22^nd September 2021

Petrel Resources plc

("Petrel" or "the Company")

Interim Statement for the six months ended 30 June 2021

Petrel Resources plc (AIM: PET) today announces financial results for the six months ended 30^th June 2021.

Petrel is a hydrocarbon explorer with interests in Iraq, and Ghana.

Highlights

• Petrel's Iraqi business is being painstakingly re-built - reversing emigration.

• Iraqi human and physical infrastructure has been degraded since 1990.

• An updated oil field development proposal has been submitted.

• Ratification plan agreed-in-principle with Ghanaian authorities.

• Shareholder base broadened, to prepare for expansion.

Despite much-publicised challenges, Iraq remains the biggest commercial opportunity in petroleum today.  The geology is unsurpassed.  The oil market is sharply recovering.  But contracts must be updated for effective exploration and development.

2021 was a moment of truth for companies prepared to invest in Iraq.  Some western majors, ignorant of prevailing circumstances, had bid over-optimistically on service contracts from 2009, and then found it hard to operate effectively. 

Others, including TotalEnergies and Chinese NOCs, have re-committed themselves given the large opportunity.  Iraq is not for the faint of heart, but there is considerable upside to be realised provided the elected government implements necessary reforms.

For several years after the 2003 Iraqi invasion, there was a perception that contractors close to western governments, and later super-majors, would dominate Iraqi oil exploration and development.  Iraqis had other ideas, however: they want partners, rather than bosses.

Iraq is sovereign, but so is finance.  The investment dollar is an orphan.  It seeks out return, and works to minimise risk - though resolute investors will carry risk if fairly compensated. 

Any investment is worth the discounted Present Value of all cash flows (in and out).  Calculations are sensitive to timing and the discount rate.  Foreigners always see higher risks than locals do.

The more uncertainty (political, tax, operational) the higher the discount rate, & the lower the Present Value.

For capitalism to work, it must reward all the key players, whose interests should be aligned - rather than in conflict.

The biggest challenge facing Petrel in this new era is not operating conditions, access to technology or community relations.  The biggest challenge facing agile industry players is outdated contracts and fiscal terms that were designed during boom years. 

The post-2014 and especially post-C-19 world is more challenging for petroleum projects: there is investor prejudice despite petroleum improving lives. 

The worst outcome would be for Iraqi output to stagnate at 4 million barrels daily, for gas to continue to be flared, for Iraqi youth to remain unemployed. 

Operations:

Petrel Resources plc Interests (as of September 2021):

Iraqi Western Desert Block 6:  100% Petrel Working Interest.  Awaiting ratification.  30 year term, or until early pay-out.

Prior TCA studies (with Itochu) on the Merjan oil-field.

At the invitation of Iraqi Government officials in 2020, Petrel submitted a proposal to develop the Merjan oil field, in accordance with applicable laws and the Iraqi Model Contract.  This builds on the Technical Cooperation Agreement (TCA), conducted by Petrel in 50% cooperation with partner Itochu, from 2004.  Merjan's 800 metres of oil-bearing sands were intercepted in a 1982 wild-cat by Mobil (now ExxonMobil) designed to test the deep sections. 

Ghana

Tano 2A Petroleum Agreement: 30% Petrel Working Interest.  Awaiting ratification, then exploration periods of 3 years initial term + 2 extension periods of 3.5 years.

Restructuring the Iraqi oil & gas industry:

The Iraqi Government's stated desire is to boost oil & gas development, and the applicable law is under review.  This has proven a tortuous process since 2005, and the current ad-hoc legal framework is acknowledged to be sub-optimal.  However the C-19 pandemic, triggering an oil price war in early 2020, together with anti-fossil fuel agitation internationally, has refocused players on the need to develop natural resources, rather than forgo prosperity by leaving national resources undeveloped.

Petrel has also been asked, by an Iraqi group, to evaluate minerals opportunities that may become economically and legally viable following the expected passage of legislation.

Petrel maintains relationships with Ministry of Oil officials, despite Covid-19 constraints.  Director, Riadh Ani, is Iraqi: his father Mahmoud Ahmed is an Iraqi oil legend, encountering oil & gas in over 1,000 wells he drilled as DG of the Iraqi Drilling Company, and North Oil Company.  Despite difficult politics since 1980, Iraq has the best petroleum geology worldwide: onshore, generally shallow structures in flat terrain, easily accessible with infrastructure.  Permeability and porosity are generally good to excellent.

