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Cabot Energy PLC Proposed Subscription and Open Offer

12/02/2019 7:00am

UK Regulatory (RNS & others)


Cabot Energy (LSE:CAB)
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RNS Number : 6983P

Cabot Energy PLC

12 February 2019

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. With the publication of this announcement, this information is now considered to be in the public domain.

12 February 2019

Cabot Energy Plc

("Cabot Energy", the "Group" or the "Company")

Proposed Subscription and Open Offer to raise up to GBP2,852,899 (approximately US$3.7 million)

Proposed Share Capital Reorganisation involving a 100:1 Share Consolidation

and

Notice of General Meeting

Cabot Energy (AIM: CAB), the AIM quoted oil and gas company focussed on creating predictable production growth in Canada, announces that it has conditionally raised GBP2,082,899 (approximately US$2.7 million) pursuant to the Subscription at an issue price of 10 pence per New Ordinary Share. Furthermore, it proposes to raise up to a further GBP770,000 (approximately US$1 million) by the issue of up to 7,700,000 New Ordinary Shares pursuant to an Open Offer to Qualifying Shareholders (together with the Subscription, the "Fundraising"), also at an issue price of 10 pence per New Ordinary Share. Additionally, the Company is proposing a Share Capital Reorganisation involving a 100:1 share consolidation.

Key Points

-- The Company is raising up to GBP2,852,899 (approximately US$3.7 million), gross of expenses, as follows:

o US$2.7 million pursuant to the Subscription including a US$2.0 million subscription by the Company's major Shareholder, High Power Petroleum LLC ("H2P"), and US$0.5 million subscription by the Company's significant Shareholder, City Financial Investment Company Limited ("City Financial")

o Up to US$1 million pursuant to the Open Offer to Qualifying Shareholders of up to 7,700,000 New Ordinary Shares on the basis of 1 Open Offer Share for every 85.9723377 Existing Ordinary Shares held on the Record Date

-- The Fundraising will allow the Company to fund the partial settlement of outstanding balances with trade creditors in Canada and the UK and provide short term working capital for the Company's immediate needs

-- Proposed Share Capital Reorganisation to consolidate every 100 Existing Ordinary Shares into 1 New Ordinary Share

-- As announced by the Company in its interim results on 28 September 2018, despite raising net equity proceeds of US$15.3 million in January 2018 and achieving positive cash flows in Canada for the six months to 30 June 2018, the Company still had US$10.7 million of trade payables and cash of US$6.2 million at 30 June 2018 (US$10.3 million of trade payables and cash of US$1.8 million at 31 December 2017)

-- A circular to Shareholders in respect of the Subscription and the Open Offer (the "Circular") is expected to be posted to shareholders later today giving notice of the General Meeting of the Company to be held on 1 March 2019 at 12:00 p.m. at the offices of Fieldfisher LLP, 9th Floor, Riverbank House, 2 Swan Lane, London EC4R 3TT. A copy of the Circular will be available on the Company's website www.cabot-energy.com

James Dewar, Independent Interim Non-Executive Chairman of Cabot Energy, commented: "The proposals outlined today deliver the short-term capital required to safeguard Cabot Energy's future. It follows a forensic assessment of the Company's financial position and consideration of all available options, including asset sales, and what is being recommended by the Board we believe is in the best interest of all Shareholders. The funds will enable the Company to deliver on its creditor settlement agreements and provide a platform for the growth financing plan by the end of Q1 2019.

"We are grateful for the ongoing support of two of our largest Shareholders, and welcome new Shareholders to our register. We are also pleased to offer existing Shareholders the option to participate through the Open Offer on exactly the same terms. The Board firmly believes that the proposals outlined today are in the best interest of all Shareholders and unanimously recommends that all Shareholders vote in favour."

Scott Aitken, Chief Executive Officer, said: "This Fundraising will facilitate the partial settlement of amounts owed to the Group's creditors, predominantly trade creditors of Cabot Canada, following cost overruns of the Canadian work programme early in 2018, before the new executive team took over. We continue to engage in constructive discussions with our creditors and would like to thank them for their continued support as we secured discounts and rescheduling of payments due.

"Looking ahead, the Directors believe that the underlying assets of the business remain strong. As previously stated, we were encouraged by the annual increase of 26% in gross Net Proven plus Probable reserves to 3.6 mmboe as well as the 339% increase in gross reserves and resources of the Canadian asset to 42.2 mmboe. Also, encouragingly, the spread between the West Texas Intermediate benchmark crude price ("WTI") and the Edmonton Light Oil benchmark price ("Edmonton") from December 2018 onwards has been restored to normal historical levels. The immediate next steps will be to pursue joint ventures, debt and equity financing at the asset level before we approach the market to secure additional funding for the development of a drilling programme in Canada and support the growth of the business."

