Interim Results (0117A)

TIDMHAWK

RNS Number : 0117A

Nighthawk Energy plc

26 March 2012

NIGHTHAWK ENERGY PLC

("Nighthawk" or "the Company")

Unaudited Interim Results for the six month period ended 31 December 2011

Nighthawk, the US focused shale oil development and production company (AIM: HAWK and OTCQX: NHEGY),announces its half yearly results for the six months ended 31 December 2011.

Highlights

   --      Control and operatorship of the Jolly Ranch Project, Colorado, USA, successfully secured 
   --      Fully funded work-over and drilling program in 2012 
   --      Board, management and operational team strengthened and re-aligned

Financial

   --      Balance sheet strengthened by GBP14.7 million fundraising in January 2012

-- Revenues of $0.42 million (H1 FY2010-11: $0.56 million restated, continuing basis) reflect lower production and lack of investment in 2011 prior to Nighthawk becoming operator

-- Operating loss of $16.6 million (H1 FY2010-11: $25.2 million) includes an impairment of US$12.6 million relating to Nighthawk's existing 50% interest in the Jolly Ranch Project and exceptional transaction costs of US$1.8 million (H1 FY2010-11: impairment costs $23.3 million)

Operational

-- Average gross oil production of 63 bbls/day reflects lack of investment (H1 FY2010-11: 98 bbls/day)

   --      2012 work-over program underway

Stephen Gutteridge, Chairman of Nighthawk, commented:

"The interim results cover a period of significant transition for Nighthawk which concluded with the announcement of the acquisition of a further 25% interest in, and the operatorship of, the Jolly Ranch Project. The results also reflect the lack of investment in Jolly Ranch throughout 2011, which affected production and also left much remedial and repair work for us to undertake in order to improve production from the current low levels and to meet our own and Colorado State standards and requirements.

This work is now well underway as the first step in a fully funded work-over and drilling program planned for 2012, and our focus is now on delivering operational success, including increased production levels. We will be updating regularly on this program and a separate operational update has been announced this morning. We will also be monitoring the increasing levels of third party drilling and leasing activity taking place around our acreage, a trend that we regard as extremely positive for our own project."

- Ends -

Enquiries:

 
Nighthawk Energy plc 
 Stephen Gutteridge, Chairman 
 Richard Swindells, Chief 
 Financial Officer                                      020 3582 1350 
Westhouse Securities                                    020 7601 6100 
 Limited                          tim.feather@westhousesecurities.com 
 Tim Feather                     richard.baty@westhousesecurities.com 
 Richard Baty 
FTI Consulting                                          020 7831 3113 
 Ben Brewerton                        ben.brewerton@fticonsulting.com 
 Ed Westropp                        edward.westropp@fticonsulting.com

Chairman's Statement

Strategy

Following the Board's strategic decision to focus solely on the Jolly Ranch shale oil project, Nighthawk's primary objectives during the six month period to 31 December 2011 ("H1 FY 2011-12") were to secure control and operatorship of the project, and to fund a new work-over and drilling program for 2012.

Following a protracted and challenging process, these objectives were finally achieved at the end of December 2011 with the announcement of a fundraising and an agreement to acquire from Running Foxes Petroleum, Inc. ("RFP") an additional 25% working interest in, the Jolly Ranch project, giving Nighthawk the operatorship and a 75% working interest. These steps were approved by shareholders at a General Meeting on 20 January 2012 and took formal effect from 23 January 2012.

The initial consideration for the acquisition comprised cash of US$8.5 million and US$4 million in Nighthawk shares which approximated to an acquisition cost of US$122 per acre. In addition, a further cash amount of US$1.0 million may be payable in the event RFP fails to sell its remaining 25% working interest in the Jolly Ranch Project by an extended deadline of 30 June 2012. In the event of a sale or disposal by the Company of all or a portion of its working interest in the Jolly Ranch Project to a third party within five years, the Company will pay RFP a portion of the cash proceeds (or the fair market value for any non-cash proceeds) which it receives in connection with such sale or disposal up to a maximum aggregate amount of US$5.0 million. To finance the acquisition and to provide funds for the further development of Jolly Ranch, the Company raised a total of GBP14.74 million comprising GBP10 million of unsecured convertible loan notes, GBP1.85 million through an open offer to shareholders and GBP2.89 million through a placing. As a result, Nighthawk now has sufficient funds to undertake a substantial work-over and drilling program in calendar 2012.

