Subscription, Acquisition, Open Offer & Update

Northern Petroleum Plc

("Northern Petroleum" or "the Company")

Subscription to raise £1.2 million

Production and reserves acquisition in Canada

Open Offer

Operations update

Northern Petroleum, the AIM quoted oil company focusing on production led growth, announces subject to shareholder approval, a proposed direct subscription of 40,000,000 new ordinary shares at three pence per share, to raise gross proceeds of £1.2 million ("the Subscription") and an acquisition of assets in northwest Alberta with production and reserves ("the Acquisition"), which is conditional upon financing. The Company also announces that a proposed open offer for up to a further 40,000,000 new ordinary shares at three pence per share will be made shortly to existing qualifying shareholders ("the Open Offer").

Highlights

§ Non-brokered subscription of 40,000,000 ordinary shares at a price of three pence per share to be taken up by two existing shareholders, raising proceeds of £1.2 million, before expenses

§ Funds raised pursuant to the Subscription to be used primarily to fund the consideration for the Acquisition, which will allow the Company to:

- acquire assets near to existing Canadian operations, including wells and facilities, with current production of approximately 211 barrels of oil equivalent per day ("boe/d"), of which approximately 80 per cent. is oil, and proved and probable reserves of 1.185 million barrels of oil equivalent ("boe")

- execute an identified work programme of well and facility reinstatement, expected to double production over the next 12 months

§ Open Offer to be made to enable all qualifying shareholders to participate in the fundraising at the same issue price as the Subscription

§ Net cashflow from the Acquisition and the Company's existing assets forecast to broadly cover all of the Company's general and administrative cost using an oil price of US$47 per barrel through 2016

§ Processing and pipeline tie-in facilities included in the Acquisition are forecast to result in operating cost synergies for existing Virgo operations

§ The Subscription and Open Offer are subject to shareholder approval in a general meeting

Keith Bush, Chief Executive Officer, commented:

"The acquisition of these assets provides the Company with material additional production and reserves and is a good example of the growth opportunities available in the current oil price environment. Due to the location of the assets and their associated facilities, there is also the opportunity to increase the Company's existing production base with reduced operating expense.

"With the support we have been given by our existing shareholders, we can implement a relatively straightforward and low risk work programme with a view to doubling production from the acquisition assets, which should place the Company in a strong financial position to support its costs in 2016. This in turn provides the time needed to continue the good progress made during 2015 with the Italian exploration and appraisal assets. Additional funding from the Open Offer will provide useful working capital support with the potential to unlock further opportunities for production and exploration growth and accelerate production development in Canada."

For further information please contact:

Northern Petroleum Plc Tel: +44 (0)20 7469 2900

Keith Bush, Chief Executive Officer

Nick Morgan, Finance Director

Westhouse Securities Limited (Nomad and Joint Broker) Tel: +44 (0)20 7601 6100

Alastair Stratton

Robert Finlay

1. Production Strategy

During the past two years the Company has pursued a strategy of production led growth, with the aim of creating a sustainable business and one that is capable of growth through production assets, as well as enabling potentially high value exploration and appraisal assets to be developed. The production asset focus has been the onshore oil field redevelopment in the Virgo area of northwest Alberta, Canada, where the Company has drilled six new wells and recompleted an existing well. These wells provided production that peaked at over 500 barrels of oil per day ("bopd") at the end of 2014.

The economics of this production were adversely impacted as a result of the reduction in the oil price over the last 18 months with the benchmark crude West Texas Intermediate price dropping from over US$100 per barrel to less than US$50 per barrel. Production was therefore shut in during January 2015, including the 102/15-23 well shut in due to a pipeline issue, and an evaluation performed by the Company on how to reduce the operating expense. This led to production from one well being restarted in June 2015, with the evaluation of the other wells continuing. Average daily production from that well for the three months to the 30th September 2015 has been approximately 25 bopd (net of water production).

The significant fall in the oil price has created uncertainty and concern in the industry in general and as a result, has also provided acquisition opportunities in a market where it may be cheaper to buy production and reserves than it is to drill for them. The Company has reviewed multiple opportunities over the past year with a view to increasing the production base and reserves, creating synergies with the existing production wells to reduce their operating expense and covering the Company's general and administrative cost. The Acquisition, as detailed below, has the potential to achieve these objectives even in the current oil price environment.

