Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Regulation Article 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310 until the release of this announcement.

2 September 2021

Baron Oil Plc

("Baron" or "the Company")

Interim Results for the six months ended 30 June 2021

Baron Oil Plc (AIM:BOIL), the AIM-quoted oil and gas exploration company focused on opportunities in SE Asia, UK and Latin America, announces its unaudited interim financial information and results for the six months ended 30 June 2021.

Key Points

·    Consolidation of interests in Timor-Leste Chuditch PSC - Baron now has a 75% interest

·    Critical 3D seismic reprocessing by TGS to define Chuditch prospectivity underway

·    Agreed increase in interest in UK licence P2478 containing the large Dunrobin prospect

·    Acceleration of Dunrobin subsurface evaluation with Baron's technical oversight

·    First half of 2022 set to be a key period for both Chuditch and Dunrobin 

Financial

·    Available cash (excluding monies held as security for bank guarantees in Peru and Timor-Leste) as at 30 June 2021 of £2,515,000 (30 June 2020: £1,798,000; 31 December 2020: £1,190,000). Successful Placing and Subscription raising £3 million (gross) announced on 24 March 2021.

·    In April 2021, the Company increased its stake in SundaGas (Timor-Leste Sahul) Pte. Ltd ("TLS") to a controlling interest of 85% at a cash cost of US$1,243,000; and acquired the remaining 15% on 17 June 2021 in exchange for the issue of 1,157,202,885 ordinary shares in the Company. Baron was not required to make any further contribution to the bank guarantee deposit. The full value of the guarantee deposit of US$1,000,000 is now consolidated, with US$667,000 shown as a payable to SundaGas Pte. Ltd.

·    Net loss after finance costs and tax of £117,000 (30 June 2020: net loss of £703,000; year to 31 December 2020: net loss of £920,000), representing a loss of 0.002p per share (30 June 2020: 0.020p; year to 31 December 2020: 0.023p).

·    There is a gain of £359,000 arising on the deemed disposal of the interest in an associated undertaking under IFRS3 that arises on the acquisition of the remaining equity in SundaGas (Timor-Leste Sahul) Pte. Ltd (see note 7 of the Interim Financial Statements).

·    Increase in administration expenses largely arises from consolidation of TLS, which was previously accounted for as an associated undertaking, for part of the period for the first time, and a severance payment to a former director.    

Andy Yeo, Chief Executive commented:           

"We believe that the success in securing the significantly increased interest in the Chuditch PSC places Baron in a strong position to deliver material value for shareholders. The ongoing sophisticated technical work and the scale of the mean Prospective Resources, now independently evaluated to be an aggregate of 592MMBOE (gross), are believed to be of a sufficient level to attract the interest of major regional gas players and other potential funding partners. The Company anticipates initiating discussions with a range of such parties from September 2020 onwards. In addition, we have been able to accelerate progress in the UK on Licence P2478 as well as increasing our interest in the potentially large Dunrobin prospect.

"The first half of 2022 will be an important period for Baron for both Chuditch and P2478." 

For further information, please contact:

Timor-Leste: offshore Chuditch PSC, Timor Sea - Baron 75%; TIMOR GAP 25%

Corporate & PSC Developments

During the reporting period, Baron progressively increased its interest in SundaGas Timor-Leste (Sahul) Pte. Ltd. ("TLS") from 33.33% to 100%. TLS is the parent company of SundaGas Banda Unipessoal Lda. ("Banda"), the Timor-Leste registered subsidiary, which is the Operator of and 75% interest holder in the TL-SO-19-16 PSC ("Chuditch PSC", or "PSC"). The remaining 25% interest is held by TIMOR GAP Chuditch Unipessoal, Lda. ("TIMOR GAP"), a subsidiary of the Timor-Leste state oil company, which is carried for all exploration and development costs through to first production.

Through this process, which included a Placing and Subscription of £3 million (gross) and a Share Exchange, Baron has secured undiluted control of Banda, welcomed a significant new shareholder to Baron, and retained the Banda technical and commercial team who will continue to drive the Chuditch PSC project forward.

At the regulatory level, Banda enjoys a strong, constructive relationship with Autoridade Nacional do Petróleo e Minerais ("ANPM"), the Timor-Leste state oil and gas regulatory authority, and our partner, TIMOR GAP. This was an important consideration for ANPM when granting Banda a year's extension to Contract Year 1 of the PSC in February 2021, to enable the timely completion of the committed work programme, in particular the 3D seismic reprocessing project. The latest Management Committee Meeting with ANPM and TIMOR GAP in late June 2021 reaffirmed the significant progress being made on the PSC's work programme and ratified Banda's plans for continuing technical studies and for the expansion and training of the Timor-Leste based team.

