Anglo African Oil & Gas / Index: AIM / Epic: AAOG / Sector: Oil & Gas

6 June 2017

Anglo African Oil & Gas plc

('AAOG' or the 'Company')

Final Results

Anglo African Oil & Gas plc, an independent oil and gas developer, is pleased to announce its audited final results for the ten-month period ended 31 December 2016.

Highlights

·        Successful admission to AIM, post period-end, with a raise of £10 million of equity capital

·        Facilitated the acquisition of 49% of the shares in Petro Kouilou SA, which owns a 56% interest in the producing Tilapia oil field, Republic of the Congo, the balance of 44% being held by the SNPC, the Congolese NOC - on admission, production of 38 bopd

·        Tilapia is a low-risk development play (R1, R2 and Mengo Sands Horizons) with exploration potential (Djeno Sands Horizon)

o   Mengo Sands Horizon - an undeveloped discovery

o   Djeno Sands Horizon - deeper exploration prospect from which neighbouring operators are achieving high production and reserves

·        Core strategy defined to increase production over 12 months through workovers of existing wells and drilling of a funded new multi-horizon well to:

o   target the already producing R1, R2 Horizon

o   develop the Mengo Sands Horizon discovery from which other operators are producing 200 - 800 bopd per well

o   test the Djeno Sands Horizon, where adjacent wells are producing approximately 5,000 bopd

·        Workovers of two existing wells on the asset have commenced and are ongoing

·        Management's remuneration aligned with the success of the drilling programme.

Alex MacDonald, CEO of AAOG, commented, "2017 has seen us successfully raise £10 million, secure admission to AIM and complete the initial acquisition of an interest, through Petro Kouilou SA, in the productive Tilapia oil field in the Republic of the Congo.  We have commenced operations at the Tilapia field, and have defined a development strategy to increase production, principally through a drilling programme targeting existing reserves and a proven discovery, as well as the potentially transformational opportunity in the Djeno Sands Horizon, an horizon which has been found to be highly productive in neighbouring fields, making it a comparatively low-risk venture.

"Contemporaneously with the preparations for the drilling campaign, we also commenced pre-identified low-cost workovers of two existing wells on the asset, giving the Company a potential opportunity to increase production in a cost-effective manner.  This is ongoing and, as investors will be aware, has had mixed results thus far.  Our work at TLP-101 has increased the flow rate by 40 per cent. from approximately 32 bopd to approximately 45 bopd.  With the second well, TLP-102, we have proven the presence of hydrocarbons but, after re-perforation, the well has not flowed and therefore we are re-examining the potential for alternative stimulation methods.  However, as we emphasise above, the true potential of Tilapia is in the deeper horizons which we will be targeting through the drilling campaign.

"We have a strong and experienced technical team on the ground, led by our Operations Director Oleg Schkoda, who has many years' experience in the Republic of the Congo and of these particular horizons, plus a supportive local partner, and we believe we are well positioned to take advantage of the opportunity in front of us."

Executive Chairman's letter

I am pleased to welcome you to the first annual report of Anglo African Oil & Gas plc (AAOG) following our successful IPO in March 2017 on the London Stock Exchange's AIM.  In tandem with our admission to AIM, we successfully raised £10 million, making AAOG one of very few E&P fund raisings on AIM in recent times.  I would like to thank our shareholders for their support, and our management team for their hard work over the course of the past eighteen months.

The financial results contained in this annual report relate to the period prior to AAOG's placing and admission to trading on AIM.  However, the report does provide me with an opportunity to introduce the Company and provide a summary of the plans that we have.

Our strategy is to develop the Tilapia field, in which Petro Kouilou SA has a 56 per cent share, with the balance of 44 per cent being held by SNPC, the national oil company of the Republic of the Congo.  Tilapia is located 1.8 kilometres offshore of the Republic of the Congo ('the Congo'), in the Lower Congo Basin.  The field is drilled from onshore, and Petro Kouilou has its production and storage facilities onshore.  The Tilapia field is located a 45-minute drive from Pointe Noire, the second largest city in the Congo, and 17 kilometres from the nearest refinery.  The roads are of sufficient quality that production can be trucked to the refinery throughout the year.  AAOG has completed the initial acquisition of 49 per cent of the share capital of Petro Kouilou and expects to complete the acquisition of the remaining 51 per cent of the shares in the near future.

