Update on Acquisition of NAP USA & Issue of Equity

Northcote Energy Ltd / Index: AIM / Epic: NCT / ISIN: VGG6622A1057 / Sector: Oil & Gas

12 February 2015

Northcote Energy Ltd ('Northcote' or the 'Company')

Acquisition of NAP USA, Inc unconditional, Placing, further issue of new Shares and settlement of Darwin Loan Note

Northcote (AIM: NCT), an onshore US oil and gas exploration and production company, is pleased to announce that further to the announcement by the Company on 14 January 2015, the acquisition of NAP USA Inc. is now unconditional with all conditions precedent having been met. This follows the issue of 1,730,725,004 new nil par value ordinary shares ("Placing Shares") at 0.09 pence ("Placing Price"), constituting 1,555,725,004 Placing Shares to raise £1,430,531 of new money through new and existing investors and 175,000,000 Placing Shares in settlement of £157,500 of a debt (the "Placing"). In addition, the Company has agreed to issue 236,564,735 new Ordinary Shares at the Placing Price to certain Directors and consultants in settlement of amounts owed and owing to them.

Highlights

· Acquisition enhances Northcote's field level cash flow, lease acreage and net production, providing the enlarged Company with a robust platform for future production and cash flow growth even during times of oil price weakness:

o Provides increased exposure to low cost core Shoats Creek field in Louisiana (70% working interest), the focus of the planned development programme in 2015, and additional interests in Oklahoma including the producing Zink Ranch project (85% working interest)

o The enlarged group will be majority working interest owner or operator of its core projects and as a result will control the speed of development across the portfolio 

· The proceeds of the Placing will be used for operational initiatives across its core assets and also to settle in full the outstanding loan note with Darwin Strategic Limited ('Darwin'):

o Near term plans to drill new conventional vertical wells at Shoats Creek, targeting the Frio Formation, which have compelling economics at circa US$20 per barrel oil

o Success at Frio locations will unlock significant field level cash flow, prove up the reserves and lead to further development of Shoats Creek

· Divestment programme of the Enlarged Group's non-core assets, which has already seen one of four packages already sold, will provide additional development capital as well as streamline the Company's portfolio

· Agreement with certain Directors and third parties to settle amounts outstanding, and future amounts to be accrued, in new Ordinary Shares at the Placing Price, frees up additional funds for investment in operations

Northcote Managing Director Randall Connally said, "This acquisition and Placing significantly strengthens Northcote and enables the Company to take full advantage of the multiple low cost development opportunities in our portfolio in the near term. Thanks to a focus on low cost conventional US onshore fields, Northcote is well positioned to increase production and reserves even during the current oil price environment. 

"This has also been recognised by investors who have participated in our fundraising. Thanks to the support shown, we can now settle in full the outstanding loan note with Darwin and in the process considerably strengthen our balance sheet. In addition, we are now ideally placed to unlock significant value within our core Shoats Creek Project in Louisiana by drilling new low cost conventional wells. Our near term focus is to hit the ground running and with drill targets prioritised, we plan to capitalise on the exciting opportunities within this field through the near term development of one or two of these initially. We will provide updates in respect to these initiatives, and look forward to the year ahead with excitement." 

Details of the Placing

The Company has raised approximately £1,558,000 (before expenses and including settlement of the £157,500 debt) in new equity to meet the final condition precedent for the acquisition of NAP, USA Inc and to apply these funds to fully settle Darwin Strategic Limited and to advance its strategy of developing its portfolio of low-cost conventional oil & gas assets. 

The Placing Shares represent approximately 51 per cent. of the Company's issued share capital as enlarged by the Placing Shares, the Settlement and Consulting Shares (the "Enlarged Share Capital"). The Placing Price is at a discount of approximately 20 per cent. to the closing middle market price on 11 February 2015, being the last practicable date prior to the publication of the announcement. The Placing is conditional, inter alia, on admission of the Placing Shares to trading on AIM ("Admission"). It is expected that admission of the Placing Shares to trading on AIM will be admitted to trading at 8.00 a.m. on 18 February 2015. The Placing Shares will rank pari passu in all respects with the Company's existing Ordinary Shares.

