19 April 2021

Deltic Energy Plc / Index: AIM / Epic: DELT / Sector: Natural Resources

Deltic Energy Plc ("Deltic" or "the Company")

Final Results

Deltic Energy Plc, the AIM-quoted natural resources investing company with a high impact exploration and appraisal portfolio focused on the Southern and Central North Sea, is pleased to announce its audited results for the year ended 31 December 2020 ('FY 2020'). 

Highlights

·    Completed rigorous technical programme on Pensacola (Licence P2252) resulting in the post period announcement that the Deltic-Shell JV will drill a well on the prospect in May 2022

·    Ongoing technical work on Selene (Licence P2437) delivering resource update including increase in GIIP and significantly enhanced geological chance of success. Exploration well expected in 2022

·    Significant progress on Cupertino Area (Licence P2428) following reprocessing of seismic data to deliver a material resource update with combined P50 prospective gas resource of close to 1 TCF (over 150mmboe). Farmout process underway with significant interest from potential partners

·    Reprocessing of legacy seismic on Cortez prospects (Licence P2424) with Primary Cortez South prospect identified with estimated P50 prospective resources of over 300 BCF

·    Award of six new licences in UK's 32nd Licensing Round including the previously held Cadence prospect (blocks 43/11 and 43/12)

·    Further expansion of partnership with Shell with the award of an additional new joint licence to the north of Pensacola (blocks 41/5b and 42/1b)

·    Net cash outflow from operations and investing activity for the year of £1.8 million (2019: £1.8 million)  

·    Cash position of £12.0 million at 31 December 2020 (2019: £13.8 million) with no debt. As at 31 March 2021, the Company had cash on hand (unaudited) of £11.52 million

Graham Swindells, Chief Executive of Deltic Energy, commented:

"Over the last year, we have continued to make significant progress in advancing our existing licence portfolio and both materially expanding and diversifying the overall asset base of the Company. We have continued to work closely with our partner Shell on our two most advanced projects resulting in the recent firm well investment decision on the Pensacola Prospect while continuing to move closer to a well investment decision on Selene. The Company continues to execute its natural gas focussed exploration strategy, strengthening its strategic position in the Southern North Sea following another successful outcome in the UK's latest licensing round which doubled the number of licences the company holds. With our attractive portfolio of gas-focussed prospects located close to existing infrastructure, coupled with an improved outlook in the form of commodity prices and increased levels of activity, we are in a strong position to deliver growth. We look forward to further progressing our prospects towards drilling and continuing to develop our partnership with Shell as we move closer to drilling our first well at Pensacola."

Chairman's Statement

To say 2020 was a challenging year would be an understatement in so many ways. It was a very difficult situation to manage for many in our industry but especially for those with complex offshore operations involving workers travelling to and from many places in the UK and the rest of the world. To add to the challenge, global demand along with other external factors caused commodity prices in our sector to fall dramatically.

Setting aside the direct aspects of the pandemic and the roll-out of effective vaccines around the world, we have already seen very strong signs of recovery in terms of our sector.

Just a year ago, in April 2020, a barrel of Brent Crude, a standard indicator for a range of commodities, was trading at about $25. At the time of writing the price is above $60 per barrel. Natural Gas prices have also recovered well.

In the same period, we have seen growing UK Government support, clearly displayed in the publication of the North Sea Transition Deal which the Government announced during March 2021. This clearly recognises the importance of our sector for the UK in terms of security of energy supply, tax receipts and jobs; balanced with our industry's need to play our part in the transition to a net-zero emissions future.

Linked to that, no statement describing our industry in April 2021 would be complete without reference to climate change and plans to tackle the problems we face across the globe as a result of its effects. 2019 was the year the UK Government led the world in being the first to sign into law a commitment to having a net-zero contribution to global greenhouse gas emissions by 2050, following the recommendations of the independent Committee on Climate Change. At Deltic, we support this position entirely and are fully committed to playing our part in the next stage of the UK's development.

This decision by the UK Government shifted the climate change argument from 'the what and the why?' in 2019 into 'the how?' in 2020. This in turn raised difficult questions and caused sensible voices to emerge with solutions showing, among other things, that natural gas is part of the solution and not part of the problem. Combined with hydrogen, carbon capture and storage (CCS) and other technologies, natural gas, the single greatest contributor to UK total energy supply in 2019, remains an important part of an affordable, reliable, low carbon energy mix for the foreseeable future. Clearly, a domestic supply of this natural resource beats imported gas in terms of jobs, Treasury receipts and environmental impact.

Deltic Energy has an excellent position within this context: Planning of our first exploration well is underway at Pensacola with Shell, a worldwide leader in Exploration and Production, as the Operator. Our CEO, Graham, will cover this in more detail but clearly this is a defining moment for our company as we prepare to drill prospects identified by Deltic. Further, this is entirely in-line with our stated strategy of building a conveyor belt of opportunities from identification and acquisition of assets through to discovery. Pensacola will be the first of many prospects to go through this process with Selene not far behind and a series of other prospects including Cadence, Cupertino and others under analysis by interested parties.