3D Seismic Reprocessing

The licensing and reprocessing of 1,270km² of 3D seismic data covering the Chuditch-1 discovery and adjacent prospects commenced in April 2021 with the work being conducted by TGS-NOPEC Geophysical Company ASA ("TGS") at their UK processing centre in the United Kingdom.

The reprocessing is specifically designed to address key issues associated with sea-bed topography and shallow geological features which significantly impact the existing seismic image at the reservoir level local to the Chuditch area, where previous technologies had largely failed. Whilst necessarily computationally intensive and time-consuming, the work is expected to result in a considerably enhanced subsurface image, critical for the definition of the size and shape of the accumulation, impacting the evaluation of gas volumes in place and the location of potential future wells.

Encouraging progress is being made with the reprocessing, affirmed at a key milestone meeting held during August 2021. Initial reprocessed data are scheduled to be delivered in Q4 2021 with final data due in Q2 2022. A decision on whether to enter the drilling phase, with the potential for a high impact drilling programme in 2023, is to be taken by Q4 2022 following the interpretation of the final reprocessed data.

Geological and Geophysical Studies

In parallel with the reprocessing project, the geological and geophysical database has been expanded by accessing legacy information on seismic acquisition and drilling held on behalf of the government of Timor-Leste by Geoscience Australia. These additional data sets are being incorporated into the evaluation of the Chuditch area, including:

·    extensive seismic interpretation and mapping, now complete, based on legacy 2D seismic data, developing the understanding of the regional context of the Chuditch discovery;

·    a detailed petroleum systems modelling exercise utilising the expanded regional geological datasets and seismic mapping; and

·    a revised petrophysical evaluation of the Chuditch discovery.

Prospective Resources

On 17 July 2021, the Company announced the results of an independent review of Prospective Resources by THREE60 Energy Asia Sdn. Bhd. ("THREE60 Energy") for the Chuditch PSC, validated to SPE PRMS 2018 industry standards. This independent review confirmed and superseded previous non-SPE PRMS compliant gross volume potential assessments, including for the first time an assessment of the volumes of prospective condensate resources in the Chuditch-1 discovery and adjacent prospects and lead:

·    Aggregate Gross Mean Prospective Resources of 3,368 Bscf of gas and 30 MMbbl of condensate, equivalent to a total of 592 MMBOE.

·    High Estimate (3U) of gross Prospective Resources equivalent to a total of 1,156 MMBOE reflecting the potential for a single, large accumulation.

·    Subsurface risks for the prospects and lead estimated to be low since they share analogous geological characteristics to Chuditch-1 and other gas discoveries in adjacent Timor-Leste and Australian waters.

Regional Activity

We believe that recent events in the Timor Sea area illustrate the high value potential of Chuditch within this important emerging gas arena:

·   acceleration in regional gas development following the Santos US$1.25 billion acquisition of ConocoPhillips' upstream and midstream assets in northern Australia and Timor-Leste;

·    infill drilling results by Santos on the Bayu-Undan field in Timor-Leste waters demonstrated high initial rates of gas and condensate production from the Jurassic Plover Formation (the reservoir encountered in Chuditch-1), expected to lead to an extension of infrastructure life;

·    announcement of a Memorandum of Understanding between Santos and ENI to jointly explore synergies for the development of gas resources and infrastructure in the Timor Sea; and

·    robust demand and price growth in the SE Asia liquid natural gas ("LNG") market, where future demand is forecast to exceed supply.

UKCS: offshore Licence P2478, Inner Moray Firth - Baron 32%; Corallian 36%; Upland 32% *

Background

The P2478 Licence contains the prospective Dunrobin area consisting of large, rotated fault blocks mapped mostly on 3D seismic data with candidate direct hydrocarbon indicators. The cost of a well to test the Dunrobin prospect is expected to be modest at c. £7 million gross as the prospect lies in waters of less than 100 metres and the total drilling depth is prognosed to be approximately 660 metres.

Dunrobin is evaluated by Baron to be one of the few remaining targets yet to be drilled in the UK North Sea where estimated gross mean Prospective Resources are in excess of 100 MMbbl (a non-SPE PRMS compliant estimate). In addition, there is the follow up potential of the smaller Golspie prospect within the licence area. The Beatrice field c.20km north of Dunrobin produced over 140 MMbbl from the same petroleum system.

Regional Technical Studies

In Q1 2021, the joint venture received the results of regional technical studies undertaken by a large European E&P company as part of a work sharing agreement, which enhanced the partners' understanding of the petroleum geology and corroborated their view of Dunrobin as a potentially attractive and substantial target. The results have been incorporated into the ongoing work programme.

Increase in Interest

During August 2021, Baron increased its interest in P2478 and in particular in Dunrobin from 15% to 32% (* subject to the consent of the UK Oil and Gas Authority) in exchange for paying 100% of the costs of the remaining Phase A work commitments up to a cap of £160,000. Corallian remains the operator of Licence P2478, with Baron assuming the role of technical overseer of the remaining Phase A work commitments.

