Chairman s Statement. Nighthawk Energy plc 1

Transcription

1 Unaudited interim results for the six months ended 30 June 2015

2 Contents 1 Chairman s Statement 5 Chief Financial Officer s Statement 9 Independent Review Report to Nighthawk Energy plc 11 Unaudited Consolidated Income Statement 12 Unaudited Consolidated Statement of Comprehensive Income 13 Unaudited Consolidated Balance Sheet 14 Unaudited Consolidated Statement of Changes in Equity 16 Unaudited Consolidated Cash Flow Statement 17 Notes to the Consolidated Cash Flow Statement 18 Notes to the Unaudited Financial Information

3 Chairman s Statement This past six months were challenging with very low oil prices, an extremely harsh winter that adversely impacted Nighthawk s field operations and the uncertainties associated with declining production and cash flows. When oil prices fell in late 2014, Nighthawk s management agreed to focus on behind pipe completion projects and other capital efficient production enhancement projects to preserve cash flow and liquidity. The Group developed plans to return to drilling in the third quarter of 2015 if oil prices recovered. Oil prices have remained low throughout the year, with a brief uptick mid-year. However, as discussed in more detail below, Nighthawk s drilling costs have also tracked down making the Group s well economics still attractive even in this low price environment. This is due to the conventional vertical drilling and completion nature of Nighthawk s business and is a real strategic benefit to the Company in this difficult market environment. Being able to drill in a capital efficient manner makes Nighthawk a unique energy company in today s low oil price market. In fact, management s projections show that Nighthawk can drive considerable value with its drilling program, but the Company plans to approach drilling at a relatively modest pace in anticipation of improving oil prices over the next year or two. year. However, Nighthawk s operations group did a good job in restoring production during this first quarter and adding new production with behind pipe completion projects. As a result, Nighthawk has maintained production levels very near end of year 2014 levels, in spite of normal well depletion rates. This was also very important in this low oil price environment with very limited new drilling. As discussed earlier, in line with previous down cycles for the oil business, service costs have also tracked down considerably. Nighthawk recently began drilling its Crested Butte 2-14 development well location in Arikaree Creek and the Group s operations team has seen its drilling costs come down approximately 30% from recent years. The tables below show Nighthawk s expected drilling economics for its Mississippian Spergen wells at various cost of drilling and oil prices. These charts have not been updated for the anticipated oil marketing margin improvements discussed in more detail below, but it is evident that Nighthawk can still generate very attractive rates of returns, even in this low oil price environment. During the first quarter, Nighthawk experienced extremely cold weather conditions in its Denver area field operations resulting in 14 separate maintenance projects just to restore lost production. This was well above historic levels and explains why lease operating expenses were high for the first half of the Nighthawk Energy plc 1

4 (continued) Internal Rate of Return (%) Drill & Completion Cost ($000s) $1,450 $1,550 $1,650 $1,750 $1,850 $40 53% 45% 38% 32% 27% Oil Price $50 112% 97% 84% 74% 65% ($/barrel) $60 191% 165% 145% 128% 113% $70 293% 254% 222% 195% 173% $80 423% 364% 317% 279% 247% Net Present Value (NPV-10) ($ million) Drill & Completion Cost ($000s) $1,450 $1,550 $1,650 $1,750 $1,850 $40 $1.7 $1.6 $1.5 $1.4 $1.3 Oil Price $50 $2.9 $2.8 $2.7 $2.6 $2.5 ($/barrel) $60 $4.2 $4.1 $4.0 $3.9 $3.8 $70 $5.5 $5.4 $5.3 $5.2 $5.1 $80 $6.8 $6.7 $6.6 $6.5 $6.4 The first half of the year also saw considerable progress being made on Nighthawk s two new joint development agreements ( JDAs ) with Cascade Petroleum. Nighthawk s management believe these JDAs have very strong strategic value to the Group s business and while business terms were reached with Cascade very late last year, Nighthawk had to complete its due diligence on the acreage and put the necessary agreements in place which was achieved in January Since January, a 3D seismic shoot over this new acreage has been carried out and analysis of the 3D seismic is completed. As previously reported, the results show many more features and possible drilling locations than Nighthawk previously anticipated. The 3D seismic interpretation shows as many as 10 features that Nighthawk believes may be suitable for drilling containing as many as 55 to 65 possible Mississippian Spergen drilling locations. This could form the basis of Nighthawk s drilling program for years to come. As previously disclosed, Nighthawk has a six gross/three net well drilling commitment associated with the Monarch JDA and Nighthawk plans to drill four of those commitment wells in late Nighthawk began drilling the Crested Butte 2-14 development well location in the Arikaree Creek field on September 9 th and reached a final depth of 8,360 feet on September 17 th. Nighthawk s operations team is in the process of completing the well and initial results from mud logs and oil shows seen during drilling suggest that the Nighthawk Energy plc 2