Mark Lappin

Chairman

16 April 2021

CEO Statement

The Company continues to execute its natural gas focussed exploration strategy and has built a strong strategic position in the Southern North Sea through a number of licensing rounds.  Despite the challenges presented by Covid-19, 2020 has been a year in which Deltic has continued to make significant progress with its licences having been advanced and the overall asset base of the Company materially expanded and diversified.

We strongly believe that this technically-led approach to portfolio development and an increasing focus on natural gas to support the energy transition will continue to deliver multiple opportunities and create value for shareholders in the coming years.  Over the last year, the team has worked hard with our partner Shell to secure a positive well investment decision on the Pensacola Prospect and we are looking forward to drilling the Company's first well there in 2022. At the same time, we continue to work towards delivering a positive well investment decision on the Selene Prospect.

Pensacola & Selene

The decision to drill the Pensacola gas prospect followed a rigorous evaluation of the new 3D data acquired in 2019 and this positive outcome fully endorses our technical work and ability to identify previously missed opportunities.  One of the other extremely positive outcomes from this work is the substantial de-risking of the prospect with the geological chance of success increasing from 20% (pre-3D seismic) to 55%. With gross P50 Prospective Resources estimated at 309 BCF, a successful outcome on this high impact opportunity would be transformational for Deltic and could have positive read across to other prospects in the emerging Zechstein Reef fairway, including the large Plymouth Reef prospect on licence P2428.

The Deltic-Shell JV has confirmed to the Oil and Gas Authority its intention to drill the Pensacola well, now scheduled to be drilled in May 2022 and it is intended that this rig slot will form part of a UK North Sea multi well drilling campaign by Shell. With well costs and timings being firmed up, Deltic remains comfortably funded for its 30% share of well costs.

Following a year in which such investment decisions, especially in relation to exploration, were severely curtailed across the industry, this confirmation is particularly significant and represents the achievement of a key milestone for Deltic. We are excited to be entering this next phase of our partnership with Shell and look forward to further news flow as we turn our attention to well planning and operational matters in the run up to well drilling.

On the Selene prospect on Licence P2437, the Company's other JV with Shell, the partnership has continued to progress the technical and commercial workflows required to support a well investment decision.  This detailed technical work has enabled us to report a material upgrade to the estimated gas in place in the second half of 2020, which has been further refined such that we now estimate P50 Gas Initially In Place (GIIP) to be 661 BCF with P50 prospective resources of 271 BCF.  This work has also further de-risked the prospect with the estimated geological chance of success having been significantly increased from 39% to 70% and confirms Selene's position as one of the largest and most attractive untested prospects in this mature Leman Sandstone fairway.

As with Pensacola, it is highly encouraging and testament to our technical team that the detailed work being undertaken by the Shell/Deltic partnership is continuing to support the previous work completed by Deltic. The technical work is substantially complete, and the JV is now focussed on project economics and well design work required to support the investment decision, with the well still expected to be drilled in the course of 2022. 

Other key licences

Our technical team continues to produce exceptional work across the portfolio as they mature opportunities from the pre-application phase through to drillable prospects ready for farm-out. 

During 2020, significant progress was made on licence P2428 (Cupertino Area) following the delivery of reprocessed seismic data late in 2019. The new data allowed the Company to identify new prospects and provide a significant resource update on this licence. Three distinct prospects in Plymouth, Richmond and Cupertino have been delineated in the Zechstein, Leman Sandstone and the Carboniferous respectively. Each of the prospects has the scale and potential to be commercial in their own right and with combined P50 prospective gas resources estimated at close to 1 TCF of gas (equivalent to more than 150 million barrels of oil), these prospects are highly material in terms of their scale both individually and collectively. A farm out process is now underway which has attracted a significant level of interest and our focus now is to seek to introduce the best possible partner to progress these prospects towards drilling.

The Company has also recently completed the reprocessing of legacy seismic data across licence P2424, which contains the Cortez prospects, and the interpretation and analysis is currently being completed by our technical team. The primary target on this licence is now the Cortez South prospect with estimated P50 prospective resources of over 300 BCF of gas. Once interpretation and analysis has been completed, the Company will determine the best way forward in order to progress this licence.

The Company's Dewar oil prospect had attracted early interest, but as a direct result of the collapse in oil prices, which remained depressed for much of 2020, this process was effectively put on hold. However, with the recent recovery in oil prices, given the relatively straightforward development, proximity to existing infrastructure and attractive economics, the company remains confident that a sustained recovery will allow the Company to complete a transaction and introduce a partner which ultimately leads to the drilling of Dewar.

Expansion of portfolio/32^nd Licensing Round success

In September 2020, the Company was delighted to be able to confirm a highly successful outcome in the UK's 32^nd Licensing Round with the award of six new licences covering twelve blocks and part blocks.

These newly awarded blocks are highly prospective and contain a variety of exploration prospects which will significantly enhance both our pipeline of potential drilling opportunities and the overall prospective resources associated with the Company's assets.

All of the new licences were awarded to the Company on a 100% basis, with the exception of one, which was jointly awarded with Shell UK who hold a 70% working interest. Five of the six new licences awarded to Deltic are in the Southern North Sea where the Company has now amassed a total of ten gas licences which when combined with its existing licence position, further enhances the Company's strong strategic position in the gas basin.

In addition to expanding its partnership with Shell to now include three licences, the Company was also delighted to be re-awarded a licence over block 43/11 (and 43/12) which contains the Cadence prospect. This was a big win for the Company given the TCF scale prospectivity and competition associated with this licence. With the benefit of the technical work that the Company has previously completed on Cadence, we are in a strong position to progress this licence in a relatively short timeframe.

The new licences reinforce the Company's North Sea exploration-focussed model which is based upon creating a steady 'conveyor belt' of opportunities that can be progressed to support a long-term diversified programme of exploration wells.

Change of Name

In June 2020, we completed the change of the Company's name to Deltic Energy Plc. The new name and the associated rebranding have been well received by our various stakeholders and symbolises the transition in our portfolio to a more operational phase following our farm-outs with Shell and the planned drilling activity.

Proposed bids

In July and September 2020, the Company received unsolicited approaches from two different companies regarding potential all share offers for Deltic. In both cases the Board concluded that the value implied by the offers materially undervalued Deltic and its portfolio of assets, in particular its two high impact exploration wells expected to be drilled with Shell and were not in the best interests of shareholders. Consequently, and following discussions with certain of the Company's largest shareholders, both proposed offers were rejected.

While being in an "offer period" during these times was both restricting and a distraction, we were encouraged by the level of support received from the Company's shareholders and we believe the decision not to proceed with the offers has been borne out by both the subsequent operational progress made by the Company and also the significant increase in the market value of Deltic since then.

Financial/funding

With continued strict financial discipline coupled with additional decisive steps to reduce expenditure and preserve cash throughout 2020, the Company maintained a strong balance sheet with cash of £12.0 million as at 31 December 2020. Crucially, our company remains well funded and debt free.

Outlook

With commodity prices back at pre-COVID levels, we are starting to see strong signs of recovery in the UK North Sea with significant M&A activity in the first few months of 2021, and many projects which were deferred in 2020 are expected to be restarted during this year.  As the global roll-out of vaccines gathers pace and companies start to look to the future of energy and the transition to a lower carbon future, I am increasingly confident in the outlook for our Company.

The recent publication of the UK Government's Energy White Paper clearly recognises the important role that hydrocarbons, and especially gas, have to play in the transition to a lower carbon future.  The industry as a whole is supportive of the Government's 'net zero' ambitions and Deltic's gas-focussed exploration portfolio in the Southern North Sea has a key role to play in that transition through the potential supply of natural gas to hydrogen projects in the North East of England and Bacton where Shell operates its gas terminal.  The production of 'blue' hydrogen from natural gas is predicted to dominate the hydrogen economy until the late 2040s before 'green' hydrogen production technologies may become commercially competitive.

With UK gas demand more than double current domestic gas production, the prioritisation of local UK produced natural gas is key to the development of the hydrogen economy and to facilitate the energy transition.  Not only will domestic UK production displace much higher carbon intensity imported LNG, it will support UK employment and allow the UK to continue to benefit significantly from the North Sea's significant remaining reserves.

At Deltic we have a strong focus on gas and specifically the Southern North Sea gas basin where ten of our thirteen licences are located. With gas clearly being a key component of the energy mix for many decades to come, we believe the fundamentals for gas remain strong. In addition, the UK remains one of the most attractive jurisdictions for oil and gas investment due to its stable operating environment, existing infrastructure, a transparent licensing process and competitive tax regime, and we expect this to influence the investment decisions of many established companies as they look to lower the carbon intensity of their global E&P portfolio. Against this backdrop, I believe Deltic is well placed to benefit from its high quality, strategic licence position and gas-focussed asset base with net resources of over 500 mmboe.

Looking ahead, throughout 2021 and following the well commitment on Pensacola, we will be working closely with Shell throughout the well planning phase and progressing towards a well investment decision on Selene while at the same time continuing to progress the exciting prospects on the Company's other licences such as Cupertino, Cortez, Dewar and the recently awarded Cadence licence, all of which should stimulate newsflow throughout the course of this year. Looking further ahead to 2022, Deltic is in the unique position of having two high impact wells expected to be drilled with an outstanding partner in Shell, with success on either being transformational for our company.

A key part of 2020 was adapting to a new working environment and continuing to build our business while also ensuring the wellbeing of our staff. I believe we have been successful in meeting that challenge and I would therefore like to take this opportunity to thank all the members of our small, focussed team for the hard work, dedication and resilience they have demonstrated as well as our other stakeholders, in particular our partners and shareholders, for their ongoing support as we enter this exciting phase and seek to create value for our shareholders.

Graham Swindells

Chief Executive Officer

16 April 2021

Operating Statement

Introduction

Despite the significant adjustment in working practices brought on by the global COVID-19 pandemic, the Company has continued to make significant progress across its gas-focussed exploration assets including a significant expansion in the number of licences and gross acreage it holds following an extremely successful outcome in the 32^nd offshore licensing round. 