In discussions shortly before the Covid-19 pandemic, the authorities suggested that Petrel initially target "exploration of blocks in the western desert of Iraq, and present past studies done on the Merjan-Kifl-West Kifl discoveries, and Petrel's work on the Mesozoic and Paleozoic plays in the Western Desert". 

Where skills are available, Petrel favours local workers and suppliers.  Petrel has also invested heavily in training and development of its Iraqi staff and Ministry officials we have partnered with.  Despite periodic issues with politicians, Iraqis value longstanding relationships and independence from foreign players.  They want partners, not bosses.

What should Iraq's oil policy be now?

Unfortunately, the combination of suspicion of foreign oil companies, sanctions, and wars (including internal sectarian conflict and resistance since 2003) have held back Iraq's development, including the building of necessary oil and other infrastructure.  Iraq's government earnings and economy remains dependent on oil.

Have Service Contracts achieved their objectives for companies and Iraq?  No: even at its pre-C-19 peak of c.4.7 million barrels of oil daily (mmbod) output, Iraq fell short of its 6 to 9 mmbod 1989 plan, and the high hopes of rivalling Saudi Arabia.  There is insufficient incentive for contractors to boost production, and recoveries - while the Ministry of Oil has been hollowed out by sanctions and wars, and now unable to fill the gap.

Should the Federal Ministry of Oil negotiate Production Sharing Agreements? 

Yes: this would better align the interests of the parties, and create more wealth, value-added in downstream industries like refined products and petrochemicals, infrastructure and employment for Iraq.

The success of Qatar in LNG - or even the Emirates and Oman show what can be done with more pragmatism.

Iraq's misfortune was that the necessary reform of oil laws and policy came during the most turbulent year in the industry's history.

Oil & Gas are cyclical, and exploration even more so.  Explorers do best when they acquire choice acreage at a modest cost in bad times, add value prudently, and then fund or attract partners on carried terms.  This is an approach our group has used successfully over 30 years, with circa 20 partnerships.  The junior profits from agility, low cost base and a rising market.  The major farming in gains time by short-circuiting the often - for them - difficult environmental permitting and community relations - at which Clontarf's experienced team excels.

Where does the market stand in this cycle as of 3^rd quarter 2021?

Oil demand peaked at 101 million barrels of oil daily during the 4^th quarter of 2019.  It crashed by 10% in mid-2020 - half of which was due to de-stocking.  But - helped by pump-priming and C-19 vaccines - a sharp recovery occurred in 2021. 

Demand should be fully restored by 2022 - Chinese consumption is already at record levels of 14.3mmbod.

Assuming continued vaccine success, relaxing lock-downs and no major breakthrough C-19 variants, 2022 should exhibit strong demand growth.

What of supply?  The fracking revolution was halted by the 2014 oil price fall, and gone into reverse - though we should never write US entrepreneurs off.

OPEC plans to open the spigots in a controlled fashion: already there is some relaxation of Emirates exports.  But there is no production surge: on the contrary, sanctions-hit Venezuelan output collapsed to 0.55mmbod, Iran's is down to 2.5, while Iraq languishes at 4, Nigeria at 1.44. Only Libya has recovered, and only partially to 1.17 (only 70% of the pre-2011 level).

Given recovering demand and supply constraints, one would expect oil companies to explore for and develop new sources of competitive oil and gas for the future. Instead, the combination of C-19, market hostility and low prices and lower 2020 demand was a perfect storm storing up future supply problems, as demand surges.  Longer-term China, other Far East, and India will grow strongly.

A supply crunch - probably triggered by a political crisis in some exporting country - is likely within 2 years - subject to effective C-19 vaccines and no new pandemic.

Yet, though oil demand rebounded strongly during 2021, following the record demand fall caused by the C-19 pandemic, exploration and development expenditure remain depressed.  At least $5 trillion of necessary investment has been deferred.  Despite much debate about modernising tax rates and contract conditions, governments have been slow to update contractual so as to deliver development.