5 well has production potential from both Pennsylvanian aged formations as well as the target Mississippian aged formation. Preliminary 30-day production results from the Crested Butte 2-14 should be available sometime in October. Following the Crested Butte 2-14 well, the drilling rig has moved on to the first Monarch JDA well, which spudded on September 23 rd. Even though Nighthawk has not been drilling since its 2014 program finished in early 2015, its operations group has completed a number of key actions that will prepare its business for growth in 2016 and beyond. The Group completed an engineering feasibility study of its future infrastructure needs for water, oil and gas pipelines and power needs across its entire acreage position. This study will help management anticipate the Group s infrastructure needs as it grows and will already lead to some operating cost savings in Nighthawk is in the process of contracting with a third party to build a water pipeline system designed to serve the Arikaree Creek field and tie into the Group s existing water disposal well in the field. Construction of this pipeline is expected to begin later this year and once it is placed in service in early 2016, it is anticipated that it will reduce lease operating expenses (LOE) by as much as US$0.5 milion to US$0.75 million per year. As previously reported, Nighthawk entered into a new arrangement with an oil marketing firm with effect from April 1 st, Since that date, the firm has already found Nighthawk more cost effective oil transportation solutions saving the Group approximately US$3 to US$4 per barrel in costs. To put that in perspective, in this US$40 per barrel oil price environment, that represents approximately an 8% to 10% margin improvement and Nighthawk is working on longer term solutions for 2016 and beyond. Nighthawk s Arikaree Creek field has been producing since late The Company s engineers have noted that it shows characteristics of a natural water flood assisted reservoir fed by deep underground heated water that flows up the underground fault systems. Nighthawk s engineers, together with external experts, have studied the reservoir and tested it to see if production could be enhanced by a new water flood injection system. As recently disclosed, Nighthawk has concluded that the reservoir can in fact be enhanced and is making preparations to pursue this project in The study phase of this project is nearly complete and Nighthawk will soon be seeking State of Colorado regulatory approval for the project. Once approved, the Group will build out the necessary water pumping and processing facilities in the field near its current water disposal well and may convert a small number of existing lesser performing producing wells in the field to water injection wells. Once the project is complete and placed in service in mid-2016, Nighthawk expects to see increased production from its existing 11 producing Spergen wells and the booking of increased reserves associated with the Arikaree Creek Nighthawk Energy plc 3

6 Chairman s Statement (continued) field. The new reserves will increase the asset value of the Company, increase the related borrowing base loan facility and the increased production will improve the operating cash flows of the Company. Nighthawk expects to disclose more specifics related to this project in October once it files for the requisite regulatory approvals in Colorado. With the continued support of some of Nighthawk s major shareholders, the Company completed a US$10 million unsecured zero coupon convertible loan note financing in August that the Board believes sets up the Group s 2015 and 2016 drilling program and will allow Nighthawk to return to both growth in production and cash flows. This financing further strengthens Nighthawk s balance sheet and with no debt due for repayment before 2019, Nighthawk is well positioned to operate in these markets. Rick McCullough Executive Chairman 29 September 2015 Nighthawk Energy plc 4

7 Chief Financial Officer s Statement Unaudited Unaudited Audited 6 months 6 months Year ended 30 ended 30 ended 31 June 2015 June 2014 December 2014 US$ US$ US$ Revenue 16,025,920 25,417,770 47,154,974 Cost of sales (8,304,858) (8,109,558) (19,927,152) Gross profit 7,721,062 17,308,212 27,614,822 Administrative expenses (4,097,367) (3,202,170) (7,274,890) Exceptional administrative expenses (8,836,965) (3,225,887) (20,306,352) Total administrative expenses (12,934,332) (6,428,057) (27,581,242) Operating profit/(loss) (5,213,270) 10,880,155 33,580 Exceptional administrative expenses 8,836,965 3,225,887 20,306,352 Normalised operating profit before exceptional administrative items 3,623,695 14,106,042 20,339,932 Depreciation, amortisation & contribution from test revenue 2,963,220 3,311,123 7,103,010 Normalised EBITDA before exceptional administrative items 6,586,915 17,417,165 27,442,942 Gross barrels sold 351, , ,414 Net barrels sold 288, , ,275 Daily average barrels sold (gross) 1,950 1,909 1,927 Average sales price per barrel US$44.32 US$91.73 US$83.02 Normalised EBITDA per gross barrel sold US$18.73 US$50.40 US$ Normalised operating profit is operating profit adjusted for exceptional administrative items. 2. Normalised EBITDA is operating profit adjusted for depreciation, amortisation, contribution from test revenue and exceptional administrative items. Nighthawk Energy plc 5