The team has worked closely with our partners at Shell throughout the year as we built towards the positive well investment decision on the Pensacola prospect and near-term well investment decision on Selene.  In addition, the technical work required to support the farm-out process on licence P2428 (Cupertino area) identified significant new prospects in the proven Leman Sandstone (Richmond prospect) and the Zechstein Reef (Plymouth prospect), which has caught the imagination of a number of our peers.

The strategic contiguous acreage position of >2,700km² that we have built in the heart of the Carboniferous and Zechstein play fairways over the last few years will continue to be the focus of our technical work and will continue to deliver a conveyor belt of high-quality gas prospects as we apply our deep geological knowledge of the area to improved legacy datasets over the coming year.

P2252 - Pensacola (30% Deltic non-operated)

The majority of 2020 was focussed on the re-processing of new 3D seismic data acquired over the Pensacola prospect in the summer of 2019.  While a number of interim products were made available by Shell during the 3^rd quarter of 2020, further advanced depth processing workflows were required before a final product was eventually delivered in January 2021.   

A reinterpretation of the prospect has confirmed our views on the potential volumes of gas associated with the Pensacola prospect with Deltic estimating gross P50 Prospective Resources of 309 BCF (103 BCF net to Deltic).  This re-interpretation of the new 3D seismic, when taken in combination with regional work on analogous fields across Europe completed by the Operator, has significantly improved our understanding of the Pensacola prospect, which in turn has allowed us to update the prospect volumetrics and significantly increase the Geological Chance of Success (GCoS) associated with the prospect.

Deltic now estimates the Pensacola prospect contains gross P50 Prospective Resources of 309 BCF with a P90-P10 range of 39 BCF to 1,181 BCF with a GCoS of 55%.

On 29 March 2021, it was announced that the Shell-Deltic JV had confirmed its intention to drill the Pensacola well to the OGA and subsequently the contingent well commitment became firm on 31 March 2021. 

The Operator expects the well to be drilled in May 2022 with this timing allowing the Shell/Deltic JV to take advantage of a drilling unit that will be contracted by Shell as part of a multi-well drilling campaign which in turn brings advantageous day rates and operational efficiencies for the JV.

Deltic is fully funded for its 30% working interest in this well and we look forward to supporting Shell in their role as Operator throughout the year.

P2437 - Selene (50% Deltic operated)

Working jointly with our partners at Shell throughout 2020 has resulted in the JV having a significantly better understanding of the Selene prospect through detailed assurance of the velocity model, basin modelling and analogue reviews.  This led to a significant increase in in-place resource and GCoS which was announced on 11 August 2020 where estimated P50 Gas Initially In Place (GIIP) was reported as 629 BCF with a GCoS of 70%.  This confirmed Selene's status as one of, if not the, largest untested prospect in the world-class Leman Sandstone fairway.

Since then, work has focussed on defining the potentially recoverable resources associated with the Selene prospect based on a review of potential production scenarios and the performance of other fields in the area with similar reservoir characteristics.  The outcome of this work has resulted in a slightly revised view on both GIIP and recoverable gas and as such the Company now estimates gross P50 Prospective Resources of 271 BCF with a P90-P10 range of 83 BCF to 553 BCF.  The GCoS remains unchanged at 70%.

We are currently working with Shell on a preferred well location, data collection programme and preliminary well design to support a well investment decision which we expect to occur in the near term.  We remain confident that this well will be drilled during 2022.

P2428 - Cupertino (100% Deltic)

During the course of the year, work was focussed on the re-interpretation and integration of re-processed 2D seismic data into the Company's existing geological framework.  The pre-Stack Depth Migration (PSDM) re-processing of the legacy 2D data in 2019 resulted in a significant uplift in image quality at all levels and supported a re-interpretation of the Cupertino prospect and the identification of two further prospects on the licence.  Following completion of technical work on the reprocessed seismic, updated volumetrics and risking for the Cupertino, Richmond and Plymouth prospects were announced on 23 November 2020 and confirmed combined P50 Prospective Resources of approximately 900 BCF with prospect GCoS ranging from 19% to 30%. 

The Cupertino prospect is a large three-way dip and fault sealed prospect with potential for stacked sandstone reservoirs in the early Carboniferous Scremerston and Yoredale Formations.  These reservoirs are proven producers within the basin and key trap elements including intra-Carboniferous top seal and fault seal within low net-to-gross fluvial sequences are proven in other discoveries and fields.  The Cupertino prospect is estimated to contain P50 Prospective Resources of 370 BCF with a GCoS of 26%.

The Richmond prospect is a Leman Sandstone prospect with many genetic similarities to the giant Cygnus gas field which is located some 50km to the south west.  The prospect has been overlooked historically due to the previous operator's misidentification of the Leman Sandstone as older Carboniferous rocks in a number of legacy wells on the periphery of the licenced acreage. This three-way dip and fault-sealed structure is estimated to contain P50 Prospective Resources of 211 BCF and have a GCoS of 20%. Both Richmond and the deeper Cupertino prospect could be evaluated with a single exploration well. 

The Plymouth prospect is a reefal build-up of the Z2 Zechstein carbonate which is analogous to the Crosgan discovery and the Pensacola prospect which the Company is due to drill with Shell in 2022.  The delineation of the Plymouth prospect has only been made possible by the recent reprocessing of the legacy 2D seismic data completed by Deltic which preserved significantly more low frequency seismic data and highlighted internal structures within the Zechstein which were not visible on the legacy data.  The Plymouth prospect is estimated to contain P50 Prospective Resources of 282 BCF with a GCoS of 19% which we anticipate could be significantly improved following acquisition of 3D seismic over this area in the same way as the GCoS on the Pensacola prospect was upgraded based on new data.

A formal farm-out process was commenced in December 2020 and there has been a significant level of interest from established operators working within the UK Continental Shelf (UKCS) with multiple parties active in the dataroom.  Given the prospects identified on the Cupertino block are imaged on mixed vintage legacy 2D seismic data, we anticipate that the acquisition of 3D data over the licence area will be a priority for any potential partner, with a future well decision aided by the interpretation of that new 3D seismic data. 

P2424 - Cortez (100% Deltic)

During 2020, the work programme on the Cortez licence focussed on the reprocessing of legacy 2D data on the western part of the licence which fills a gap between 3D seismic data coverage.  In total, more than 650 kilometre lines of data were re-processed to pre-SDM and significant improvements were achieved in the post-salt stratigraphy with less uplift seen in the pre-salt section which was to be expected given the vintage of the original data and relatively short cable lengths used during acquisition.  The data was delivered to Deltic in December 2020, a few months later than anticipated, due to utilisation of a more advanced workflow to try and improve pre-salt imaging and some general inefficiencies due to remote working forced upon Deltic and its contractors by the current COVID pandemic.

Work has commenced on the re-interpretation and integration of this new seismic data with the primary focus being on the Cortez South prospect which is similar to the Cupertino and Cadence prospects located on contiguous licences to the east.  Cortez South is currently estimated to contain P50 Prospective Resources of 331 BCF and have a GCoS of 28%, but we expect this to increase as we continue to integrate the newly reprocessed seismic data and learnings from the Cupertino area into the local geological model.

P2435 - Blackadder (25% Deltic non-op)

Operated by The Parkmead Group, the Blackadder licence has remained largely in a 'care and maintenance' state throughout 2020. We will continue to work with the licence Operator to assess the technical and commercial viability of the Blackadder prospect and expect to take a decision on the future of this licence during 2021. Deltic holds a minority (25%) non-operated position in licence P2435.

P2352 - Dewar (100%)

The Dewar prospect in the Central North Sea was effectively placed on 'care and maintenance' at the start of the COVID-19 pandemic due to the volatility of the oil price environment during this period which resulted in significant uncertainty for many of those companies that had been participating in the farm-out process at the time.  With the recovery of commodity prices and many companies now indicating a more positive outlook for exploration over the next 12 to 18 months, we will look to re-engage with those parties that were previously active in the dataroom as well as additional parties that have expressed an interest and explore potential pathways to getting the Dewar prospect drilled. 

32^nd Round Awards

Six new licences awarded to Deltic in the 32^nd Offshore licensing round became effective on 1^st December 2020.  Five of these licence awards were made on a 100% basis to Deltic with the sixth licence located to the north and east of the Pensacola licence being awarded jointly with Shell.

This successful licensing round has allowed us to consolidate a strategic position in the Southern North Sea where we now hold a contiguous acreage position of approximately 2,730km² that extends from the gas fields in the Tolmount area in the south west, to Breagh in the north and towards Cygnus in the east (both of which are large producing gas fields) and covers identified play fairways in the Carboniferous, Zechstein and Triassic, Bunter Sandstone.

The most recent awards included the re-acquisition of the Cadence area across block 43/11 which forms a key link along the same highly prospective structural trend which includes the Crosgan discovery and Breagh in the west and runs through Cortez (P2424) through the newly awarded Cadence area (P2567) through to the Cupertino area (P2428) awarded in the 30^th licensing round.

Three of these new licences form a significant contiguous acreage position in an underexplored part of the basin located between the Tolmount and Breagh gas fields.  Although relatively immature in terms of our detailed understanding of this area we believe that there is potential in the Carboniferous, Leman Sandstone and the Zechstein and a significant legacy dataset that will respond well to modern re-processing workflows.

In addition to the five licences awarded in the Southern North Sea, Deltic was also awarded a single licence in the Central North Sea.  Licence P2542 is located in a highly prospective area on the flanks of the Arbroath-Montrose high between the Glengorm discovery and the Carnoustie and Montrose fields.  The licence contains the Syros oil prospect which will be evaluated during Phase A of the licence.

Future

While most people will, quite rightly, be focussed on the drilling activity on the Pensacola prospect, and potentially Selene, in 2022 the Company's subsurface team is already looking beyond this activity to future wells.  The immediate focus is on the farm-out processes for the Cupertino, Cortez and Cadence licence areas which have the potential to support a significant level of exploration activity including the acquisition of new seismic data and the drilling of wells in the coming years.

In recognition of the move towards 'Net Zero' operations in the basin, the Company will look to demonstrate the importance of a gas-focussed portfolio as we transition towards a lower carbon future. The ability to combine a significant natural gas resource with new approaches to production infrastructure, such as electrification, while making the most of existing pipelines, onshore facilities and the potential to support emerging blue hydrogen and carbon capture and storage (CCUS) projects could result in future production from Deltic's portfolio having a lower CO₂ intensity than hydrocarbon production from other areas within the UK and significantly lower than that for imported gas and liquefied natural gas (LNG).      

Portfolio and Resource Summary - April 2021

The Company's current licence portfolio and prospect inventory, as of the end of February 2021, is summarised below:

Southern North Sea

¹ Operated by Shell

² Operated by Parkmead

Central North Sea

Andrew Nunn

Chief operating Officer

16 April 2021

Financial Review

All major expenditure in the last five years has been focussed on the development of the Company's portfolio of conventional North Sea assets in accordance with the Company's investing policy, in addition to on-going administrative expenditure.

Loss for the year

The Company incurred a loss for the year to 31 December 2020 of £1,665,575 (2019: £2,360,248).  The prior year included a £801,307 charge resulting from the impairment of intangible assets following the relinquishment of Licence P2248. This occurred following the failure of the preferred bidder on Licence P2248 to demonstrate the necessary financial capacity to fund the forward work programme within a timeframe that was acceptable to the Oil and Gas Authority (OGA), resulting in the  initial term of the licence expiring and the Company being required to relinquish the licence with effect from 29 March 2019. During the current year, the Company has been re-awarded the same 43/11 block which contains the Cadence prospect as part of its new licence (P2567). The previously capitalised value, which was written off in 2019, has a commercial value to the Company and the extensive work previously carried out on the Licence will be used to progress the licence towards drilling. However, under IFRS6 a previously derecognised asset cannot result in a reversal of a previously recognised impairment charge.

Administrative expenses of £1,699,344 (2019: £1,709,069) were incurred during the year.  The current administrative expenses include costs associated with two unsuccessful takeover approaches that the Company received.  Even with these one-off costs, administrative expenses were less than the previous year reflecting cost savings, which were communicated earlier in the year, associated with exercise of a break clause on its office and relocation to smaller, lower cost space and management of contractor costs. 

Finance income of £59,818 (2019: £71,020) decreased due to lower interest-bearing deposits on surplus funds. Finance costs of £26,049 (2019: £28,763) represent the interest charge on a lease liability recognised.

Financial position

The Company's cash was £11,968,858 at 31 December 2020 (2019: £13,849,400) with the year-on-year decrease in cash being explained below.

The increase in intangible assets to £1,430,915 (2019: £1,127,942) reflects the development of the Company's exploration portfolio and in particular the technical enhancements with Licence 2437 (Selene Prospect), Licence P2428 (Cupertino Prospect) and Licence P2424 (Cortez prospect). The Company was fully carried during the year for costs associated with the P2252 Licence (Pensacola Prospect).

Property, plant and equipment of £496,542 (2019: £47,313) includes a right of use asset relating to the office lease with a net book value of £350,696 (2019: £33,545). Total liabilities, which include short-term creditors, accruals and lease liabilities, increased to £246,041 (2019: £198,656).

The decrease in total equity to £13,437,735 (2019: £14,955,576) mainly represents the loss for the year and other movements set out in the Statement of Changes in Equity.

Global economic uncertainty

The Company is in a position of relative strength in these uncertain global economic times. The Company is well positioned to capture the recovery in gas prices, has no direct exposure to oil prices, has no debt and remains well capitalised following a fundraising in July 2019.

Cash flow

In the year to 31 December 2020, the net cash outflow from operating activities was £1,368,117 (2019: £1,412,879). The net cash outflow from investing activities was £458,740 (2019: £372,389), comprising £358,672 (2019: £895,647) related to expenditure on exploration assets and £159,886 (2019: £6,426) relating to expenditure of property, plant and equipment, and interest received of £59,818 (2019: £59,549). The net cash outflow from financing activities was £53,685 (2019: £14,208,682, inflow), comprising the principal portion of lease liabilities and interest paid.  The prior year financing activities related to the issue of new ordinary shares.

Consequently, in the year to 31 December 2020, the Company experienced a net cash outflow of £1,880,542 (2019: inflow of £12,423,414).

Closing cash and cash equivalents

As at 31 December 2020, the Company held cash and cash equivalents totalling £11,968,858 (2019: £13,849,400).

Shareholders' equity

As at 31 December 2020, there were 1,405,964,855 (2019: 1,405,964,855) ordinary shares in issue. Additionally, a total of up to 94,840,450 (2019: 88,308,192) new ordinary shares may be issued pursuant to the exercise of share options.

Going concern

The Directors have assessed the Company's ability to continue as a going concern. Although the oil and gas industry still faces the challenges of COVID-19, fortunately, having taken the decision to raise funds in 2019 to protect itself from market volatility, the Company is currently well funded with no debt. Based on the cash and cash equivalents balance at year end and the Company's commitments, the Directors are of the opinion that the Company has adequate financial resources to meet its budgeted exploration programme and working capital requirements, and accordingly will be able to continue and meet its liabilities as they fall due for a minimum of 12 months from the date of signing these financial statements.

Key performance indicators

At this stage in its development, the Company is focusing on the development of its North Sea gas and oil assets, applying for additional licences, maintaining and extending existing licences, as well as the evaluation of various oil and gas opportunities that may arise. The Directors closely monitor and manage the levels of overheads and other administrative expenditure, exploration expenditure, cash and deposit balances, as set out above. As and when the Company's investments move into production, other key performance indictors (KPIs) will become relevant and will be measured and reported as appropriate.

Sarah McLeod

Chief Financial Officer

16 April 2021

Investing policy

In addition to the development of the North Sea gas licences the Company has acquired to date, the Company proposes to continue to evaluate other potential oil and gas projects in line with its investing policy, as it aims to build a portfolio of resource assets and create value for shareholders. As disclosed in the Company's AIM Admission Document in May 2012, the Company's substantially implemented Investment Policy is as follows:

The proposed investments to be made by the Company may be either quoted or unquoted; made by direct acquisition or through farm-ins; either in companies, partnerships or joint ventures; or direct interests in oil & gas and mining projects.  It is not intended to invest or trade in physical commodities except where such physical commodities form part of a producing asset.  The Company's equity interest in a proposed investment may range from a minority position to 100% ownership.

The Board initially intends to focus on pursuing projects in the oil & gas and mining sectors, where the Directors believe that a number of opportunities exist to acquire interests in attractive projects.  Particular consideration will be given to identifying investments which are, in the opinion of the Directors, underperforming, undeveloped and/or undervalued, and where the Directors believe that their expertise and experience can be deployed to facilitate growth and unlock inherent value.

The Company will conduct initial due diligence appraisals of potential projects and, where it is believed further investigation is warranted, will appoint appropriately qualified persons to assist with this process.  The Directors are currently assessing various opportunities which may prove suitable although, at this stage, only preliminary due diligence has been undertaken.

It is likely that the Company's financial resources will be invested in either a small number of projects or one large investment which may be deemed to be a reverse takeover under the AIM Rules.  In every case, the Directors intend to mitigate risk by undertaking the appropriate due diligence and transaction analysis.  Any transaction constituting a reverse takeover under the AIM Rules will also require Shareholder approval.

Investments in early stage and exploration assets are expected to be mainly in the form of equity, with debt being raised later to fund the development of such assets.  Investments in later stage projects are more likely to include an element of debt to equity gearing.  Where the Company builds a portfolio of related assets, it is possible that there may be cross holdings between such assets.

The Company intends to be an involved and active investor.  Accordingly, where necessary, the Company may seek participation in the management or representation on the Board of an entity in which the Company invests with a view to improving the performance and use of its assets in such ways as should result in an upward re-rating of the value of those assets.

Given the timeframe the Directors believe is required to fully maximise the value of an exploration project or early stage development asset, it is expected that the investment will be held for the medium to long term, although disposal of assets in the short term cannot be ruled out in exceptional circumstances.

The Company intends to deliver Shareholder returns principally through capital growth rather than capital distribution via dividends, although it may become appropriate to distribute funds to Shareholders once the investment portfolio matures and production revenues are established.

Given the nature of the Investing Policy, the Company does not intend to make regular periodic disclosures or calculations of its net asset value.

The Directors consider that as investments are made, and new investment opportunities arise, further funding of the Company will be required.

This strategic report contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business.  Whilst the Directors believe the expectation reflected herein to be reasonable in light of the information available up to the time of their approval of this report, the actual outcome may be materially different owing to factors either beyond the Company's control or otherwise within the Company's control but, for example, owing to a change of plan or strategy. Accordingly, no reliance may be placed on the forward-looking statements.

Mark Lappin                                                                                        Graham Swindells

Chairman                                                                                             Chief Executive Officer

16 April 2021                                                                                       16 April 2021

Qualified Person

Andrew Nunn, a Chartered Geologist and Chief Operating Officer of Deltic Energy Plc, is a "Qualified Person" in accordance with the AIM Note for Mining, Oil and Gas Companies of the London Stock Exchange. Andrew has reviewed and approved the information contained within this announcement.

**ENDS**

For further information please contact the following:

Glossary of Technical Terms

PRMS:                                                   Petroleum Resources Management System (2007)

BCF:                                                       Billion Cubic Feet 

GIIP:                                                      Gas Initially In Place 

SCF:                                                       Standard Cubic Feet

STOIIP                                                   Stock-Tank Oil Initially In Place

Mmbbl                                                 Million barrels

mmboe:                                               Million barrels of oil equivalent

Prospective Resources:                 Are estimated volumes associated with undiscovered accumulations.  These represent quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from oil and gas deposits identified on the basis of indirect evidence but which have not yet been drilled.

Chance of Success (GCoS):          for prospective resources, means the chance or probability of discovering hydrocarbons in sufficient quantity for them to be tested to the surface.  This, then, is the chance or probability of the prospective resource maturing into a contingent resource.  Prospective resources have both an associated chance of discovery (geological chance of success) and a chance of development (economic, regulatory, market and facility, corporate commitment and political risks).  The chance of commerciality is the product of these two risk components.  These estimates have been risked for chance of discovery but not for chance of development.

TCF:                                                       Trillion Cubic Feet

P90 resource:                                    reflects a volume estimate that, assuming the accumulation is developed, there is a 90% probability that the quantities actually recovered will equal or exceed the estimate.  This is therefore a low estimate of resource.

P50 resource:                                    reflects a volume estimate that, assuming the accumulation is developed, there is a 50% probability that the quantities actually recovered will equal or exceed the estimate.  This is therefore a median or best case estimate of resource.

P10 resource:                                    reflects a volume estimate that, assuming the accumulation is developed, there is a 10% probability that the quantities actually recovered will equal or exceed the estimate.  This is therefore a high estimate of resource.

Pmean:                                                is the mean of the probability distribution for the resource estimates.  This is often not the same as P50 as the distribution can be skewed by high resource numbers with relatively low probabilities.

The GIIP volumes and Prospective Resources have been presented in accordance with the 2007 Petroleum Resources Management System (PRMS) prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE), reviewed, and jointly sponsored by the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE).

Income Statement

for the year ended 31 December 2020

Statement of Comprehensive Income

for the year ended 31 December 2020

Balance Sheet

as at 31 December 2020

Statement of Changes in Equity

for the year ended 31 December 2020

Statement of Cash Flows

for the year ended 31 December 2020

Notes to the Financial Information

for the year ended 31 December 2020

1.  Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial information for the year ended 31 December 2020 and 31 December 2019 set out in this announcement does not constitute the Company's statutory financial statements for the year ended 31 December 2019 but is extracted from the audited financial statements for those years.  The 31 December 2019 accounts have been delivered to the Registrar of Companies.  The statutory financial statements for 2020 will be delivered to the Registrar of Companies in due course.

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the International Accounting Standards Board and as endorsed for use in the European Union, and with those parts of the Companies Act 2006 applicable to companies preparing their accounting under IFRS, this announcement does not itself contain sufficient information to comply with IFRSs.

The principal accounting policies adopted in the preparation of the financial information in this announcement are set out in the Company's full financial statements for the year ended 31 December 2020.

Going concern

The Directors have assessed the Company's ability to continue as a going concern. Although the oil and gas industry is still recovering from the dual challenge of recent commodity price volatility coupled with the effects of Covid-19, fortunately, having taken the decision to raise funds in 2019 to protect itself from market volatility, the Company is currently well funded with no debt. Based on the cash and cash equivalents balance at year end and the Company's commitments, the Directors are of the opinion that the Company has sufficient funds to cover its budgeted exploration programme and working capital requirements, and accordingly it will be able to continue and meet its liabilities as they fall due for a minimum of 12 months from the date of signing these financial statements, therefore they continue to adopt the going concern basis of accounting in the preparation of these financial statements.

2.  Loss per Share

The Company has issued share options over ordinary shares both of which could potentially dilute basic earnings per share in the future.

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Due to the losses incurred during the year, a diluted loss per share has not been calculated as this would serve to reduce the basic loss per share. There were 94,840,450 (2019: 88,308,192) share incentives outstanding at the end of the year that could potentially dilute basic earnings per share in the future.

Basic and diluted loss per share       

The loss and weighted average number of ordinary shares used in the calculation of loss per share are as follows:

3.  Intangible Assets

The net book value of exploration and evaluation assets at 31 December 2020 and 2019 relates solely to the Company's North Sea Licences.

In 2019, following the failure of the preferred bidder on Licence P2248 (block 43/11), (which contains the Cadence Prospect) to demonstrate the necessary financial capacity to fund the forward work programme within a timeframe that was acceptable to the OGA, the initial term of the licence expired and the Company was required to relinquish the licence with effect from 29 March 2019. As a consequence, the exploration asset relating to Licence P2248 was fully impaired in 2019 and an impairment charge of £801,307 was included in the Income Statement for that year. 

During the current year, the Company has been re-awarded the same 43/11 block which contains the Cadence prospect as part of its new licence (P2567) by the OGA.  The previously capitalised value, that was subsequently written off in 2019, has a commercial value to the Company and the extensive work previously carried out on the Licence will be used to progress the licence towards drilling. However, under IFRS6 a previously derecognised asset cannot result in a reversal of a previously recognised impairment charge. Accordingly, Licence P2567 will be recognised in the financial statements at the cost of acquiring the new licence and eligible exploration and evaluation work performed subsequent to the date the licence was acquired.

Aggregate cash proceeds arising from the farm-out of Licence P2437 to Shell during 2019 amounted to £470,135. An amount of £362,264 was deducted from exploration and evaluation assets, being the previously capitalised expenditure relating to that licence. The surplus of the proceeds over the carrying value amounted to £107,871 and was recognised as a gain on disposal of the partial interest and included as other operating income in the Income Statement for 2019.

Additions of £309,685 (2019: £684,161) differ to the cash flows in the Statement of Cash Flows owing to a decrease in trade and other payables of £48,987 (2019: £211,486 decrease) relating to intangible assets.