Enquiries:

 
Cabot Energy Plc                          +44 (0)20 7469 2900 
Scott Aitken, CEO 
 Petro Mychalkiw, CFO 
 
SP Angel Corporate Finance LLP            +44 (0)20 3470 0470 
Nominated Adviser and Joint Broker 
Richard Morrison, Richard Hail, Richard 
 Redmayne 
 
GMP FirstEnergy                           +44 (0)20 7448 0200 
Joint Broker 
Jonathan Wright, David van Erp 
 
Luther Pendragon                          +44 (0)20 7618 9100 
Financial PR 
Harry Chathli, Alexis Gore, Joe Quinlan 
 

In accordance with AIM Rules - Guidance for Mining and Oil & Gas Companies, the information contained in this announcement has been reviewed and signed off by the CTO of Cabot Energy, Mr Campbell Airlie, who has over 35 years' experience as a petroleum engineer and is supported by the Cabot Energy Board of Directors. He has read and approved the technical disclosure in this regulatory announcement. The technical disclosure in this announcement complies with the SPE standard.

Note to Editors:

Cabot Energy (AIM: CAB) is an oil and gas company focussed on creating predictable production growth in Canada. Comprehensive information on Cabot Energy and its oil and gas operations, including press releases, annual reports and interim reports are available from Cabot Energy's website: www.cabot-energy.com

Capitalised terms used in this announcement have the meanings given to them in the Definitions section at the end of the announcement.

1. Introduction

The Company proposes to raise, conditional amongst other things, upon the passing of the Resolutions and on Admission:

(a) GBP2,082,899 (approximately US$2.7 million) by way of the Subscription of 20,828,987 Subscription Shares at the Issue Price; and

(b) up to a further GBP770,000 (approximately US$1 million) by way of an Open Offer to Qualifying Shareholders through the issue of up to 7,700,000 Open Offer Shares at the Issue Price.

The net proceeds of the Fundraising will be used primarily to fund the partial settlement of amounts owed to the Group's creditors, predominantly trade creditors of Cabot Canada.

As part of the Proposals, the Company proposes that every 100 Existing Ordinary Shares will be consolidated into one New Ordinary Share to reduce the number of Ordinary Shares in issue and increase the share price with a view to decreasing the spread between the bid and offer price. Accordingly, the proportion of Existing Ordinary Shares held by each Shareholder immediately before the Share Capital Reorganisation will, save for fractional entitlements, be the same as the proportion of New Ordinary Shares held by each Shareholder immediately after the Share Consolidation, but before the completion of the other Proposals.

The Issue Price of 10 pence per New Ordinary Share is adjusted to take account of the Share Capital Reorganisation and represents a discount of approximately 80 per cent (adjusted to take account of the Share Capital Reorganisation) to the middle market closing price per Existing Ordinary Share on 11 February 2019 being the last business day prior to the announcement of the Proposals and 93.44 per cent to the middle market closing price on 28 December 2018 being the last business day prior to the Company's announcement of the intention to undertake a fundraising in February 2019.

The Directors do not believe that the Issue Price is representative of the true underlying value of the Company. However, the Directors note that by virtue of the Open Offer, Qualifying Shareholders will have an opportunity to participate in the Fundraising at the same price as the Subscribers pursuant to the Subscription.

2. Background to and reasons for the Proposals

On 31 December 2018, the Company announced the need to undertake a fundraising in February 2019 which has resulted in the publication of the Proposals. Prior to that, the Company stated in its Interim Results dated 28 September 2018 that additional funding was required by the end of 2018 in order to: (i) settle overdue Canadian trade creditors arising predominantly from the previous management team's 2017 and 2018 Canada work programme cost overruns; (ii) fund ongoing corporate costs; and (iii) deliver production growth in Canada and develop the Group's Italian assets. The work programmes (and associated costs) were under review.

As first reported by the Company on 20 November 2018, the Company's Canadian crude oil revenues were unexpectedly and adversely impacted by the increased discount of the Edmonton Light Oil contract price from the West Texas Intermediate crude oil benchmark price. The Edmonton Light Oil price uncertainty has also eliminated the short-term asset sales market, which would also have normally been a further funding option open to the Company for all or part of its assets in Canada. However, a failure to settle the Group's Canadian trade creditors via the proceeds of the Fundraising would cause an immediate cessation of operating activities, shut-in of the well production and acceleration of abandonment liabilities which if not collateralised in cash, would result in the reversion of the assets and licences to the Alberta government. Therefore, the Board determined that a sale of assets to benefit Shareholders is not a currently available option. The Company announced on 1 February 2019 that, whilst the discount has been restored to normal historical levels since December 2018 due to the Alberta Government's temporary curtailment of larger producers, the Directors intend to monitor this before committing to the next phase of capital investment for production growth.