8 Chief Financial Officer s Statement (continued) Despite the on-going challenging environment for the oil and gas sector, Nighthawk delivered production growth in the six month period ended 30 June 2015 when compared to the six month period to 30 June This was achieved principally through low cost, high margin workovers and treatments of existing producing wells. Nighthawk would expect some of the squeeze on the E&P industry s operating and cash flow margins to be mitigated in the second half of 2015 and going forward as the Group benefits from cost reductions as the industry and its suppliers further adjust to a lower oil price environment and as the Group implements administrative and operational cost reduction initiatives. Gross oil sales of 351,609 barrels during the period were greater than First Half 2014 but marginally behind the second six months of 2014 ( Second Half 2014 ) due to few new wells being brought into production in First Half 2015 (six months ended 30 June 2014: 345,558 barrels; year ended 31 December 2014: 703,414 barrels; six months ended 31 December 2014: 357,856 barrels). Group revenues from continuing operations for the period were US$16.0 million (six months ended 30 June 2014: US$25.4 million; year ended 31 December 2014: US$47.5 million). The average price realised during the period was US$44.32 per barrel (excluding hedging) compared to US$74.61 per barrel in Second Half Of the total US$16.0 million revenues in the period, US$3.3 million related to oil commodity hedging income. Gross profit generated in the period was US$7.7 million (six months ended 30 June 2014: US$17.3 million; year ended 31 December 2014: US$27.6 million; six months ended 31 December 2014: US$10.3 million). Within cost of sales of US$8.3 million, lease operating expenses on wells classified as producing wells for IFRS purposes accounted for US$3.9 million, with the balance including depreciation and contribution from test revenue of US$2.9 million, profit shares and royalties on loans of US$0.2 million and sales based tax payments and accruals of US$1.2 million. Administrative expenses, excluding exceptional items, during the period were US$4.1 million (six months ended 30 June 2014: US$3.2 million; year ended 31 December 2014: US$7.3 million). The increase in administrative expenses over the comparable period in 2014 was driven by employee headcount growth and professional fees. Exceptional administrative expenses during the period of US$8.8 million (six months ended 30 June 2014: US$3.2 million; year ended 31 December 2014: US$20.3 million) relate to decisions taken to plug and abandon four wells which are deemed non-commercial and decisions to impair partially nine wells on account of reduced expectations of present value in the lower oil price environment. Normalised earnings before interest, taxation, depreciation and amortisation was US$6.6 million ( NEBITDA ) (six months ended 30 June 2014: US$17.4 million; year Nighthawk Energy plc 6

9 ended 31 December 2014: US$27.4 million). On a per barrel basis NEBITDA during the period was US$18.73/barrel (six months ended 30 June 2014: US$50.40/barrel; year ended 31 December 2014: US$39.01/barrel). The tax charge of US$0.8 million primarily represents the recycling of a deferred tax charge held in the hedging reserve and relates to gains on the Company s hedges realised during the period. As reported at 31 December 2014, the Group undertook a detailed review of its capital deductions under US taxation which gave rise to a restatement of the 2013 deferred tax position. In 2013, the Group had recorded a deferred tax asset of US$7.0 million which was restated to US$nil in the 2014 annual financial statements. Accordingly, in these interim financial statements, the results for the comparative six months ended 30 June 2014 have been similarly restated. The previously reported deferred tax asset of US$5.9 million at 30 June 2014 has been restated to US$nil. The deferred tax charge of US$1.0 million previously recognised for the period ended 30 June 2014 has also been restated to US$nil, resulting in an overall tax charge for the period ended 30 June 2014 of US$0.3 million. The Group statutory loss for the period after exceptional administrative items was US$8.0 million (six months ended 30 June 2014: profit US$8.3 million; year ended 31 December 2014: loss US$3.9 million). Cash inflow from operating activities for the period was US$9.4 million (six months ended 30 June 2014: US$14.4 million; year ended 31 December 2014: US$28.2 million). Cash flow used in investing activities during the period of US$16.9 million (six months ended 30 June 2014: US$18.8 million; year ended 31 December 2014: US$42.3 million) included capital expenditure on drilling and completing new wells in late 2014 and early 2015 prior to release of the drilling rig, further new completions and recompletions on existing wells, strategic lease acquisitions and lease renewals and 3D seismic acquisition and interpretation across the Monarch JDA area announced in January Net cash flow from financing activities during the period totaled US$4.9 million (six months ended 30 June 2014: US$5.7 million; year ended 31 December 2014: US$15.9 million) and included additional drawings against the Group s reserves based bank facility with Commonwealth Bank of Australia of US$6.0 million. At 30 June 2015, the Group held cash balances of US$2.3 million (30 June 2014: US$4.3 million; 31 December 2014: US$5.0 million). Since the period end, in August 2015 the Group issued 6.4 million (US$10.0 million) of new zero coupon unsecured convertible loan notes which may be converted at any time into new ordinary shares in the Company at 3.0 pence per share. The purpose of the fund raise was to underline Nighthawk Energy plc 7