Operational and Financial Performance

The Jolly Ranch Project is a 410,000 gross acre shale oil project, which is in the early stages of production, but requires further work and investment to sustain longer-term commercial levels of production, add reserves, demonstrate the continuity of the shale over the acreage, and increase the value of the acreage.

During the six month period to 31 December 2011, development activity was severely restricted due to lack of funds, which resulted in a cutback in maintenance work, a shortage of new and replacement equipment and the loss of some production from shut-in wells. As a consequence gross production in the six months to 31 December 2011 fell to an average of 63 bbls/day from 71 bbls/day in the first half of calendar 2011 and was significantly lower than the 98 bbls/day average production achieved in the six months to 31 December 2010.

Group revenues in the six months to 31 December 2011 were sharply down on the prior period on a continuing basis due to the fall in production with significantly higher administrative costs, primarily due to one-off costs incurred in the acquisition and fund-raising process of approximately US$1.75 million. Director's salaries and fees were cut by 25% from 1 November 2011 and other overhead savings measures such as lower cost office space have been implemented.

The unaudited results for the period to 31 December 2011 include a change in accounting policy for early stage production revenue. This change ensures that the Company's accounts follow the Statement of Recommended Practice (SORP) for test production revenue, in line with the accounting treatment of comparable oil and gas companies. Prior accounting periods have been restated for this change in accounting policy. The change has no impact on the Group statement of cash flows.

Informed by the price paid to acquire the additional 25% working interest in Jolly Ranch and in accordance with the required treatment under the International Financial Reporting Standards, an impairment of approximately US$12.6 million relating to Nighthawk's existing 50% interest has been included in administration expenses. All of the Company's other projects have now been fully disposed, leaving Nighthawk as a focused US shale oil play. Normalised losses (adjusted for impairments, depreciation, amortisation, transaction costs and discontinued operations) were $2.0 million (H1 FY 2010-11: loss $1.3 million, FY 2010-11: loss $3.1 million).

Board and Management

The Board and management team has been both strengthened and re-aligned to meet the challenge of developing the Jolly Ranch Project as operator.

Chuck Wilson who has over 32 years' highly relevant oil and gas industry experience joined Nighthawk in August 2011 as Chief Operating Officer of Nighthawk's US subsidiaries, and is directing the 2012 work-over and drilling activity.

Mike Thomsen and Tim Heeley relinquished their roles as Chairman and Chief Executive respectively and stepped down from the Board of Nighthawk Energy plc to work alongside Chuck Wilson in Denver, focusing on delivering the overall Jolly Ranch Project development plan, including leasing and commercial arrangements and managing business partners and projects.

Richard Swindells joined the Board in June 2011 as Chief Financial Officer and Stephen Gutteridge joined in September 2011 as Chairman, assuming an executive role in January 2012.

Geoff Metzger, Non-executive Director, retired from the Board in October 2011.

2012 Plans

The Board is of the view that the Jolly Ranch Project is both geologically and operationally viable and is confident that it can be developed into a valuable and sustainable oil producer; a view that is further reinforced by the increase in regional activity around the Jolly Ranch Project, including new leasing and drilling operations.

As previously announced, in 2012 the Company plans to invest $7.5 million gross on a work-over program on 15 existing wells, which has already commenced, and the drilling of 5 new wells, the first of which is anticipated to spud early in the second half calendar 2012. In addition there will be investment in well-logging, re-interpretation of seismic data, geological studies and lease extensions during the year. When Nighthawk assumed the operatorship on 23(rd) January 2012 production had fallen to less than 50 bbls/day, and the Board aims to achieve a substantial uplift on that figure during the year.

Unaudited Condensed Consolidated Income Statement