The net proceeds of the Fundraising will be applied to the partial settlement of the material overdue Canadian trade creditors and certain creditors in the UK as well as providing short term working capital through to the end of Q1 2019, at which time the Company intends to approach the market again to seek further equity and debt funding for a growth business case.

3. Information on Cabot Energy

Cabot Energy is an oil and gas exploration and production company quoted on AIM. The Group is focussed on creating predictable production growth in Canada, which will deliver cash flow and demonstrable value for shareholders in a reasonable time-frame and developing high-impact exploration projects in Italy.

The financial and operating concerns that became apparent during Q2 2018 resulted in the cancellation of the 2018 summer drilling programme and resulted in a complete restructuring of the Board and management of the Company. The first step involved the appointment of a new senior executive management team in June 2018 and comprised: Scott Aitken, the CEO of High Power Petroleum, who was appointed Chief Executive Officer of Cabot Energy, Petro Mychalkiw assumed the role of Chief Financial Officer and Campbell Airlie assumed the newly created role of Chief Technical Officer. The new senior management team's first priority was to undertake a comprehensive strategic, operational and financial review and implement essential systems to assess the overall position of Cabot Energy and improve future capital investment decisions and outcomes. James Dewar was subsequently appointed as interim independent non-executive Chairman in July 2018 and Rachel Maguire was appointed as an independent non-executive director in November 2018. Given the challenging financial circumstances faced by the Company, members of the senior executive management team have not drawn a salary since June 2018.

Canadian Assets

Gross oil production in Canada during 2018 averaged 703 bopd, in line with the Company's forecast of 711 bopd, an increase of 71 per cent on 2017 (411 bopd) with a gross production exit rate (based on daily reports for the last week of 2018) of 546 bopd.

The new management team prioritised subsurface analysis and planning as a core strength area for the Company going forward, with new workflows and management of deliverables being implemented by Mr Campbell Airlie, Chief Technical Officer, and a subsurface team leader, both newly created roles. Critically, the performance of the six horizontal wells drilled in the winter of 2017/2018 were assessed as the basis of learning and forward production estimates for these and similar new wells.

Progress in these areas was announced by the Company on 6 November 2018, when it published an updated reserves report on the Canadian assets as determined by an independent reserves consultant (McDaniel & Associates Consultants Ltd, Calgary) on the Canadian assets as at 30 September 2018. The report stated an increase in gross 2P reserves of 26 per cent to 3.6 mmboe and a net present value (pre-tax), using a 10 per cent discount rate ("NPV10"), of the net 2P reserves of US$48.3 million (net to the Company), or US$13.4/boe. The report, which is available on Cabot Energy's website (www.cabot-energy.com), assumes continued capital investment in 2019. Moreover, a 339 per cent increase in net 2P reserves plus mid-case contingent and prospective resources of 42.2 mmboe was generated from a basin-wide study and land acquisitions, resulting in 282 well locations able to be drilled in the Company's predominantly 100 per cent owned and operated mineral rights. The Company also commissioned a third party to conduct an independent facilities review for all its main processing and pipelines in the area and confirmed a greater than 30,000 bpd capacity available for fluids processing and transportation.

As part of the Company's strategic, operational and financial review, management also undertook a comprehensive cost analysis of its Canadian operations. This analysis identified significant operating and capital expenditure cost over-runs compared with the approved budgets, resulting in significant creditor liabilities and insufficient funds for a 2018 summer work programme. Additionally, it was evident that there was poor planning for previously carried out and proposed work programmes. The 2018 summer work programme was, therefore, effectively cancelled, with work being restricted to only nondiscretionary safety or environmentally related activities; this resulted in a declining overall production in the second half of 2018.

Moving forward, a zero-based budgeting structure for new operating and capital expenditures has been implemented.

Operational planning, procurement cost-control and reporting systems have now been implemented to the standard required for a multi-well, multi-rig capital expenditure programme in preparation for future funding of drilling activities.

Italian Assets

Reflecting the importance of the Italian portfolio upside to Shareholders, the Board strengthened the Company's operations with a newly created position of Business Development Director, appointing an Italian-speaking executive, Hugo d'Apice, in July 2018 to manage the operated and non-operated licences held in Italy, alongside the sub-surface activities to study and explore the prospects and leads.

On 21 November 2018, the Company announced the results of the independent resources report on its 100 per cent owned and operated offshore permits in the Southern Adriatic and Sicily Channel, as determined by Lloyds Register Senergy. The report stated a total mean gross prospective resources of 933 mmboe (793 mmboe net to Cabot Energy), split between gross 653 mmboe in the Adriatic Cygnus Prospect (513 mmboe net to Cabot Energy) and gross 280 mmbbl in the Sicily Channel Vesta Prospect (all net to Cabot Energy).

Operationally, in the Adriatic, the Environmental Impact Assessment (EIA) approval was received to conduct a 3D seismic programme over the licence areas. A positive opinion has been received on the pre-seismic ante-operum work subsequently undertaken. Since one of the data recorders for the ante-operum work was not recoverable, replacement data is required. New acoustic recording equipment with an improved recovery system has been deployed to Brindisi and will be deployed as soon the weather permits. Data collection will be completed for the beginning of Q2 2019. Seismic acquisition is planned for 2020.

With respect to the Sicily Channel licences, the EIA and exploration drilling permit have now been received for the Vesta oil prospect, although the licence work programme remains in suspension, pending rig availability.

For the Po Valley Cascina Alberto exploration permit, the Company previously farmed out to Shell Italia, whereby the Company has a carry on EUR4 million of seismic costs and EUR50 million on the drilling of an exploration well for which Cabot Energy has a 20 per cent carried interest. Shell Italia has made systematic planning progress engaging with over 100 local communities in advance of their proposed 500 line-km 2D seismic acquisition programme.

The Italian government is currently considering an amendment to the law covering oil and gas exploration activities that applies to both onshore and offshore licences that, if enacted, could materially impact the Company's proposed activities in Italy in the medium term. The amendment would result in a moratorium on all future work on exploration permits or applications for new exploration permits during which all existing permits will be suspended, and no exploration activities will be allowed, for up to two years. Should this legislation be enacted, then the Company will need to evaluate its future strategy in both its onshore Po Valley Cascina Alberto exploration permit with its partner, Shell Italia, and in its 100 per cent owned and operated offshore permits in the Southern Adriatic and Sicily Channel, based on the detail in the resulting legislation, the Company's obligations and its objectives.

With respect to the previously announced transaction with Rockhopper plc and as announced on 3 January 2019, as Italian government approval of the transaction was not received by the 31 December 2018 long stop date, the Company and Rockhopper plc mutually agreed to not proceed with the proposed transaction. Had the deal received Government approval in 2019 there would have been a positive short-term revenue impact, though changes to the deal economics significantly reduced its value. Cabot Energy was also exposed to considerable uncertainty over abandonment costs which were already being incurred on the assets and continued into the long term.

Australian Assets

The Company also has onshore exploration interests in the Otway basin Australia. The Company's current management were successful in securing a six-month suspension of the work programme period to 28 February 2019 but are unlikely to submit a forward-looking work programme to the regulator, which may result in the Company forfeiting or relinquishing the licence.

Group Financial Position

The new Board and management team forensically assessed the Company's financial position during Q3 2018. As announced by the Company in its interim results on 28 September 2018, despite raising net equity proceeds of US$15.3 million in January 2018 and achieving positive cash flows in Canada for the six months to 30 June 2018, the Company still had US$10.7 million of trade payables and cash of US$6.2 million at 30 June 2018 (US$10.3 million of trade payables and cash of US$1.8 million at 31 December 2017). The significant outstanding Canadian trade payables position reflected the cost over-runs on budgeted activities in addition to unbudgeted work programme activities in 2017 and H1 2018 in Canada.

On 1 February 2019, the Company announced that it was in the process of securing voluntary binding agreements with a significant majority, by value, of the Canadian trade creditors in order to reduce the settlement payments, to reschedule and defer these payments and to secure certainty about the future cost of supply terms during 2019. Whilst still in progress, the Company is confident that a minimum of US$0.7 million of settlement discounts will be secured, representing approximately 17 per cent of the total Canada trade creditor balance. However, the Fundraising and the Canadian operating cash flows during Q1 2019 are not sufficient to fully settle the discounted Canada trade creditor balance and, therefore, this represents a risk to business continuity.

Whilst the independent reserves report announced on 6 November 2018 was a very positive endorsement of the performance and development value of the Group's Canadian assets, its release coincided with an unprecedented and unexpected increase in the discount of the Company's Edmonton Light Oil selling price compared to the West Texas Intermediate benchmark price, as announced by the Company on 20 November 2018. Although the update on 1 February 2019 highlighted the temporary success of the Alberta government's intervention in curtailing production and restoring the discount to normal historic levels since December 2018, the continuing Edmonton Light Oil sales price uncertainty and the Company's reduced Canada production volumes have prevented the Company from accessing debt financing on acceptable terms or trade finance via its crude oil sales marketeer.

In view, namely of the above, the Directors have identified a two-stage funding approach as the best way forward:

(a) to raise minimum equity finance in February 2019 of approximately US$2.7 million from existing Shareholders, at a price reflecting the business uncertainty, to principally enable the partial settlement of overdue trade creditors of Cabot Canada; and

(b) to secure additional funding by the end of Q1 2019 for accretive production growth through drilling once the Directors have greater confidence of the Edmonton Light Oil selling price.

4. Details of the Fundraising and Use of Proceeds

The Company has conditionally raised GBP2,082,899 (approximately US$2.7 million) (gross) through the Subscription and is proposing to raise up to a further GBP770,000 (approximately US$1 million) under the Open Offer. Both the Subscription and the Open Offer are conditional, amongst other things, upon the passing of the Resolutions and on Admission.