We have already commenced workover operations on the existing wells, TLP-101 and TLP-102, which thus far have been successful on TLP-101 but unfortunately not on TLP-102.  Further elements of the workovers are being planned.  However, by far the most significant step will be the drilling of a new well, TLP-103.  Planning for this is well underway, with an experienced and highly qualified technical team led by the CEO, Alex MacDonald, and the Operations Director, Oleg Schkoda, who, for the majority of their time, are based in Congo. 

This new multi-horizon well will first drill through the existing producing horizon, R1/R2, and secondly deeper, into the Mengo Sands Horizon, where the Company has well-log data showing the existence of producible hydrocarbons and from which neighbouring onshore producers are achieving very good production rates of hundreds of barrels of oil a day per well.  Finally, TLP-103 will drill deeper still to explore the Djeno Sands Horizon. This horizon has not previously been drilled within this licence area, but Tilapia is located immediately adjacent to areas from which other operators, including ENI and SOCO PLC, are achieving production per well of thousands of barrels a day. 

Clearly, the results of the appraisal drilling into the Mengo and the exploration into the Djeno will provide the most significant pointer as to the potential value of Tilapia and it is the balance of risks and upside among these different aspects of the drilling that makes this opportunity so interesting.  We look forward to updating you with the results later this year.

Finally, I would like to reaffirm our commitment to a financially prudent and careful approach to the Company's activities.  Although we have a robust balance sheet and sufficient funds for our plans, we remain focused on cashflows and we intend to ensure that capital is used primarily to enhance the value of the asset.  We are maintaining a very tight grip on running costs, and the salaries and options of the management team are tied to increasing production.  As a result, we are all highly motivated to deliver the plans that we set out before investors.

Once again, can I thank you for your support and I look forward to updating you on our progress.

David Sefton

Executive Chairman

6 June 2017

**ENDS** 

For further information please visit www.aaog.co or contact:

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Notes to Editors

Anglo African Oil & Gas (AAOG) is an AIM-listed independent oil and gas company acquiring a 56% stake in the producing Tilapia oil field in the Republic of the Congo.  The Company boasts a low-cost production story in a prolific hydrocarbon region with significant exploration upside, differentiating it substantially from its E&P peers.  Additionally, management's remuneration is tied to hitting production milestones, reflecting their strong focus on cost control.

Tilapia has an excellent address, being located close to multi-billion barrel fields that include the ENI-operated Litchendjili field and the 5,000bopd Minsala Marine field.  Tilapia currently produces approximately 45 bopd from two near-surface intervals.  It has an undeveloped discovery in the lower Mengo sands with gross contingent resources of 8.1m barrels and a deeper exploration prospect, with gross prospective resources of 58.4m barrels, in the productive Djeno interval from which the adjacent Minsala field produces.

Group strategic report
for the period ended 31 December 2016

The directors present the strategic report of Anglo African Oil & Gas plc ('AAOG' or the 'Company') and its subsidiary (together, the 'Group') for the period ended 31 December 2016.  The Company was incorporated in England and Wales on 12 January 2001.

Principal activity

The Group ceased its previous business of diamond mining in Namibia through its subsidiary company, Sonnberg Diamonds (Namibia) (Pty) Limited in the year to 28 February 2016, so that, in the period to 31 December 2016 the Group could pursue the acquisition of an oil and gas company, Petro Kouilou SA ("PK"), situated in the Republic of the Congo. This acquisition completed post-period-end, with a 49% interest being acquired.  The Group is currently seeking to acquire the remaining interest.  Following completion of the acquisition, the Group, through its subsidiary, will hold a 56 per cent stake in the producing Tilapia oil field in the Republic of the Congo.

Group strategy

The Directors aim to secure the Company's financial stability in the short term by increasing production from existing wells and then to generate significant upside in the medium term through the targeting of deeper horizons within the licence area.

Results

The Group reports a loss from operating activities of £937,313 for the period to 31 December 2016.  This loss is after charging £302,947 of costs related to the Initial Public Offering and the admission of the ordinary shares to trading on AIM, which took place after the period-end on 6 March 2017.

Future development of the Group

Admission to AIM and acquisition of Petro Kouilou SA

The directors believe that the fundraising and admission of the ordinary shares to trading on AIM that completed on 6 March 2017 are in the best interests of the Company.  The funds raised enable the Company to acquire PK, which provides an exciting opportunity for shareholders through the development programme set out below.

Enhancing production from the Tilapia field

The Company's planned production development programme is as follows:

Stage One - The Company intends to increase production through two workovers.

Stage Two - The more significant potential increase in the value of the Tilapia field is expected to be achieved by a new drilling programme into deeper geological structures, the Mengo and Djeno sands, which Tilapia shares with surrounding fields.  The first of these new wells, TLP-103, will be drilled during 2017.

Stage Three - If the drilling of TLP-103 is successful, a second well, TLP-104, will be drilled.

The directors believe this development programme is commercially attractive because:

1.         Low cost -  the Company's budgeted break-even cost of production at 5,300 bopd is less than US$5 per barrel and, at an oil price of US$35 per barrel, it can be profitable at approximately 500 barrels of oil per day ("bopd"). The business and working capital models produced by the directors, and in particular the low and flexible cost base that allows the Company to be break even at production levels lower than 500 bopd, provide evidence that the Company can withstand low oil prices even at modest rates of production.

2.         Upside - The drilling programme into the Mengo sands and the Djeno sands provides qualified potential upside to the existing production.

3.         Existing production and storage facilities in place - there are in place existing facilities that have been constructed to international standards, have been regularly maintained and are fully amortised.   PK's facilities currently have the capacity to achieve production of up to 4,000 bopd, with scope for expansion.

4.         Already in production - the workovers and drilling programme, well design and authorisation for expenditure have been agreed with SNPC.

5.         Ability to drill from on-shore - Tilapia is near offshore, being only 1.8 kilometres from the coastline. This gives the considerable advantage of being able to drill from onshore using deviated wells, at a considerably reduced cost compared to offshore drilling.

6.         Light oil - The oil currently produced from Tilapia is high quality, light, sweet crude (39 - 41 API) with a market value that currently tracks Brent crude oil.

7.         Availability of equipment - Drilling equipment and ancillary services to carry out the development programme are readily available due to recent oil price instability. If drilling into the Djeno sands proves unsuccessful, the Company nevertheless intends to perforate the well at the Mengo sands and/or Pointe Indienne R1/R2 reservoir and thereby increase daily production, with a positive effect on cash flows and asset value.

Significant events after the balance sheet date

On 6 March 2017, the Company's shares were admitted to trading on AIM.  On admission, the Group issued 51,410,578 ordinary shares at 10p, including 50 million shares issued pursuant to a fundraising, generating gross cash proceeds of £10 million.

Shortly after admission, the Company acquired a 49 per cent share in PK, a company incorporated in the Republic of the Congo.

Review of business and financial performance

The Board has reviewed whether the Annual Report, taken as a whole, presents a fair, balanced and comprehensive summary of the Group's position and prospects.  The Board considers that the results included in this Annual Report bear no relation to the Group's position and prospects, which are set out in detail under 'Future development of the Group' above. 

Information on the financial position and development of the Group is set out in the Chairman's letter, this report, the Directors' Report and the annexed financial statements.

Risks and uncertainties

The Board regularly reviews the risks to which the Group is exposed and ensures, through its meetings and regular reporting, that these risks are minimised as far as possible.

The principal risks and uncertainties facing the Group at this stage in its development are:

Exploration risk

The Group's business will include oil and gas exploration and evaluation, which are speculative activities and there is no certainty that the Group will be successful in the definition of economic resources, or that it will proceed to the development of any of its projects or otherwise realise their value.

The Group aims to mitigate this risk when evaluating new business opportunities by targeting areas of potential where there is historical drilling or geological data available.

Resource risk

All oil and gas projects have risk associated with defined resources and recoverability.  Resources will be calculated by the Group in accordance with accepted industry standards and codes but are always subject to uncertainties in the underlying assumptions, which include geological projection and commodity price assumptions.

Development risk

Delays in permitting, financing and commissioning a project may result in delays to the Group meeting its production targets.  Changes in commodity prices can affect the economic viability of the drilling programme and affect decisions on continuing exploration activity.

Production technical risk

Notwithstanding the completion of test work, and pilot studies indicating the technical viability of an operation, unforeseen variations may still render an oil and gas recovery operation economically or technically non-viable.

The Group will have available to it a small team of professionals experienced in geological evaluation, exploration, financing and development of oil and gas projects.  To mitigate development risk, the Group supplements this from time to time with the engagement of external expert consultants and contractors.

Environmental risk

Exploration and development of a project can be adversely affected by environmental legislation and the unforeseen results of environmental studies carried out during evaluation of a project. Once a project is in production, unforeseen events can give rise to environmental liabilities.

Financing and liquidity risk

The Company may have an ongoing requirement to fund its activities through the equity markets and in future may need to obtain finance for project development. There is no certainty such funds will be available when needed.

Partner risk

In the Republic of the Congo, the Group operates in partnership with parastatal entities.  The Group can be adversely affected if partners are unable or unwilling to perform their obligations or fund their share of future developments, or if legislation is introduced varying the legal requirements for such partnerships.

Bribery risk

The Group has adopted an anti-corruption policy and whistle-blowing policy under the Bribery Act 2010. Notwithstanding this, the Company may be held liable for offences under that Act committed by its employees or subcontractors, whether or not the Company or the directors have knowledge of the commission of such offences.

Financial instruments

Details of risks associated with the Group's financial instruments are given in the notes to the financial statements. The Company does not utilise any complex financial instruments.

Internal controls and risk management

The directors are responsible for the Group's system of internal financial control. Although no system of internal financial control can provide absolute assurance against material misstatement or loss, the Group's system is designed to provide reasonable assurance that problems are identified on a timely basis and dealt with appropriately.

In carrying out their responsibilities, the directors have put in place a framework of controls to ensure, as far as possible, that ongoing financial performance is monitored in a timely manner, that, where required, corrective action is taken and that risk is identified as early as practically possible.  The directors have reviewed the effectiveness of internal financial control.

The Board, subject to delegated authority, reviews capital investment, property sales and purchases, additional borrowing facilities, guarantees and insurance arrangements.

Forward-looking statements

This Annual Report contains certain forward-looking statements that have been made by the directors in good faith, based on the information available at the time of the approval of the Annual Report.  By their nature, such forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future.  Actual results may differ from those expressed in such statements.

Outlook

The Group has taken significant steps forward through its admission to AIM and the completion of the initial acquisition of 49 per cent of the share capital of PK.  The Company hopes to complete the acquisition of the balance of the shares of PK in the near future in exchange for US$2.5 million of shares in the Company.  The Company is executing the three-stage production development programme that was set out in the admission document.  If the Company is successful in obtaining significant production from the Mengo and/or Djeno sands, the directors will take technical advice in conjunction with SNPC on field optimisation. This could include up to ten additional wells alongside expanded surface facilities.  As a field-optimisation plan could take several years to implement, the Company would likely seek to agree the plan with SNPC in conjunction with securing a new licence

On behalf of the Board:

David Sefton

Director

2 June 2017

DIRECTORS' REPORT

The directors present their report together with the audited financial statements of Anglo African Oil & Gas plc ('AAOG' or 'the Company') and its subsidiary, (together, 'the Group') for the period ended 31 December 2016.

A review of the business, future developments, subsequent events and risks and uncertainties is included in the Strategic Report.

Results

The Group reports a loss before tax of £937,313 for the period to 31 December 2016 (Year ended 28 February 2016: £345,272).

Dividends

The directors do not recommend payment of a dividend for the period to 31 December 2016 (Year ended 28 February 2016: £nil).

Political donations

There were no political donations during the period (Year ended 28 February 2016: £nil).

Corporate governance statement

The Board is committed to maintaining high standards of corporate governance.  The UK Corporate Governance Code, published by the Financial Reporting Council, sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders, providing principles of good governance and a code of best practice for listed companies.  The UK Corporate Governance Code does not apply to AIM companies. However, shareholders expect companies in which they invest to be properly governed and tend to use the UK Corporate Governance Code as a starting point.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED 31 DECEMBER 2016

The Company's corporate governance procedures take due regard of the principles of good governance set out in the UK Corporate Governance Code, having regard to the size and the stage of development of the Company. Nonetheless, the Company has not formally adopted any specific corporate governance code.

The Company has established audit and remuneration committees, with formally delegated duties and responsibilities.

Audit committee

The audit committee comprises PJ Davies and B M Moritz and is chaired by PJ Davies.  It is responsible for ensuring the financial performance, position and prospects of the Group are properly monitored and reported on and for meeting the auditor and reviewing their reports relating to accounts and internal controls. 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

The financial statements of Anglo African Oil & Gas plc were approved by the Board and authorised for issue on 2 June 2017.  They were signed on its behalf by:

DGF Sefton

Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2016

The currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of the foreign operation.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 31 DECEMBER 2016

Non-cash transaction

On 13 March 2015, the Company capitalised £639,600 of interest-free loans advanced by directors and former directors and their associates by the issue of 13,465,263 ordinary shares of 1p each at 4.75p per share.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2016

The notes form part of these financial statements.

1.            Administrative expenses

Administrative expenses include:

2.         Staff costs

3.         Property, plant and equipment

On 29 July 2015, the Company entered into a contract with Kalahari Civils CC ("Kalahari"), a Namibian corporation, to sell its mobile plant and certain other smaller items to Kalahari. The agreement specified that the equipment was to be delivered to Kalahari at Sonnberg's mine site on 31 July 2016.

In the event, Namdeb, as responsible for security in the area, refused to permit delivery to Kalahari, although the contract between Sonnberg and Namdeb did not allow such refusal.

On 23 September 2015, a revised contract between the Company and Kalahari was agreed. 

Delivery was made in accordance with the revised contract, but some items were not actually removed from Sonnberg's mine site by Kalahari.

The Company now believes that Kalahari may be unable to pay the sums due, and that the likely outcome is that it will recover the plant and equipment from Kalahari and seek to sell it elsewhere.

Discussions with potential purchasers for the fixed plant have, to date, not resulted in an offer acceptable to the Company and at the time of the approval of the financial statements, it is the intention of the Company to dissolve the mining subsidiary.

Under these circumstances, the accounts have been drawn up on the assumption that the sale contract is null and void, and the total value of the plant has been fully impaired. 

4.         Intangible assets

The mining rights owned by the Group have been fully written down as, at the date of the approval of the financial statements, it is the intention of the Group to dissolve the mining subsidiary.

5.         Fixed asset investment

Investment in Group undertaking is in relation to a 100 per cent holding in Sonnberg, a mining company incorporated in Namibia.

The loan to Group undertaking is denominated in GBP, and is interest free.

6.         Share capital

The holders of deferred shares are not entitled to receive dividends or to vote at meetings of the Company and have no material interest in the Company's residual assets.

Issues of ordinary shares

On 13 March 2015, the Company capitalised £639,600 of interest-free loans advanced by directors and former directors and their associates by the issue of 13,465,263 ordinary shares of 1p each at 4.75p per share.

Out of the total of 13,465,263 ordinary shares, 4,383,158 ordinary shares were issued to B M Moritz, a director of the Company, in settlement of loans of £208,200, 8,976,842 ordinary shares were issued to a former director, Lord Sheppard of Didgemere, in settlement of loans of £426,400, and 105,263 ordinary shares were issued to A C A Carlton, in settlement of loans of £5,000.

Following a reorganisation on 25 July 2016, the Company's share capital comprised 1,739,972 Ordinary shares of 5p each, 39,922,460 Deferred shares of 9p each and 86,998,615 B deferred shares of 0.09p each at 31 December 2016.

7.         Provisions

The mining contract undertaken by the Group requires the subsidiary, Sonnberg, to remove all equipment and installations and to rehabilitate all disturbed areas once mining activities have ceased. Sonnberg has historically paid one per cent of sales to a fund held by Namdeb to provide for the costs of environmental rehabilitation.  An amount of £123,524 has been provided for rehabilitation costs in excess of the one per cent based on internal estimates. This liability is solely with Sonnberg, and has not been guaranteed by the Company.

At the time of approval of the financial statements, it is the intention of the Group to dissolve the mining subsidiary. If, upon dissolution, the rehabilitation costs have not been expended, the provision will be written back, as it has not been guaranteed by the Company.  Under these circumstances, the directors believe that the provision should be shown as a current liability of the Group.

8.         Related parties

During the period, the Company received further loans from B M Moritz of £nil (Year ended 28 February 2016: £77,996).  The balance owed at the period-end was £83,996 (Year ended 28 February 2016: £83,996).  The loan is interest free and with no repayment terms.

9.         Capital commitments

The Company has conditionally agreed to acquire the whole of the issued share capital of Petro Kouilou SA, a company incorporated in the Republic of the Congo, which is the majority owner of the Tilapia oilfield, for a consideration of US$5 million, comprising US$2.5 million in cash and US$2.5 million in the ordinary shares of the Company.

10.       Subsequent events

Admission to AIM

On 6 March 2017, the Company issued 51,410,578 ordinary shares, of which 50 million ordinary shares were issued at 20 pence per share, generating gross cash proceeds of £10,000,000 and 1,410,578 ordinary shares were issued to satisfy liabilities of the Company.  The ordinary shares were admitted to trading on AIM.

Acquisition of Petro Kouilou SA

On 15 March 2017, AAOG [finalised] the "Initial Completion" of the Initial Shares in Petro Kouilou SA, a company registered in the Republic of the Congo, acquiring the shares from Sister Holding SA.  At Initial Completion 49 per cent of the issued share capital was acquired for US$2.5 million and the Group is in the process of acquiring the balance as set out in note 9.  Details of the process and structure of the Acquisition of Petro Kouilou SA are set out in Section 10 of Part I and Section 11 of Part VIII of the Admission Document published on 6 March 2017, which can be found on the Company's website (www.aaog.co).

Change of accounting reference date

The directors decided to shorten the accounting period from the 12 months ended 28 February to the ten months ended 31 December in order to bring the accounting reference date in to line with that of the company's operating subsidiary Petro Kouilou SA.  The change in accounting reference date means that the amounts presented in the comparative information are not entirely comparable.

11.       Financial Information

The financial information contained within this preliminary announcement for the period ended 31 December 2016 is derived from but does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for the year ended 28 February 2016 have been filed with the Registrar of Companies and those for the period ended 31 December 2016 will be filed before the Company's annual general meeting.  The auditor's report on the statutory accounts for the year ended 28 February 2016 and the period ended 31 December 2016 are unqualified, do not draw attention to any matters by way of emphasis, and do not contain any statements under section 498 of the Companies Act 2006.

12.       Annual Report and Accounts

Copies of the annual report and accounts for the period ended 31 December 2016, together with the notice of the general meeting to be held on 29 June 2017, will be posted to shareholders shortly and will be available to view and download from the Company's website, www.aaog.co.