10 Chief Financial Officer s Statement (continued) the Group s ability to fund drilling of new wells in the remainder of 2015 and into Richard Swindells Chief Financial Officer 29 September 2015 Nighthawk Energy plc 8

11 Independent Review Report to Nighthawk Energy plc Introduction We have been engaged by the company to review the financial information in the halfyearly financial report for the six months ended 30 June 2015 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors responsibilities The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company s annual accounts having regard to the accounting standards applicable to such annual accounts. Our responsibility Our responsibility is to express to the company a conclusion on the financial information in the half-yearly financial report based on our review. Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Nighthawk Energy plc 9

12 Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. BDO LLP Chartered Accountants and Registered Auditors London United Kingdom 29 September 2015 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Nighthawk Energy plc 10

13 Unaudited Consolidated Income Statement for the 6 months ended 30 June 2015 Continuing operations: Notes RESTATED (Note 4) Unaudited Unaudited 6 months 6 months Audited ended ended Year ended 30 June 30 June 31 December US$ US$ US$ Revenue 16,025,920 25,417,770 47,541,974 Cost of sales (8,304,858) (8,109,558) (19,927,152) Gross profit 7,721,062 17,308,212 27,614,822 Administrative expenses (4,097,367) (3,202,170) (7,274,890) Exceptional administrative expenses 1 (8,836,965) (3,225,887) (20,306,352) Total administrative expenses (12,934,332) (6,428,057) (27,581,242) Operating (loss)/profit (5,213,270) 10,880,155 33,580 Finance income 2 87, , Finance costs 2 (2,075,621) (3,166,486) (5,783,018) (Loss)/profit before taxation (7,201,591) 8,582,274 (5,749,071) Taxation 4 (829,295) (299,925) 1,855,837 (Loss)/profit for the financial period (8,030,886) 8,282,349 (3,893,234) Attributable to: Equity shareholders of the Company (8,030,886) 8,282,349 (3,893,234) Earnings per share attributable to the equity shareholders of the Company Basic (loss)/earnings per share (US cents) 3 (0.83) 0.87 (0.40) Diluted (loss)/earnings per share (US cents) 3 (0.83) 0.69 (0.40) Nighthawk Energy plc 11

14 Unaudited Consolidated Statement of Comprehensive Income for the 6 months ended 30 June 2015 RESTATED (Note 4) Unaudited Unaudited 6 months 6 months Audited ended ended Year ended 30 June 30 June 31 December US$ US$ US$ (Loss)/profit for the financial period (8,030,886) 8,282,349 (3,893,234) Other comprehensive income Hedging gain reclassified to profit or loss (3,330,143) - (276,012) Deferred tax on hedging gain reclassified to profit or loss 1,185, Items that may be reclassified subsequently to profit or loss: Foreign exchange (losses)/gains on consolidation (134,377) (1,384,646) 1,206,835 Fair value (loss)/gain on hedging instruments designated in cash flow hedges (108,636) - 6,136,124 Deferred tax on fair value (loss)/gain on hedging instruments designated in cash flow hedges 38,676 - (2,086,282) Other comprehensive (expense)/income for the financial period, net of tax (2,348,903) (1,384,646) 4,980,665 Total comprehensive (expense)/income for the financial period attributable to the equity shareholders of the Company (10,379,789) 6,897,703 1,087,431 Nighthawk Energy plc 12