The Subscription

Pursuant to the Subscription Agreements, the Subscribers have conditionally agreed to subscribe for 20,828,987 Subscription Shares raising GBP2,082,899 (approximately US$2.7 million) in aggregate at the Issue Price. The Subscription is conditional, inter alia, on the passing of the Resolutions and the Subscription Agreements becoming unconditional in all respects and not having been terminated prior to Admission.

Pursuant to the terms of its Subscription Agreement, H2P has conditionally agreed to subscribe for 15,427,337 Subscription Shares at the Issue Price. It has also agreed with the Company to prepay part of its subscription monies at the request of Cabot Energy. Up to GBP192,850 (approximately US$250,000) will be paid to the Company within five Business Days of the Company making a written request with up to a further GBP578,500 (approximately US$750,000) to be prepaid on the mutual agreement of both parties. In the event that the Subscription does not complete, any prepayments by H2P will be deemed to be a subordinated unsecured debt by the Company accruing interest of 8 per cent per annum.

Paul Lafferty, an executive Director of the Company has also entered into a Subscription Agreement with the Company pursuant to which he has conditionally agreed to subscribe for an aggregate of 96,129 Subscription Shares at the Issue Price.

City Financial, an existing Shareholder with an interest of 8.5 per cent in the Existing Issued Share Capital, has conditionally agreed to subscribe for 3,856,834 Subscription Shares at the Issue Price for an aggregate investment of GBP385,683 (approximately US$500,000). On Admission, City Financial will have an interest in 4,419,311 New Ordinary Shares, representing a maximum of approximately 16.10 per cent of the Enlarged Issued Share Capital (assuming no subscriptions under the Open Offer and no exercise of options or warrants prior to Admission).

The Subscription Agreements with each of H2P and City Financial contain certain warranties given by the Company including the accuracy of information contained in the Circular and other matters relating to the Group and its business.

The Open Offer

The Board has decided to make an Open Offer so that all Qualifying Shareholders have an opportunity to participate at the same Issue Price as the Subscribers have done in the Subscription. Accordingly, up to 7,700,000 Open Offer Shares are being made available to Qualifying Shareholders at a price of 10 pence per share (being the same as the Issue Price for the Subscription) under the terms of the Open Offer, with a view to raising up to GBP770,000 (approximately US$1 million) (before expenses). Only Qualifying Shareholders on the Company's register of members as at the Record Date may participate in the Open Offer.

Subject to the fulfilment of the terms and conditions referred to in the Circular and, where relevant, set out in the Application Form, Qualifying Shareholders are being given the opportunity to subscribe for Open Offer Shares at the Issue Price pro rata to their holdings of Existing Ordinary Shares on the Record Date, free of expenses, payable in full, in cash on application, on the basis of:

1 Open Offer Share for every 85.9723377 Existing Ordinary Shares

The Open Offer is conditional, amongst other things, upon Admission of the Open Offer Shares becoming effective by not later than 8.00 a.m. on 4 March 2019 (or such later time and/or date as the Company may determine, being not later than 8.00 a.m. on 31 March 2019). Accordingly, if such conditions are not satisfied, or, if applicable, waived, the Open Offer will not proceed and any Open Offer Entitlements admitted to CREST will thereafter be disabled. Funds received from the Open Offer will provide additional working capital for the Company. Further details concerning the Open Offer are set out in paragraph 10 of this announcement.

The expected timetable of principal events in relation to the Subscription, Placing and Open Offer, as first announced by the Company on 12 February 2019 is as set out below.

