closely monitoring developments with a view to understanding the impact of any amendments to the existing legal framework on the project.

Petroceltic has also concluded negotiations to exit its interest in the Patraikos licence offshore Greece, by transferring its interest to its joint venture partners.

Financing Update

In its 2014 Annual Financial results released on 29 June 2015 and 2015 Half Year Results released on 30 September 2015, the Company stated that a combination of adjustments to reserves arising from the 2014 Competent Person's Report, the drop in oil prices and a reduction in capital investment programmes in relation to the Group's assets in Egypt and Bulgaria had impacted on availability under the Group's Senior Bank Facility during 2015. These circumstances led to the requirement to make material repayments, which the Group has not to date been in a position to satisfy and other breaches to the covenants of the Senior Bank Facility, which is secured over substantially all the assets of the Group. In respect of these breaches of covenants and repayment obligations, the Group has received various waivers from the lending group (together, the "Lenders"). The most recent waiver under the Senior Bank Facility extends to 15 January 2016.

Throughout 2015, the Group has been pursuing a number of debt and portfolio management initiatives to secure additional financing, create liquidity and/or reduce financial commitments, with a variety of counterparties, including existing shareholders, licence partners and other parties. The Board continues to believe that the value of the Group's producing and development interests is materially in excess of its current borrowings and in particular that its Algerian asset will be the principal driver of the long-term future value of the Company. However, 2015 has presented a period of exceptionally challenging market conditions, especially for smaller oil and gas companies such as Petroceltic and consequently it has not been possible to conclude the required financing on commercially acceptable terms. 

Amounts currently outstanding under the Senior Bank Facility amount to $217.8 million, while cash balances total approximately $28.1 million, of which $24.6 million is held in local currencies and not readily convertible; as a consequence, absent new funding being made available, the Group does not have certainty on liquidity beyond early January 2016. Given the very limited liquidity available to the Group, the Lenders have confirmed their intention to provide further conditional financial support to the Group, in the form of a limited advance of new funds which the Directors estimate will enable a variety of funding and portfolio management initiatives to be pursued in an orderly manner during January 2016.

The Company has also received a number of conditional proposals and expressions of interest in respect of the potential disposal of certain of the Group's producing and exploration assets and negotiations in relation to a potential disposal of the Group's Egyptian production interests, along with related working capital balances including its EGPC receivable, are continuing. In the event of such a transaction being concluded, all proceeds would be applied to the reduction of debt outstanding under the Group's existing Senior Bank Facility. There can, however, be no guarantee that these negotiations will reach a successful conclusion.

Initiation of Strategic Review

In addition to the sale of the North Thekah, North Port Fouad and South Idku interests to Edison and the potential sale of its Egyptian production interests, as set out above, the Company has also received a number of conditional proposals and expressions of interest in relation to the sale of the Company or some or all of its assets and, in light of this, now considers it appropriate that a more formalised sale process is undertaken. Options being considered by the Board include, but are not limited to, a farm-out or sale of one or more of the Company's existing assets, a corporate transaction such as a merger with a third party, the sale of the entire issued, and to be issued, share capital of the Company and the raising of capital in the form of debt and/or a subscription for new ordinary shares in the Company by one or more third parties.

The Board has appointed Bank of America Merrill Lynch ("BAML") and Davy Corporate Finance ("Davy") to undertake a strategic review of corporate and other options open to the Company in order to seek to maximise value for shareholders and stakeholders. As part of the strategic review process, BAML and Davy will undertake discussions with potential offerors in relation to a possible offer for the Company.

The strategic review process may or may not result in an agreement for the sale of, all or part of the Company's assets, an offer for the issued, and to be issued, share capital of the Company or another form of corporate transaction. As such there can be no certainty as to whether any such agreement, offer or transaction will be forthcoming or as to the terms of such agreement, offer or transaction, if any, including any requirement for shareholder approval.

The Company continues to have a constructive dialogue with the Lenders, who through the provision of the current waiver and short term financing are supporting the process. The lenders have indicated their willingness to consider further requests from the Company to enable this process to be undertaken in an orderly manner, subject to the achievement of satisfactory progress in the various debt and equity finance, portfolio management and corporate initiatives that are ongoing. Further financing options for the Company are also being considered at this time, however shareholders are advised that these discussions are preliminary in nature and there is no certainty that any agreements will be concluded. In the event that further funding cannot be secured, there is a material risk that the Lenders may withdraw their financial support and/or require immediate repayment of all amounts outstanding, which the Company would not be in a position to effect.

As a consequence of this announcement, the Company is now considered to be in an "offer period" as defined in the Irish Takeover Rules. The dealing disclosure requirements of the Irish Takeover Rules that now apply are contained at the end of this announcement.

Brian O'Cathain, the CEO of Petroceltic, commented

 "The Company possesses a world-class asset in the Ain Tsila gas field, which we continue to believe will be the principal driver of the long term future value of the business. We remain committed to maximizing value for our shareholders and will explore all available options in order to select the best way forward for our stakeholders".