3D Seismic Reprocessing Programme

The key component of the Phase A work is 3D seismic reprocessing which is expected to be delivered during H1 2022 and which is aimed at reducing the range of volumetric uncertainty and subsurface risk as well as providing potential drilling location candidates. The accelerated evaluation will provide time to mature the Dunrobin prospect and to engage with potential drilling partners ahead of making a "drill or drop" decision before the end of Phase A in July 2023.

Peru: onshore Block XXI, Sechura Desert of northern Peru - Baron 100%

Background

In a country where political upheaval and uncertainty continues, Peru has been hard-hit by the pandemic, recording the highest COVID-19 death toll per capita in the world. Nevertheless, there are signs that the authorities are beginning to scale back certain COVID restrictions ahead of the next review of the current national State of Emergency.

As previously noted, whilst the ongoing COVID-19 restrictions have continued to delay progress in relation to a drilling decision for the proposed El Barco-3X exploration well, there has been some progress in our application for a three-year extension option to the licence. Also, following the appointment of a new regional president and council in the Piura region which contains the licence area, our Peru based team has recently been able to visit and engage with the local communities of Belisario and El Barco.

Drilling Requirements

In order to progress the drilling project, we will require all of the following:

·    confirmation that a three-year extension option to the licence is available;

·    a local farm-in operating partner;

·    freedom to conduct workshops with the local communities of Belisario and El Barco; and

·    drilling authorisation at the local level from, amongst others, the regional president and council.

For now, the licence remains in Force Majeure. It remains unclear how quickly oil and gas exploration activity might recover once COVID restrictions have been lifted. Given the lengthy economic shutdown and our drilling requirements before progressing the project, we are unlikely to be able to take a decision on the drilling of the El Barco-3X exploration well until we move into 2022.

Qualified Person's Statement

Pursuant to the requirements of the AIM Rules - Note for Mining and Oil and Gas Companies, the technical information and resource reporting contained in this announcement has been reviewed by Jon Ford BSc, Fellow of the Geological Society, Technical Director of the Company. Mr Ford has 40 years' experience as a petroleum geoscientist. He has compiled, read, and approved the technical disclosure in this regulatory announcement and indicated where it does not comply with the Society of Petroleum Engineers' standard.

1. General Information

Baron Oil Plc is a company incorporated in England and Wales and quoted on the AIM Market of the London Stock Exchange. The registered office address is Finsgate, 5-7 Cranwood Street, London EC1V 9EE.

The principal activity of the Group is that of oil and gas exploration and production.

These financial statements are a condensed set of financial statements and are prepared in accordance with the requirements of IAS 34 and do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2020. The financial statements for the half period ended 30 June 2021 are unaudited and do not comprise statutory financial statements within the meaning of Section 435 of the Companies Act 2006.

Statutory financial statements for the year ended 31 December 2020, prepared under IFRS, were approved by the Board of Directors on 26 May 2021 and delivered to the Registrar of Companies.

2. Basis of Preparation

This consolidated interim financial information have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and on the historical cost basis, using the accounting policies which are consistent with those set out in the Company's Annual Report and Financial Statements for the year ended 31 December 2020. This interim financial information for the six months to 30 June 2021, which complies with IAS 34 'Interim Financial Reporting', was approved by the Board on 1 September 2021.

3. Accounting Policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the period ended 31 December 2020, as described in those annual financial statements.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the period. The nature of estimation means that actual outcomes could differ from those estimates. Estimates and assumptions used in the preparation of the financial statements are continually reviewed and revised as necessary. Whilst every effort is made to ensure that such estimates and assumptions are reasonable, by their nature they are uncertain, and as such, changes in estimates and assumptions may have a material impact in the financial statements.

i)    Carrying value of property, plant and equipment and of intangible exploration and evaluation fixed assets.

Valuation of petroleum and natural gas properties: consideration of impairment includes estimates relating to oil and gas reserves, future production rates, overall costs, oil and natural gas prices which impact future cash flows. In addition, the timing of regulatory approval, the general economic environment and the ability to finance future activities through the issuance of debt or equity also impact the impairment analysis. All these factors may impact the viability of future commercial production from developed and unproved properties, including major development projects, and therefore the need to recognise impairment.

ii)   Commercial reserves estimates

Oil and gas reserve estimates: estimation of recoverable reserves include assumptions regarding commodity prices, exchange rates, discount rates, production and transportation costs all of which impact future cashflows. It also requires the interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Changes in estimated reserves can impact developed and undeveloped property carrying values, asset retirement costs and the recognition of income tax assets, due to changes in expected future cash flows. Reserve estimates are also integral to the amount of depletion and depreciation charged to income.