The Company has issued 62,980,695 warrants to its brokers to subscribe for new shares in the Company exercisable during three years from Admission, at the Placing Price.

Settlement Shares

In conjunction with the Placing, the Directors have agreed to subscribe for a total of 192,963,335 new Ordinary Shares ('the Settlement Shares') in exchange for converting (a) existing indebtedness from the Company being £55,000 due to Randall Connally in respect of an unsecured short-term loan, £50,000 to Daniel Jorgensen in respect of accrued director's fees and £16,667 to Ross Warner in respect of accrued director's fees; and (b) the first quarterly tranche of their 2015 contracted remuneration in shares at the Placing Price, being 22,222,222 (£20,000) in respect of Randall Connally, 22,222,222 (£20,000) in respect of Ross Warner and (c) a proportion of their 2015 contracted remuneration in shares at the Placing Price, being 13,333,333 (£12,000) in respect of Charles Wood. The Company has agreed to issue the director's 2015 remuneration in full for Ross Warner and Randall Connally and, in part for Charles Wood, in Shares at the Placing Price. These Shares will be issued quarterly in advance with the first tranche being issued in conjunction with the Placing. Accordingly, following the issue of all the Settlement Shares, the holdings of these Directors will be as follows:

Related Party Transactions

The issue of the Settlement Shares referred to above are Related Party transactions under the AIM Rules due to the fact that Randall Connally, Ross Warner, Daniel Jorgensen and Charles Wood are Directors. Accordingly, the independent Director, being Kevin Green, having consulted with the Company's Nominated Adviser, considers that the terms of such transactions are fair and reasonable insofar as the Company's shareholders are concerned.

Further issue of equity

The Company is also making an application for 43,601,400 Ordinary Shares to be admitted to trading on AIM. These Ordinary Shares are being issued in respect of consulting fees (`Consulting Shares') accrued and ongoing. It is expected that admission will occur, and dealings in the Adviser Shares will begin, at 8.00 a.m. on 18 February 2015. These shares will rank pari passu in all respects with the Company's existing Ordinary Shares.

Share Capital

Following the issue of the 1,730,725,004 Placing Shares, the 192,963,335 Settlement Shares and the 43,601,400 Consulting Shares as described above, the issued share capital of the Company will consist of 3,380,021,399 Ordinary Shares. No shares were held in treasury at the date of this announcement. The total current voting rights in the Company are therefore3,380,021,399.

The above total current voting rights number is the figure which may be used by shareholders as the denominator for the calculation by which they will determine if they are required to notify their interest in, or a change to their interest in the Company.

Upon completion of the NAP USA, Inc. acquisition, application will be made for the 1,266,074,005 Consideration Shares ('consideration shares') to be delivered to North American Petroleum PLC ('NAPP') and will be admitted to trading on AIM in due course, details of which will be included in a further announcement. NAPP will be subject to a 12 month lock-in period in respect of these consideration shares as well as being party to a relationship agreement with the Company in respect of its shareholding ('shareholder agreements'). These agreements terminate upon the liquidation of NAPP, at which point the NCT consideration shares will have been distributed to the underlying NAPP shareholders and the shareholder agreements will terminate.

Darwin Convertible Loan

The final amount to fully extinguish the nil coupon convertible loan note is £835,000. Following completion of the Placing and having met all conditions of the NAP, USA Inc. acquisition, the Company has notified Darwin of its intention to fully settle the Darwin convertible loan note.

**ENDS**

For further information visit www.northcoteenergy.com or contact the following:

Notes:

Northcote Energy Ltd is a producing oil & gas company with a portfolio of US exploration and production assets in Oklahoma and Louisiana. The Company has substantial acreage in the US where its primary focus is on conventional oil and gas opportunities in Louisiana and Oklahoma. Northcote plans to undertake a new drill work programme at Shoats Creek in order to grow Northcote's production and reserves.