2. The Acquisition

The Acquisition comprises of existing production facilities and wells on mineral leases across approximately 28,000 acres, the majority of which are in the Rainbow area of northwest Alberta (the "Rainbow Assets"), approximately 20 miles south of the Company's existing Virgo assets. The consideration to be paid for the Acquisition is Cdn$0.25 million (approximately US$0.2 million) in cash. The Company will also assume the abandonment liability for all the wells and facilities acquired. The Alberta Energy Regulator has assigned an estimated undiscounted net liability for the assets of US$1.5 million and a gross undiscounted abandonment cost of US$8.9 million. The operating cashflow attributable to the assets being acquired for the eight months ending 31st August 2015 was Cdn$0.4 million and the turnover for the year ended 2014 was Cdn$8.6 million.

The Rainbow Assets are being sold by a Calgary based exploration and production company listed on the Toronto Stock Exchange. The Rainbow Assets were previously acquired by the vendor as part of a larger corporate acquisition and were regarded as non-core. Further to a reserves report commissioned by the vendor from a Calgary based independent third party engineering firm, the Rainbow Assets were estimated to contain, as at the 31st December 2014, proved plus probable reserves of approximately 1.185 million barrels of oil equivalent with a calculated net present value of approximately US$14.7 million before tax using a discount factor of 10 per cent. as at that date.

The existing wells on the leases were drilled to target multiple reservoir horizons including a Devonian Keg River light oil play, the same play as targeted within the Company's Virgo assets. The Rainbow Assets had average reported production during the month of September 2015 of 211 boe/d, of which approximately 80 per cent. was oil.

The Rainbow Assets include a total of 117 operated and 41 non-operated wells, of which approximately one third are either currently in production or are believed by the Directors to have the potential of being initially brought back into production. The remaining wells are either suspended or already abandoned and will be reviewed for future production potential.

In addition to the wells and mineral rights, a material amount of facilities and equipment are included with the Acquisition. There are two main facilities which consist of storage tanks and water separation facilities as well as water disposal wells. There is also a direct sales point into the Plains Midstream Pipeline system for produced oil. The Directors believe that these facilities will provide operational synergies for the Company's existing Virgo assets, since production can be trucked, processed and sold through the Rainbow Assets facilities without incurring third party processing and water disposal fees, currently being paid by the Company for its existing production.

The Directors have identified an initial work programme on the Rainbow Assets, which is proposed to be initiated shortly after the completion of the Acquisition, subject to the successful completion of the Subscription. The programmme involves the reinstatement of wells and facilities and is intended to double the existing oil production over the next 12 months. It is forecast that this production, combined with forecast production from the Company's existing assets, will provide sufficient net cashflow to broadly cover the Company's total general and administrative cost in 2016, using an oil price of US$47 per barrel, and should allow the Company access to the debt capital markets for future development capital if appropriate. Over the longer term, the Directors believe that the combined asset base could support production growth to in excess of 2,500 bopd, subject to accessing appropriate development capital at that time.

An asset purchase agreement has been signed with the vendor for the acquisition of the Rainbow Assets and completion is conditional upon the payment of the Cdn$0.25 million cash consideration to the vendor and the deposit of any net abandonment liability, when calculated against the deemed value of the assets, with the Alberta Energy Regulator, which is not forecast to be material. Completion is expected to occur shortly after the closing of the Subscription, which is conditional upon shareholder approval in a general meeting. Northern Petroleum considers the Acquisition to be consistent with its continuing strategy of production led growth.

While the completion of the Acquisition is only subject to the financing of the cash consideration of Cdn$0.25 million, if the Subscription is not approved by shareholders, sufficient funding will not be available to the Company to undertake the initial work programme on the Rainbow Assets and therefore the Company will choose not to complete the Acquisition and will need to look for alternative sources of finances to support the Company during 2016.

3. The Subscription

The Company announces that it has, conditional upon passing of the resolutions to be proposed at the general meeting and upon admission of the shares to trading on AIM, raised £1.2 million before expenses by way of a non-brokered Subscription of 40,000,000 shares at an issue price of three pence per ordinary share. The Subscription is being taken up by Cavendish Asset Management Ltd and City Financial Investment Company Limited (the "Investors"), both existing shareholders of the Company. The issue price of three pence per share represents a discount of approximately 14.3 per cent. to the middle market closing price per ordinary share of 3.5 pence on the 11th November 2015, being the last business day prior to the publication of this announcement.

The net proceeds of the Subscription are being used primarily for the Acquisition and initial development of the assets being acquired to increase production, as well as supporting the ongoing working capital requirements of the Company. The issue of shares to satisfy the Subscription is subject to shareholder approval in a general meeting.

4. The Open Offer

The Board has decided to make an Open Offer so that all qualifying shareholders have an opportunity to participate at the same issue price as the Investors under the Subscription. Accordingly, up to 40,000,000 ordinary shares will be made available to qualifying shareholders at a price of three pence per share under the terms of the Open Offer to raise up to £1.2 million (before expenses), the same amount and at the same issue price as proposed for the Subscription. The Directors intend to take up at least their entitlements under the Open Offer.

Funds received from the Open Offer will provide additional working capital for the Company, which will further support the business during a time of particular oil price uncertainty and volatility. The full details of the proposed Open Offer will be disclosed in a further announcement and a circular, which will be posted to shareholders in the next few days.

5. Operations Update

Canada

Since the end of June 2015, the 100/16-19 well has continued to produce with a water cut of approximately 25 per cent. Average daily production for the three months to the 30th September 2015 has been approximately 25 bopd (net of water production). The Company has liaised with the local infrastructure operator on the pipeline repair work required to bring 102/15-23 back into production, however the local operator has decided not to proceed with the repair. The Company is therefore evaluating an alternative solution whereby the Company undertakes the repair at a relatively low cost to the business. The Company has also undertaken a subsurface review on production data and the previous drilling programmes which will now be used to define future development of the acreage.

Italy

The key achievements to date in 2015 in Italy have been the farm out of the Cascina Alberto permit onshore northern Italy to Shell Italia E&P S.p.A. and the main governmental approvals being granted for the acquisition of 3D seismic offshore in the southern Adriatic. The Company has also received the environmental impact assessment approvals for five exploration applications to become permits, all contiguous to the Company's existing acreage offshore in the southern Adriatic. The final requirement for these applications to become permits is the decree by the Ministry of Economic Development. 

The exploration work programme has begun on the Cascina Alberto licence, which involves the reprocessing of existing seismic to determine whether further seismic is required before a decision can be made on an exploration well.

The Company is now planning a work programme to acquire 3D seismic in the southern Adriatic across the Cygnus exploration prospect and Giove oil discovery, which is forecast to occur in the third quarter of 2016. This seismic acquisition is subject to financing, most likely through a farm out of the permit, and the positive conclusion of local appeals and operational approvals. The Company is also drafting an appraisal well environmental impact assessment submission for the Giove oil discovery, with the plan to drill a well in the next 12 to 18 months, again subject to successful approvals being received and financing.

The Company's offshore permits in Sicily and the southern Adriatic are held in various stages of suspension in advance of the next stage in the work programme. The Italian exploration and production regulatory regime allows for permits to be suspended while authority is sought or appeals heard regarding the next part of any given work programme.

The Company aims to drill five wells in five years across its Italian permits and exploration applications, each with the potential to add material value to the Company upon success. The completion of such a forecast programme will be subject to securing suitable financing and all the necessarily regulatory approvals. The Company has ongoing discussions with various third parties in the industry regarding possible farm outs of its Italian assets and is currently in discussions with one particular party concerning the farming out of its offshore permits and exploration applications. However, no certainty as to the outcome of these discussions can be assured.

Corporate

As part of the continued review of ongoing general and administrative costs and in addition to a reduction announced in March this year, the Directors and other key senior management have agreed to further reduce their salaries. It is intended that in exchange for this second reduction in salaries, nil-cost options over new ordinary shares will be issued every three months and the amount of nil-cost options issued will be with reference to the average Company share price during the prior three months and the reduction in salary taken. The Remuneration Committee will determine the terms of the nil-cost options and how long these arrangements are deemed necessary and an announcement will be made at the time of issue of the options. 

6. Capital Reorganisation

The Company's existing issued share capital, as at the 11th November, being the last business day prior to the publication of this announcement, consisted of 95,365,660 ordinary shares which are currently in issue and credited as fully paid up, each with a nominal value of five pence ("Existing Ordinary Shares"). The new ordinary shares proposed to be issued pursuant to the Subscription and the Open Offer ("New Ordinary Shares") are proposed to be issued at the issue price of three pence per share.

Under the provisions of section 580 of the Companies Act, the Company may not allot shares at a price which is less than the nominal value of those shares. To enable the Company to proceed with the Subscription and the Open Offer, the Company's Existing Ordinary Shares will therefore need to be sub-divided and re-designated.

It is proposed that each Existing Ordinary Share with a nominal value of five pence be sub-divided and re-designated into one New Ordinary Share of one penny and one deferred share of four pence ("Deferred Share") (the "Capital Reorganisation"). Immediately following the Capital Reorganisation, every Shareholder will hold one New Ordinary Share and one Deferred Share for every Existing Ordinary Share currently held by them. A Shareholder's pro rata entitlement to New Ordinary Shares will not be affected by such subdivision and re-designation. The Directors believe that the Capital Reorganisation should not affect the market value of a Shareholder's aggregate holding of the Existing Ordinary Shares in the Company.

It is proposed that each New Ordinary Share will carry the same rights in all respects as each Existing Ordinary Share does at present, including the rights in respect of voting and entitlement to receive dividends. Each Deferred Share will have very limited rights and will effectively be valueless. Such shares will have no voting rights, no rights to receive dividends and will have only very limited rights on a return of capital. The Deferred Shares will not be admitted to trading on AIM or listed on any other stock exchange and will not be freely transferable. Further details concerning the proposed Capital Reorganisation will be made available in a circular to be posted to shareholders shortly.

7. Related Party Transaction

Cavendish Asset Management Ltd, which is a substantial shareholder in the Company, has subscribed for 21,666,667 New Ordinary Shares in the Subscription. This subscription constitutes a related party transaction under the AIM Rules for Companies. The Directors consider, having consulted with Westhouse Securities, the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as shareholders are concerned.

8. General Meeting

The Subscription, Open Offer and Capital Reorganisation are all conditional upon the approval of shareholders in a general meeting, but the Subscription and the Open Offer are not interconditional. A circular, setting out the details of, and necessary resolutions for, the Subscription, Open Offer and Capital Reorganisation, and with a notice convening a general meeting, expected to occur in the first week of December, will be posted to shareholders shortly. A further announcement will be made at that time with additional details concerning the requisite resolutions, along with a proposed timetable.

-Ends-

In Accordance with the AIM Rules - Guidance for Mining and Oil & Gas Companies, the information contained in this announcement has been reviewed and signed off by the CEO of Northern Petroleum, Mr Keith Bush, who has 24 years' experience as a petroleum engineer. He has read and approved the technical disclosures in this regulatory announcement. The technical disclosures in this announcement comply with the SPE standard.

Glossary

"proved and probable reserves"

Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, from a given date forward, based on:

§ analysis of drilling, geological, geophysical, and engineering data;

§ the use of established technology;

§ specified economic conditions, which are generally accepted as being reasonable, and shall be disclosed.

Reserves are classified according to the degree of certainty associated with the estimates:

§ Proved reserves: proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

§ Probable reserves: probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved and probable reserves.

Note to Editors:

Northern Petroleum is an oil and gas company focused on production led growth. The Company is undertaking a redevelopment and production project in northwest Alberta and has a broader portfolio of exploration and appraisal opportunities in countries of relatively low political risk, primarily Italy. Comprehensive information on Northern Petroleum and its oil and gas operations, including press releases, annual reports and interim reports are available from Northern Petroleum's website: www.northernpetroleum.com