Despite a cyclical freezing of the farm-out market, and reduced investor interest, some governments remain stuck in the contract and fiscal terms expectations of the pre-2014 boom years.  Most frustrating for innovative juniors are the frequent requests for bonds and bonuses.  These may suit incumbent politicians and slow-moving majors with fat balance sheets, but they are not well suited to advance development in challenging times.  Partly balancing the revenue fall is the collapse in service costs, especially seismic and rig rates.  Partners and investors can be persuaded to fund operating and capex costs at currently low rates - on the cyclical argument - but they are reluctant to pay money to host governments.

If we can resolve the outstanding issues (especially the request for an up-front sign-on bonus, technology and training grants, etc.), we hope to proceed quickly with our work programmes in both Iraq and Ghana.  It makes no sense to pay money up-front for a contract in which we would be paying 100% of the cost and taking 100% of the risk.  The anomalous nature of such bonuses is confirmed by the fact that they are generally not included in the "cost oil". 

As of September 2021, testing, quarantine, and documentation requirements remain onerous. 

Nonetheless, Petrel Resources plc directors and contractors were able to conduct business travel to Africa, and the Middle East. 

Ghana - developments delayed

Petrel Resources plc, and its partners, are ready to advance the Ghana Tano 2A work programme, subject to securing the necessary funding in an environment complicated by prevailing circumstances, as soon as the signed Petroleum Agreement is ratified.

Despite volatile oil prices, the carefully calibrated Ghanaian fiscal terms help make the Tano Basin oil play feasible, given the demonstrated source rock and Cretaceous sands reservoirs which remain an industry favourite.  Indeed, the industry's exploration contraction may assist Clontarf's focused strategy on bigger potential stratigraphic traps.

Ghana achieved much after 2007, ramping oil production up to 215 kbpd by 2020. The Jubilee oil-field started producing in 2010, just 3 years after discovery.  Non-associated Sankofa gas (operated by the ENI, with World Bank finance) generates electricity cleanly and competitively.  A further discovery well (Afina-1, at 4,085 meters depth) was announced by independent Springfield in 2019.

Unfortunately, a slow ratification process, exacerbated by conflicting policies, stymied efficient development: progress stagnated after 2018, and output slipped below 200kbod.  Jubilee's topside issues constrained water injection, and gas output stalled, when Ghana Gas prioritised Sankofa gas over Jubilee gas.  

High-level official meetings immediately prior to and during the pandemic were productive.  We understand that new shareholders helped the Tano 2A Operating Company (Pan Andean Resources (Ghana) Ltd.) overcome financial capacity concerns following volatile oil prices and market capitalisation.  Everyone should remember, however, that Ghanaian ratification can be a slow and tortuous process.

Tamraz Group

The acquisition of a 29% stake by the Tamraz group in July 2019 was widely welcomed by shareholders followed by approval to go to 51%.

The new investors were unable to complete the purchase of the additional shares while the ownership of most of the 29% became uncertain. High Court proceedings stopped any dealings in shares held by the Tamraz Group. This position persists though there is ongoing contact.

Future

Our Iraqi Director, Riadh Ani has maintained strong relationships with Ministry of Oil officials.  Petrel has monitored the evolving contracts, and opportunities, even during the darkest hours of sanctions, invasion, conflict, and Covid-19. 

Riadh Ani, is highly regarded as the son of one of the most successful drillers in history: his father Mahmoud Ahmed had run Iraq's North Oil Company, and also the State Iraqi Drilling Company, and in a decades' long drilling career encountered oil & gas in over 1,000 wells.  Only about 12 wells were duds - a record of exploration and appraisal drilling that is unlikely to be bettered.  This stellar career highlights Iraq's unique petroleum geology - even compared to neighbouring oil exporters. 

Petrel is funded for ongoing activities. The focus is once again Iraq.

David Horgan

Chairman

21^st September 2021            

For further information please visit http://www.petrelresources.com/  or contact:

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement. In addition, market soundings (as defined in MAR) were taken in respect of the matters contained in this announcement, with the result that certain persons became aware of inside information (as defined in MAR), as permitted by MAR.  This inside information is set out in this announcement.  Therefore, those persons that received inside information in a market sounding are no longer in possession of such inside information relating to the company and its securities.

ENDS

For further information please visit http://www.petrelresources.com/  or contact: