Results for the 6 months ended 30 June 2020

30 September 2020

Pennpetro Energy plc

("Pennpetro", the "Company" or the "Group")

Results for the 6 months ended 30 June 2020 (Unaudited)

Pennpetro Energy, an independent oil and gas company focusing on production in the Gonzales Oil Field in Texas, USA, announces today its financial results for the six months ended 30 June 2020.

Financial summary

Operational summary

Outlook

In line with our strategy, all our operations are in highly active plays where the economics of drilling and producing remain attractive at sub-US$30 oil prices. This highlights the success we have had in taking advantage of the prior industry downturn to accelerate our South Texas leasehold position in favor of the Austin Chalk and Eagleford Shale. As prior reported we have energized our entire portfolio having successfully drilled and test produced oil in the lower lying Buda formation as an economic reserve. With a strategic foothold in these prolific, low cost plays established, and a proven management team in place, we will look to expand our drilling activities, initially with regard to the re-entering the Austin Chalk formation of the COG#1 well which flowed oil, with a view to placing that formation on full production.

During the first half, the Covid-19 pandemic caused, and continues to cause, severe problems within Texas. With severe lockdowns in place, it is one of the hardest hit States within North America. We anticipate a softening during Q4, which will enable us to reactivate our operational activity. This will coincide with a further drawdown of funds to drill the horizontal well.

Chairman's Statement

During the period under review the Company encountered severe problems with regard to its ongoing operations in Texas, the Company's prime area of operating. Firstly, the state has been hard-hit by the global Covid-19 pandemic. Texas, which attempted to re-open its business activities early following the recommendations of the President to get businesses back to work as soon as possible, quickly encountered a very severe pandemic whiplash which has resulted in the reimposition of lockdowns and restrictions imposed by the State Governor.

Secondly, Texas and New Orleans have been badly affected with increased hurricane activity coming in from the Gulf of Mexico, impacting both field and re-energised field operations, with unprecedented force and activity. There has been a marked increase in these conditions during 2020 as opposed to earlier years. Hurricane Harvey, although a lower force hurricane than the current crop, severely impacted our initial drilling operations on COG#1 for a few months in 2017. With the double impact of the Covid-19 pandemic and unprecedented strong hurricane activity our operations will only resume later in Q4 with the planned re-entry to the Austin Chalk horizontal formation in our COG#1. This formation flowed strong oil in our operations prior to testing the Buda formation (successfully) and will be placed to commercial production.

Despite these challenges, we made solid progress in reducing our borrowings by being able to convert the sum of £2,059,202 into equity. We agreed a Debt conversion for equity at an agreed value of converting 4,118,404 shares at a price of 50 pence each. These shares have been issued, as per our RNS on 30 April 2020, to RB Equity Nominees Limited, and they now represent a holding of 5.59% of our increased share capital of 76,452,106. This has solidified our balance sheet extinguishing liabilities significantly.

On a further very positive note over the past few months the Company has been exploring the acquisition of an interesting Intellectual Property portfolio within the green technologies sector. The technologies which have been developed from within the petroleum sector encompass the provision of green energy by the remediation of both petrochemical and industrial waste without any harmful emissions, truly embracing the ethos of alternative energy whilst protecting the environment. There can be no certainty a transaction will take place at this stage and we will of course provide market updates as we progress.

The period under review has been challenging due to a series of unprecedented factors - to paraphrase a royal comment, annus horribilis. As we all appreciate, it is the darkest just before the dawn of the new day - the Company is well placed to capitalise not only on the recovery in sentiment within the US and global petroleum sectors, but our pursuit of the most exciting green technologies with which to work. Our aim is to be an all-encompassing energy company.

We remain confident in our petroleum assets and our US operations, and the Board will continue to build upon what has been a promising and strangely busy period for the Group.

Keith Edelman

Non-Executive Director, Chairman

30 September 2020

Executive Director's Statement

Operations

As prior reported the Operator filed formal completion certificates with the Texas Railroad Commission confirming that the COG#1-H well is being completed as an initial producer to the Buda formation. As reported in the overview, we will look to expand our drill-focused activities, initially with regard to the re-entering the Austin Chalk formation of the COG#1 well which flowed oil, with a view to placing that formation on full production.  In conjunction with our increasing our ownership of the oilfield leases from 75% to 100%, we took steps with the Texas Railroad Commission to assume the Operatorship of the project.  The Texas Railroad Commission has now formally approved the transfer, and out subsidiary company, Nobel Petroleum USA, Inc., is now the Operator of record. Our management team have alongside the current Operator's management team to expand and assist our ongoing activities.

As discussed by the Chairman, the onset of the Covid-19 pandemic has absolutely curtailed our operations within Texas. We are focused on resuming operations as soon as practicable with, as stated, emphasis on the re-entry of the horizontal Austin Chalk formation. Our indications are that the one bright aspect of both the Corona pandemic and the general pull back in oil pricing is delivering very much sharper pricing from all the various drilling and supply contractors with many just wanting to maintain crew costs above all else. This bodes well for our future operational activities as when a degree of normality resumes within the oil patch, pricing levels will have certainly stabilized at discounts to pre-Covid-19 levels.

Within this oil price environment, Pennpetro is emerging as a low-cost, asset-backed US onshore oil and gas business. Subject to oil prices, market conditions and sentiment, which currently are quite positive given that the price of West Texas Intermediate has held around $40, together with the advent of reduced US shale operations together with shut-ins which now seem firmly in place, I remain confident that we can deliver our strategy by acquiring leases in active and producing US onshore plays and proving up the reserves by drilling new wells. 

As prior mentioned, this platform is one that has, at its core, the active management of all types of risk associated with the oil and gas industry. Broadly speaking development risk is managed by focusing on proven formations; execution risk is managed by participating in drilling activities alongside established industry partners and operators. Additionally, again, it is worth noting that our operations offset those of major industry players, such as EOG Resources, Inc., billion dollar goliath; individual well risk is managed by building a diversified portfolio of leases and wells and limiting the amount of interest the Group holds in any one well; meanwhile oil price risk is managed by focusing on areas that require relatively low oil prices to breakeven and ensuring our cost base, capital commitments and financing costs remain low, manageable and flexible. 

As prior reported, EOG Resources has now also turned its full attention to the Austin Chalk formations both in Texas and its continuance into Louisiana with recent acquisitions by Conoco-Phillips, Marathon Oil Corp, alongside the recent formation of Magnolia Oil by TPG Pace Energy and EnerVest to specifically focus on the Austin Chalk, as the Austin Chalk has a higher oil content then Permian drilled completions. Gonzales County sits right in the middle of the Austin Chalk trend.

Pennpetro's Board currently comprises four Directors, who collectively have extensive international experience and a proven track record in investment, corporate finance and business acquisition, operation and development and are well placed to implement the Company's business objectives and strategy.

We believe the Company's Board and US management team is strong in terms of having the right mix of industry expertise covering all key areas of the business, including lease acquisition, geology, engineering, and finance.

Oil Price

West Texas Intermediate ("WTI") has continued its strength throughout the period under review averaging US$39.67/bbl. The value of WTI as at 17 September 2020 was US$41.11 /bbl (source: Bloomberg Markets). We will receive a premium of approximately US$5/bbl for Gonzales crude oil deliveries.

Outlook

In line with our strategy, all our operations are in highly active plays where the economics of drilling and producing remain attractive at sub-US$30 oil prices. This highlights the success we have had in taking advantage of the prior industry downturn to accelerate the positioning of our South Texas leasehold position in favour of the Austin Chalk and Eagleford Shale. To this we can now add the unexpected bonus of the Buda Limestone formation reserves which we can now confidently state will increase our overall proved oil reserves, albeit we await a formal new CPR to be prepared in this regard.

For 2020, our main City of Gonzales objectives were to commence full production of the COG#1-H well, acquire additional land leases and basis a review of legacy 2D seismic to carry out a 3-D seismic survey of our land interests. With the Covid-19 pandemic, these objectives were thrown into total disarray. However, as the Chairman has sanguinely remarked, it's always the darkest just before the dawn. We still anticipate that we will be able to recommence work-over operations on the Austin Chalk formation in late 2020 to activate production.

We are very confident in the future.

Finally, I would like to thank the Board, management team and all our advisers for their hard work over the period under review and also to our shareholders for their continued support.

Thomas Evans

Executive Director

30 September 2020

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NOTES TO EDITORS

Pennpetro Energy is an independent oil and gas company focusing on production in the Gonzales Oil Field in Texas, USA. Shares in the company were admitted to the Official List of the London Stock Exchange by way of a Standard Listing on 21 December 2017.

Further information on the Company can be found at www.pennpetroenergy.co.uk

IMPORTANT NOTICE - FORWARD-LOOKING STATEMENTS

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts and involve predictions. Forward-looking statements may and often do differ materially from actual results. In addition, even if results or developments are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Any forward-looking statements reflect the Group's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial position, liquidity, prospects, growth or strategies and the industry in which it operates. Forward-looking statements speak only as of the date they are made and cannot be relied upon as a guide to future performance.