Further announcements will be made by the Company as and when appropriate.

ENDS

For further information, please contact:

Petroceltic International plc:

Tel: +353 (1) 421 8300

Brian O'Cathain

Tom Hickey

Bell Pottinger:

Joint PR Adviser to Petroceltic

Tel: +44 (20)3772 2500

James Henderson

Rollo Crichton-Stuart

Murray Consultants:

Joint PR Adviser to Petroceltic

Tel: +353 (1) 498 0300

Joe Heron

Douglas Keatinge

Bank of America Merrill Lynch:

Joint Financial Adviser to Petroceltic

Tel: +44 (0) 20 7628 1000

Ashwin Punde

Geoffrey Iles

Davy Corporate Finance:

Joint Financial Adviser & Joint Corporate Broker to Petroceltic

Tel: +353 (1) 679 7788

John Frain

Roland French

HSBC:

Joint Corporate Broker to Petroceltic

Tel: +44 (0) 207 991 1506

Stuart Dickson

Peter Glover

BAML is authorised in the United Kingdom by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority and is acting exclusively for the Company and no one else in connection with the matters referred to in this announcement and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the matters referred to In this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of BAML for providing advice in relation to the matters referred to in this announcement.

Davy Corporate Finance is authorised and regulated in Ireland by the Central Bank of Ireland is acting exclusively for the Company and no one else in connection with the matters referred to in this announcement and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the matters referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Davy Corporate Finance or for providing advice in relation to the matters referred to in this announcement.

The Directors of Petroceltic International plc accept responsibility for the information contained in this announcement. To the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.

Parties with a possible interest in making a proposal should contact BAML or Davy, at the contact details set out above. Any party wishing to participate in the formal sales process will be required to enter into a non-disclosure agreement with the Company on reasonable terms satisfactory to the Board and on the same terms, in all material respects, as other interested parties before being permitted to participate in the process. Following execution of such an agreement, the Company intends to provide interested parties with information on the Group, following which, such parties will be invited to submit proposals to the Company. The Board reserves the right to alter any aspect of the process as outlined above or to terminate it at any time and will make further announcements when appropriate. The Board reserves the right to reject any approach or terminate discussions with any interested party or participant at any time.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise. The distribution of this announcement in jurisdictions outside Ireland or the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

DISCLOSURE REQUIREMENTS UNDER THE IRISH TAKEOVER RULES

Rule 2.10 disclosure

In accordance with Rule 2.10 of the Irish Takeover Rules, Petroceltic confirms that it has 214,094,301 Ordinary Shares of nominal value €0.3125 each ("Ordinary Shares")  in issue and admitted to trading on the ESM Market of the Irish Stock Exchange plc and the AIM Market of the London Stock Exchange plc. In addition, there are 9,519,009 options over Ordinary Shares, and 5,275,053 awards over Ordinary Shares, outstanding under the Company's employee share schemes. The awards over Ordinary Shares have no, or a nominal, exercise price and are subject to certain vesting conditions. The ISIN code for Petroceltic Ordinary Shares is IE00BB0QZ876.

A person interested in 1% or more of any class of relevant securities of Petroceltic may have disclosure obligations under Rule 8.3 of the Irish Takeover Rules, effective from the date of this announcement.

Forward-Looking Statements

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's plans and its current goals and expectations, financial condition and performance and which involve a number of risks and uncertainties. The Company cautions readers that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", or other words of similar meaning. Examples of forward looking statements include, amongst others, statements regarding the Group's probable, inferred or contingent oil resources or reserves, future financial position, income growth, impairment charges, business strategy, projected costs, estimates of capital expenditure, and plans, dividend growth and objectives for future operations of the Group and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, UK, Irish, Algerian, Egyptian, Bulgarian, Italian and global economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in commodity prices, interest rates and foreign exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ("IFRS") applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation or regulatory investigations, the success of future exploration, appraisal, development, acquisitions and other strategic transactions and the impact of competition. A number of these factors are beyond the Company's control. As a result, the Company's actual future results may differ materially from the plans, goals, and expectations set forth in the Company's forward-looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements which are not guarantees of future performance.

Any forward-looking statements made in this announcement by or on behalf of the Company speak only as of the date they are made. The Company does not undertake any obligation nor does it intend to revise or update any forward-looking statements in this announcement to reflect events or circumstances after the date of this announcement (except, in the case of the Company, to the extent required by the London Stock Exchange, the Irish Stock Exchange or by applicable law or regulation).

Forward-looking statements in this announcement are current only as of the date on which such statements are made. None of the future projections, expectations, estimates or prospects in this announcement should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the announcement. As a result of these risks, uncertainties and assumptions, the recipient should not place undue reliance on these forward-looking statements as a prediction of actual results or otherwise.