15 Unaudited Consolidated Balance Sheet as at 30 June 2015 RESTATED (Note 4) Unaudited Unaudited Audited 30 June 30 June 31 December US$ US$ US$ Assets Non-current assets Property, plant and equipment 51,819,339 41,580,553 47,129,451 Intangibles 48,747,403 52,575,516 51,392,916 Derivative financial assets 493, , ,060,409 94,156,069 99,142,367 Current assets Inventory 971,233 1,613,121 1,051,192 Derivative financial assets 2,240,044-5,516,124 Trade and other receivables 3,029,817 5,013,220 3,525,601 Cash and cash equivalents 2,306,556 4,256,326 5,019,527 8,547,650 10,882,667 15,112,444 Total Assets 109,608, ,038, ,254,811 Equity and Liabilities Capital and reserves attributable to the Company s equity shareholders: Share capital 4,007,795 3,974,139 4,001,288 Share premium account 1,402, ,062 1,279,014 Foreign exchange translation reserve 6,331,433 3,874,329 6,465,810 Special (restricted) reserve 29,760,145 29,760,145 29,760,145 Retained (deficit)/earnings (3,654,268) 13,748,166 4,376,618 Share-based payment reserve 5,650,147 3,572,221 5,420,455 Equity option on convertible loans 3,592,505 2,455,429 3,592,505 Cash flow hedging reserve 1,559,304-3,773,830 Total equity 48,649,705 58,075,491 58,669,665 Current liabilities Trade and other payables 9,057,526 7,226,103 10,430,245 Derivative financial liabilities - 1,241,000 - Borrowings - 33,999,620-9,057,526 42,466,723 10,430,245 Non-current liabilities Borrowings 46,701,348-40,082,974 Provisions 5,199,480 4,496,522 5,071,927 Total non-current liabilities 51,900,828 4,496,522 45,154,901 Total liabilities 60,958,354 46,963,245 55,585,146 Total Equity and Liabilities 109,608, ,038, ,254,811 Nighthawk Energy plc 13

16 Unaudited Consolidated Statement of Changes in Equity for the 6 months ended 30 June 2015 Foreign Share Equity Share Exchange Special Based option on Cash flow Share Premium Translation (restricted) Retained Payment convertible hedging capital account reserve reserve earnings reserve loans reserve Total US$ US$ US$ US$ US$ US$ US$ US$ US$ Balance at 1 January ,001,288 1,279,014 6,465,810 29,760,145 4,376,618 5,420,455 3,592,505 3,773,830 58,669,665 For the 6 months ended 30 June 2015 Loss for the period (8,030,886) (8,030,886) Other comprehensive expense: Foreign exchange loss on consolidation - - (134,377) (134,377) Fair value loss on hedging instruments designated in cash flow hedges (108,636) (108,636) Deferred tax on fair value loss on hedging instruments designated in cash flow hedges ,676 38,676 Hedging gain reclassified to profit or loss (3,330,143) (3,330,143) Deferred tax on hedging gain reclassified to profit or loss ,185,577 1,185,577 Total comprehensive income/(expense) - - (134,377) - (8,030,886) - - (2,214,526)(10,379,789) Share-based payments , ,692 Issue of share capital for cash 6, , ,137 Unaudited balance at 30 June ,007,795 1,402,644 6,331,433 29,760,145 (3,654,268) 5,650,147 3,592,505 1,559,304 48,649,705 Balance at 1 January 2014 (as previously reported) 3,940,516-5,258,975 29,760,145 12,432,326 3,101,951 2,480,398-56,974,311 Prior period restatement (note 4) (6,978,000) (6,978,000) Balance at 1 January 2014 (RESTATED) 3,940,516-5,258,975 29,760,145 5,454,326 3,101,951 2,480,398-49,996,311 For the 6 months ended 30 June 2014 Profit for the period ,282, ,282,349 Other comprehensive expense: Foreign exchange loss on consolidation - - (1,384,646) (1,384,646) Total comprehensive income/(expense) - - (1,384,646) - 8,282, ,897,703 Share-based payments , ,270 Conversion of convertible loans 26, , ,491 - (24,969) - 560,937 Issue of share capital for cash 7, , ,270 Unaudited balance at 30 June ,974, ,062 3,874,329 29,760,145 13,748,166 3,572,221 2,455,429-58,075,491 Nighthawk Energy plc 14

17 Foreign Share Equity Share Exchange Special Based option on Cash flow Share Premium Translation (restricted) Retained Payment convertible hedging capital account reserve reserve earnings reserve loans reserve Total US$ US$ US$ US$ US$ US$ US$ US$ US$ Balance at 1 January ,940,516-5,258,975 29,760,145 5,454,326 3,101,951 2,480,398-49,996,311 For the year ended 31 December 2014 Loss for the year (3,893,234) (3,893,234) Other comprehensive income: Foreign exchange gain on consolidation - - 1,206, ,206,835 Gain on hedging instruments designated in cash flow hedges ,136,124 6,136,124 Gain reclassified to profit or loss (276,012) (276,012) Deferred tax on hedging instruments designated in cash flow hedges (2,086,282) (2,086,282) Total comprehensive income/(expense) - - 1,206,835 - (3,893,234) - - 3,773,830 1,087,431 Share-based payments , ,695 Issue of share capital for cash 19, , ,662 Exercised and expired options and warrants ,660 (145,660) Extension of convertible loan notes and borrowings ,646,477 1,761,469 1,152,342-5,560,288 Conversion of convertible loan notes 41, , ,389 - (40,235) - 893,278 Balance at 31 December ,001,288 1,279,014 6,465,810 29,760,145 4,376,618 5,420,455 3,592,505 3,773,830 58,669,665 Nighthawk Energy plc 15

18 Unaudited Consolidated Cash Flow Statement for the 6 months ended 30 June 2015 Unaudited Unaudited Audited 6 months 6 months Year ended ended ended 30 June 30 June 31 December US$ US$ US$ Cash inflow from operating activities 9,446,099 14,383,275 28,224,478 Cash flow from investing activities: Purchase of intangible assets (8,353,764) (12,971,862) (27,253,794) Purchase of property, plant and equipment (8,542,992) (5,867,182) (15,002,661) Proceeds on disposal of property, plant and equipment - 1,422,101 1,501,828 Interest received Net cash used in investing activities (16,896,713) (17,416,724) (40,754,260) Cash flow from financing activities: Proceeds on issue of new shares 130, , ,662 Proceeds on issue of derivative financial instruments - 843, ,639 Payments on derivative financial instruments - - (509,275) Repayment of loans - - (10,000,000) Proceeds on issue of loans 6,000,000 6,000,000 27,886,400 Interest paid (1,268,175) (1,299,208) (2,787,068) Net cash generated from financing activities 4,861,962 5,694,701 15,863,358 Net increase/(decrease) in cash and cash equivalents (2,588,652) 2,661,252 3,333,576 Cash and cash equivalents at beginning of period 5,019,527 1,681,163 1,681,163 Effects of foreign exchange movements (124,319) (86,089) 4,788 Cash and cash equivalents at end of period 2,306,556 4,256,326 5,019,527 Nighthawk Energy plc 16

19 Notes to the Consolidated Cash Flow Statement for the 6 months ended 30 June Reconciliation of profit/(loss) before tax to cash generated from operations 6 months 6 months Year ended ended ended 30 June 30 June 31 December US$ US$ US$ Profit/(loss) before tax (7,201,591) 8,582,274 (5,749,071) Finance income (87,300) (868,605) (367) Finance costs 2,075,621 3,166,486 5,783,018 Share-based payment 229, , ,695 Gain on disposal of property, plant and equipment - - (78,887) Fair value gain on royalty liability 2,371 - (294,910) Unrealised revenue on hedge accounted derivatives (36,366) - (276,012) Loss/(gain) on derivative financial instruments not accounted for as hedges (445) (134,594) (192,489) Impairment of intangible assets net of provision released for asset retirement costs 7,376,445 2,998,609 12,896,169 Impairment of property, plant and equipment 1,460, ,278 7,410,183 Depreciation 2,651,796 2,881,266 5,355,128 Amortisation and contribution from test revenue 311, ,857 1,747,882 6,782,167 17,752,841 27,303,339 Changes in working capital (Increase)/decrease in inventory 79,959 (514,779) 47,150 (Increase)/decrease in trade and other receivables 716,783 (1,177,056) 310,566 (Decrease)/increase in trade and other payables 1,867,190 (1,351,931) 793,868 9,446,099 14,709,075 28,454,923 Tax paid - (325,800) (230,445) Cash inflow from operating activities 9,446,099 14,383,275 28,224,478 Nighthawk Energy plc 17

20 Notes to the Unaudited Financial Information for the 6 months ended 30 June 2015 Accounting policies The interim financial information in this report has been prepared on the basis of the accounting policies set out in the audited financial statements for the year ended 31 December 2014, which complied with International Financial Reporting Standards as adopted for use in the European Union ( IFRS ). The financial information for the periods ended 30 June 2015 and 30 June 2014 are unaudited but have been reviewed by the company s auditors. IFRS is subject to amendment and interpretation by the International Accounting Standards Board ( IASB ) and the IFRS Interpretations Committee and there is an on-going process of review and endorsement by the European Commission. The financial information has been prepared in accordance with the recognition and measurement requirements of IFRS that the Directors expect to be applicable as at 31 December 2015, with the exception of IAS 34 Interim Financial Reporting which is not mandatory for companies listed on the AIM Market. The financial information for the year ended 31 December 2014 set out in this interim report does not comprise the Group s statutory accounts as defined in section 434 of the Companies Act The statutory accounts for the year ended 31 December 2014, which were prepared under IFRS, have been delivered to the Registrar of Companies. The auditors reported on these accounts; their report was unqualified; did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006, and did not include reference to any matters to which the auditor drew attention by way of emphasis. 1. Exceptional items 6 months 6 months ended ended Year ended 30 June 30 June 31 December US$ US$ US$ Exceptional administrative expenses: Impairment of exploration and production assets 8,836,965 3,225,887 20,306,352 Nighthawk Energy plc 18

21 1. Exceptional items (continued) During the period decisions were taken to plug and abandon a total of four wells. As a result of these decisions, the associated assets have been fully impaired as at 30 June 2015 resulting in an exceptional charge to the income statement of US$5.5 million. An additional impairment charge of US$3.3 million has also been taken to the income statement at 30 June 2015 which represents a partial impairment of a further nine wells which arises primarily due to the reduction in the spot and forward oil price assumptions used in estimating the oil reserves and future discounted cash flows for each well. 2. Finance income and expense Finance income: 6 months 6 months ended ended Year ended 30 June 30 June 31 December US$ US$ US$ Bank interest Exchange rate gain on financial instruments 87, ,386-87, , months 6 months ended ended Year ended 30 June 30 June 31 December US$ US$ US$ Finance costs: Interest on shareholder loan - 738,180 1,160,571 Imputed interest on convertible loan notes 599, ,526 1,468,492 Interest on shareholder loan with detachable warrants 790, ,404 1,551,710 Interest on bank loan 682, ,348 Loss on rescheduling of loans ,787 Factoring costs - 143, ,041 Bank charges 2,775 3,462 6,660 Fair value losses on derivative financial instruments not designated as hedging instruments - 844, ,489 Exchange rate loss on financial instruments ,920 2,075,621 3,166,486 5,783,018 Nighthawk Energy plc 19

22 Notes to the Unaudited Financial Information (continued) for the 6 months ended 30 June Earnings per share attributable to the equity shareholders of the Company Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Basic earnings per share RESTATED (Note 4) 6 months 6 months ended ended Year ended 30 June 30 June 31 December US cents US cents US cents Basic earnings per share Earnings/(loss) per share from continuing operations (0.83) 0.87 (0.40) Diluted earnings per share Earnings/(loss) per share from continuing operations (0.83) 0.69 (0.40) Due to the Group s reported losses in the current period and year ended 31 December 2014 share options, convertible loans and warrants were not taken into account when determining the weighted average number of ordinary shares in issue during the period / year for the diluted EPS calculation. Similarly, earnings used in the diluted EPS did not include convertible loan interest that was anti-dilutive for those periods. Therefore the basic and diluted earnings per share were the same in those periods. Nighthawk Energy plc 20

23 3. Earnings per share attributable to the equity shareholders of the Company (continued) The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: RESTATED 6 months 6 months ended ended Year ended 30 June 30 June 31 December US$ US$ US$ Loss/(earnings) used in the calculation of total basic earnings per share (8,030,886) 8,282,349 (3,893,234) Loss/(earnings) used in the calculation of total diluted earnings per share (8,030,886) 9,064,875 (3,893,234) 6 months 6 months ended ended Year ended 30 June 30 June 31 December Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 963,175, ,374, ,301,962 Dilutive effect of share options, conversion shares and warrants - 355,368,178 - Weighted average number of ordinary shares for the purposes of diluted earnings per share 963,175,225 1,307,743, ,301,962 Nighthawk Energy plc 21

24 Notes to the Unaudited Financial Information (continued) for the 6 months ended 30 June Taxation The following tax charges and credits arose in the US during each period presented: Tax (charge)/credit: RESTATED 6 months 6 months ended ended Year ended 30 June 30 June 31 December US$ US$ US$ Current tax credit/(charge) 394,958 (299,925) (230,445) Deferred tax charge on hedging gains recycled from Other Comprehensive Income (1,185,577) - - Deferred tax (charge)/credit (38,676) - 2,086,282 Total tax (charge)/credit (829,295) (299,925) 1,855,837 No tax charge arose in the in the UK in the period (period ended 30 June 2014: nil; year ended 31 December 2014: nil). No deferred tax asset has been recognised for tax losses of US$135.3 million available in the USA due to uncertainty over the timing of future profits and on account of the fact that the Group s ability to utilise some of these tax losses is restricted under S382 of the IRS Code to an amount of US$0.4 million per annum. The unrecognised taxable losses in the USA can be carried forward for U.S. Federal and Colorado State income tax purposes for 20 years. These losses if not utilised will begin to expire in the year 2026 through The deferred tax liability that was held in the hedging reserve was released in the period and relates to the gains on the Company s hedges realised during the period. A deferred tax asset in respect of taxable losses available in the UK has not been recognised due to the uncertainty over timing of future profits. The taxable losses available in the UK can be carried forward indefinitely. Nighthawk Energy plc 22

25 4. Taxation (continued) Restatement Refer to the Chief Financial Officer s Statement for details of the restatement. The impact on the period ended 30 June 2014 was as follows: As previously reported US$ As restated US$ Deferred tax asset 5,936,462 - Non-current assets 100,092,531 94,156,069 Total assets 110,975, ,038,736 Retained earnings 19,684,628 13,748,166 Total equity 64,011,953 58,075,491 Taxation (1,341,463) (299,925) Profit for the year 7,240,811 8,282,349 Details of the restatement as at 1 January 2014 detailed in the Statement of Changes in Equity have been previously disclosed in the 2014 Annual Report. 5. Share Capital During the period ended 30 June 2015, the Company issued a total of 1,700,000 ordinary shares at a price of 5p per share, resulting in a premium of US$123,630. During the comparative period to 30 June 2014, the Company issued a total of 8,054,548 ordinary shares: 6,254,548 at a price of 5.5p per share and 1,800,000 at 5p per share, resulting in a premium of US$691,062. During the year ended 31 December 2014 the Company issued a total of 14,690,910 ordinary shares: 9,890,910 at a price of 5.5p per share, 3,600,000 at 5p per share and 1,200,000 at 7.16p per share, resulting in a premium of US$1,279,014. Following the issue of shares in the period, there were 964,076,330 ordinary shares of 0.25p each in issue at 30 June Nighthawk Energy plc 23

26 Notes to the Unaudited Financial Information (continued) for the 6 months ended 30 June Post Balance Sheet Events On 18 August 2015 the Company announced that it had completed the issue of 6.4 million (US$10.0 million) of new zero coupon unsecured convertible loan notes ( Convertible Loan Notes ). The issue of Convertible Loan Notes was underwritten and partially subscribed by Mr Johan Claesson, a director of the Company and the Company s major shareholder. Upon completion of the fund raise, Mr Claesson held a total of 4,339,200 nominal (approximately US$6,780,000) of the Convertible Loan Notes. The terms of the Convertible Loan Notes are such that they are zero coupon, unsecured and convertible at the option of the holder at a price of 3.0 pence per ordinary share at any time before 25 March 2019, subject to limited restrictions including a prohibition on conversion where to do so would breach Rule 9 of the City Code on Takeovers and Mergers. On 6 August 2015, the Group drew a further US$1.0 million on its reserves based loan facility with Commonwealth Bank of Australia, taking the total amount drawn under the facility to US$30.0 million out of a total borrowing base of US$37.0 million. The available borrowing base is subject to a US$5.0 million withholding by the bank such that the Group at all times maintains a minimum liquidity requirement. 7. Litigation update The Company previously made announcement on 21 May 2014 regarding a lawsuit brought by Running Foxes Petroleum, Inc. against a subsidiary of the Company, in a Colorado court in the United States. Nighthawk believes that the case is completely without merit and the Court recently dismissed of one of the plaintiff s claims. Nighthawk recently filed a motion for summary judgment to dispose of the remaining claims. The facts and governing law do not give rise to any valid legal claim by Running Foxes Petroleum Inc. against Nighthawk, or otherwise raise a valid business issue that needs to be resolved between the companies. Nighthawk believes that the allegations contained in the complaint are baseless, and that the complaint is a groundless action. Nighthawk will vigorously defend against the complaint and seek all available legal remedies. 8. Competent Person review Chuck Wilson, Chief Operating Officer of Nighthawk, who has over 33 years of experience in the oil and gas industry and meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this report. Nighthawk Energy plc 24

27 9. Copies of the Half Yearly Report A copy of this Half Yearly Report will be made available on the Company s website at: Nighthawk Energy plc 25

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