 
 Record Date for entitlement under the              6:00 p.m. on 8 February 
  Open Offer                                                           2019 
 Announcement of the Proposals                     7:00 a.m. on 12 February 
                                                                       2019 
                                                 -------------------------- 
 Publication of the Circular, the Application              12 February 2019 
  Form and the Form of Proxy 
                                                 -------------------------- 
 Ex-entitlement date for the Open Offer                    12 February 2019 
                                                 -------------------------- 
 Open Offer Entitlements and Excess CREST          8:00 a.m. on 13 February 
  Open Offer Entitlements credited to                                  2019 
  stock accounts of Qualifying CREST Holders 
  into CREST 
                                                 -------------------------- 
 Recommended latest time for requesting            4:30 p.m. on 22 February 
  withdrawal of Open Offer Entitlements                                2019 
  and Excess CREST Open Offer Entitlements 
  from CREST 
                                                 -------------------------- 
 Recommended latest time for depositing            3:00 p.m. on 25 February 
  Open Offer Entitlements and Excess CREST                             2019 
  Open Offer Entitlements into CREST 
                                                 -------------------------- 
 Recommended latest time and date for              3:00 p.m. on 26 February 
  splitting of Application Forms                                       2019 
                                                 -------------------------- 
 Latest time and date for receipt of              12:00 p.m. on 27 February 
  Forms of Proxy and CREST Proxy Instructions                          2019 
                                                 -------------------------- 
 Latest time and date for receipt of              11:00 a.m. on 28 February 
  applications by Qualifying Non-CREST                                 2019 
  Holders and Qualifying CREST Holders 
  under the Open Offer 
                                                 -------------------------- 
 General Meeting                                      12:00 p.m. on 1 March 
                                                                       2019 
                                                 -------------------------- 
 Expected time and date of announcement                4:30 p.m. on 1 March 
  of the results of the General Meeting                                2019 
  and Open Offer 
                                                 -------------------------- 
 Record date for Share Capital Reorganisation          6:00 p.m. on 1 March 
                                                                       2019 
                                                 -------------------------- 
 Admission effective and dealings expected             8:00 a.m. on 4 March 
  to commence in the New Ordinary Shares                               2019 
  on AIM 
                                                 -------------------------- 
 Completion of the Share Capital Reorganisation        8:00 a.m. on 4 March 
                                                                       2019 
                                                 -------------------------- 
 Expected date for crediting of the Fundraising        8:00 a.m. on 4 March 
  Shares issued to CREST stock accounts                                2019 
  in uncertificated form 
                                                 -------------------------- 
 Expected date for dispatch of definitive             On or prior to w/c 18 
  share certificates (where applicable)                          March 2019 
                                                 -------------------------- 
 

Cash Position and Use of Proceeds

As at 31 January 2019, the Company held unaudited cash on the balance sheet of approximately US$0.5 million.

The gross proceeds of the Subscription of GBP2,082,899 (approximately US$2.7 million) are intended to be applied as follows:

-- GBP1,333,000 (approximately US$1,730,000) for the partial settlement of the Group's creditors, predominantly trade creditors of Cabot Canada;

   --      GBP360,000 (approximately US$470,000) to fund the Group's corporate expenses; 

-- GBP260,000 (approximately US$340,000) for Directors' and executive management's accrued but unpaid compensation since June 2018; and

-- GBP130,000 (approximately US$160,000) incurred in respect of professional legal, financial advisory and broking fees relating to the Proposals.

The Company expects that the proceeds of the Subscription will provide the minimum level of working capital for the Group during Q1 2019. However, Shareholders should be aware that this is highly dependent upon the Edmonton Light Oil sales prices achieved during Q1 2019 and the successful conclusion of the payment arrangements with the trade creditors of Cabot Canada. In addition, H2P has agreed that it will not press for payment of approximately US$116,000 to settle the outstanding deferred consideration due to H2P pursuant to the sale and purchase agreement between the Company and H2P dated 19 December 2017 until well after the Company's proposed growth strategy fundraising.

Although the proceeds of the Open Offer cannot be determined, it is the current intention of the Board that any proceeds from the Open Offer will be applied to fund the Group's ongoing working capital requirements.

On completion of the Fundraising, it is the Company's intention to then seek further equity and/or debt funding, on terms yet to be agreed, which, subject to the level of funding raised, will allow the Company to settle the remainder of the overdue Canadian trade creditors and fund the Group's corporate expenses and may be sufficient to commence a Canadian production development programme or fund Italy offshore exploration seismic acquisition costs.

Given the near-term requirement for a further equity fundraise following the Proposals, the Directors are seeking shareholder authority to disapply pre-emption rights of approximately 20 per cent of the Company's Enlarged Issued Share Capital (assuming full take-up of the Open Offer), which is in excess of the level recommended by National Association of Pension Funds, in order that the Board can provide certainty to investors in respect of the Group's proposed funding requirements at the end of Q1 2019 and to avoid the management time and costs involved in seeking further shareholder approval again before the Company's next annual general meeting.

5. Share Capital Reorganisation

The Company's current issued share capital consists of 661,986,961 Existing Ordinary Shares. Following the Proposals, the Directors consider that the Enlarged Issued Share Capital would be much higher than similar sized companies on AIM and the Directors believe that this would negatively affect investors' perception of the Company. The Directors believe therefore that it is in the best interests of the Company to undertake a 1-for-100 share consolidation to reduce the number of Ordinary Shares in issue and increase the share price with a view to decreasing the spread between the bid and offer prices. Under the Share Consolidation, holders of Existing Ordinary Shares will receive:

1 New Ordinary Share for every 100 Existing Ordinary Shares

and so in proportion to the number of Existing Ordinary Shares held on the Record Date.

In addition, as the Issue Price is below the nominal amount of the ordinary shares immediately following the consolidation, it is proposed that each of the issued ordinary shares be sub-divided into one New Ordinary Share of 1p and one deferred share of 99p ("Deferred B Shares"). The Deferred B Shares will have no value or voting rights and subscribers will not be issued with a share certificate in respect of the Deferred B Shares.

Following the Share Capital Reorganisation, Shareholders will still hold the same proportion of the Company's ordinary share capital as before the Share Capital Reorganisation. Other than a change in nominal value, the New Ordinary Shares will carry equivalent rights under the Articles to the Existing Ordinary Shares.

To effect the Share Capital Reorganisation, it will be necessary to issue an additional 39 Existing Ordinary Shares so that the Company's issued ordinary share capital is exactly divisible by 100. These additional Existing Ordinary Shares will be issued to the Registrar before the record date for the Share Capital Reorganisation. Since these additional shares would only represent a fraction of a New Ordinary Share, this fraction will be sold pursuant to the arrangements for fractional entitlements contained in the Articles.

Following the Share Capital Reorganisation and assuming the maximum number of shares are issued pursuant to the Fundraising, the Company's issued ordinary share capital will comprise 35,148,857 New Ordinary Shares.

The Share Capital Reorganisation will give rise to fractional entitlements to a New Ordinary Share where any holding is not precisely divisible by 100. No certificates regarding fractional entitlements will be issued. Instead, in accordance with the authority in the Articles and Resolution 1(c), any New Ordinary Shares in respect of which there are fractional entitlements will be aggregated and sold in the market for the best price reasonably obtainable on behalf of those Shareholders entitled to the fractions and, where the amount of the proceeds is GBP3.00 or more, the proceeds of sale will be returned to you in proportion to your fractional entitlement. Proceeds of less than GBP3.00 will be retained by the Company and used to offset the cost of undertaking the Share Capital Reorganisation.

For the avoidance of doubt, the Company is only responsible for dealing with fractions arising on registered holdings. For Shareholders whose shares are held in the nominee accounts of stockbrokers, intermediaries, or other nominees, the effect of the Share Consolidation on their individual shareholdings will be administered by the stockbroker or nominee in whose account the relevant shares are held. The effect is expected to be the same as for shareholdings registered in beneficial names, however, it is the stockbroker's responsibility to deal with fractions arising within their customer accounts, and not the Company's.

Due to the proposed Share Capital Reorganisation, the Company needs to amend its Articles to establish the Deferred B Shares, and set out the rights and obligations attaching thereto. Resolution 1(d) to be considered at the General Meeting proposes that the Articles be amended.

Resolution 1, which is summarised in paragraph 9 below, sets out the proposed steps to effect the proposed Share Capital Reorganisation.

6. Interests of H2P and the Directors

As at the date of this announcement, H2P has an interest in a total of 376,686,081 Existing Ordinary Shares representing approximately 56.9 per cent of the current voting rights of the Company.

Following completion of the Proposals (by virtue of Share Capital Reorganisation and the issue of the Subscription Shares), H2P will have a resultant interest in a total of 19,194,197 New Ordinary Shares which represents:

-- approximately 54.61 per cent of the Enlarged Issued Share Capital (assuming full subscription of the Open Offer and no exercise of options or warrants prior to Admission); or

-- approximately 69.93 per cent of the Enlarged Issued Share Capital (assuming no subscriptions under the Open Offer and no exercise of options or warrants prior to Admission).

Following completion of the Proposals (by virtue of Share Capital Reorganisation and the issue of the Subscription Shares), Paul Lafferty will be interested in 108,027 New Ordinary Shares representing approximately 0.31 per cent of the Enlarged Issued Share Capital (assuming full subscription of the Open Offer and no exercise of options or warrants prior to Admission).

None of the other Directors currently hold Ordinary Shares, nor are they participating in the Fundraising.

7. Related Party Transactions

H2P is a substantial shareholder of the Company and therefore regarded as a related party as defined by the AIM Rules. The subscription by H2P is therefore deemed to be a related party transaction for the purposes of Rule 13 of the AIM Rules.

Paul Lafferty is a Director of the Company and therefore regarded as a related party as defined by the AIM Rules. The subscription by Paul Lafferty is therefore deemed to be a related party transaction for the purposes of Rule 13 of the AIM Rules.

The Independent Directors, being James Dewar and Rachel Maguire consider, having consulted with SP Angel, the Company's nominated adviser, that the terms of the aforementioned subscriptions by H2P and Paul Lafferty are fair and reasonable insofar as Shareholders are concerned.

8. Application for Admission

Application will be made to the London Stock Exchange for the Enlarged Issued Share Capital to be admitted to trading on AIM conditional on the Resolutions being passed at the General Meeting. The Enlarged Issued Share Capital is expected to be admitted to AIM and commence trading at 8.00 a.m. on 4 March 2019.

The Fundraising Shares will rank pari passu in all respects with the New Ordinary Shares in issue following completion of the Share Capital Reorganisation including the right to receive all dividends and other distributions declared, paid or made after the date of issue.

9. General Meeting

Shareholders will find a Notice convening the General Meeting of the Company at the end of the Circular. The General Meeting will be held at the offices of Fieldfisher LLP, 9th Floor, Riverbank House, 2 Swan Lane, London EC4R 3TT at 12.00 p.m. on 1 March 2019 to consider and, if thought appropriate, pass the Resolutions summarised below.

Shareholders should be aware that, if any of the Resolutions are not approved by Shareholders at the General Meeting, the Proposals will not complete and the Company will therefore be required to seek alternative sources of finance which may or may not be forthcoming. If such alternative financing cannot be secured, the Company is unlikely to be able to continue as a going concern.

Resolution 1 - Share Capital Reorganisation

Resolution 1 will be proposed as a special resolution which:

(a) consolidates 100 Existing Ordinary Shares into a new ordinary share of 100 pence each in the capital of the Company;

(b) subdivides each resulting ordinary share into a New Ordinary Share of 1p each and one Deferred B Share of 99p each and the New Ordinary Shares will have the same rights and be subject to the same restrictions (save as to nominal value) as the Existing Ordinary Shares in the Articles and the Deferred B Shares will have the rights and be subject to the restrictions attached to Deferred B Shares as set out in the Articles;

(c) authorises the Directors to deal with any fractional entitlements resulting from the steps mentioned in (a) and (b) above. These fractional entitlements will be aggregated and sold in the market on your behalf and, where the amount of the proceeds is GBP3.00 or more, the proceeds of sale will be returned to you in proportion to your fractional entitlement. Proceeds of less than GBP3.00 will be retained by the Company and used to offset the cost of undertaking the Share Capital Reorganisation; and

(d) the Articles be amended to create the new Deferred B Shares and to set out the rights pertaining to such shares.

Resolution 2 - Authority to allot the Fundraising Shares

Resolution 2 will be proposed as an ordinary resolution of the Company. The Directors will be seeking authority in accordance with section 551 of the Companies Act to allot:

(a) up to 28,528,987 Fundraising Shares (being the maximum required for the purposes of issuing the Subscription Shares and the Open Offer Shares) and representing approximately 431 per cent of the Existing Ordinary Shares (adjusted to take account of the Share Capital Reorganisation); and

(b) after allowing for the issue of up to 28,528,987 Fundraising Shares to be issued pursuant to the Fundraising, a further 17,575,000 New Ordinary Shares (representing approximately 50 per cent of the Company's Enlarged Issued Share Capital) (assuming full take-up of the Open Offer).

Resolution 3 - Disapplication of pre-emption rights

The provisions of section 561(1) of the Companies Act to the extent that they are not disapplied, confer on shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up wholly in cash. It is proposed that, in order to provide the Board with flexibility to raise further funds that statutory pre-emption rights be disapplied in respect of such number of New Ordinary Shares which represents approximately 44 per cent of the Company's Enlarged Issued Share Capital (assuming full take-up of the Open Offer).

Resolution 3 will therefore be proposed as a special resolution to disapply statutory pre-emption provisions in connection with:

   (a)    the allotment of up to 20,828,987 New Ordinary Shares pursuant to the Subscription; 
   (b)   the allotment of up to 7,700,000 New Ordinary Shares pursuant to the Open Offer; 
   (c)    rights or other pre-emptive issues; and 

(d) any other issues of equity securities for cash which do not, in aggregate, exceed a nominal value of GBP154,000 being 15,400,000 New Ordinary Shares.

10. Action to be taken by Shareholders

General Meeting

A Form of Proxy for use in connection with the General Meeting is enclosed with the Circular. Whether or not you intend to be present at the General Meeting, you are requested to complete, sign and return a Form of Proxy in accordance with the instructions printed thereon so as to be received by the Registrar, Neville Registrars Limited at Neville House, Steelpark Road, Halesowen, B62 8HD, not later than 12.00 p.m. on 27 February 2019. Completion and return of a Form of Proxy will not preclude you from attending and voting in person at the General Meeting, if you wish to do so.

Open Offer

Qualifying Ordinary Shareholder

If you are a Qualifying Ordinary Shareholder, you will receive an Application Form with the Circular, which gives details of your entitlement under the Open Offer (as shown by the number of Open Offer Entitlements allocated to you). If you wish to apply for the number of Open Offer Shares you are entitled to under the Open Offer (as shown by the number of Open Offer Entitlements allocated to you) or more or less Open Offer Shares than you are entitled to under the Open Offer, you should complete the enclosed Application Form in accordance with the procedure for application set out in paragraph 4.5(a) of Part III of the Circular and on the Application Form itself.

Qualifying CREST Holder

If you are a Qualifying CREST Holder, you will not receive an Application Form and you will receive a credit to your appropriate stock account in CREST in respect of the Open Offer Entitlements representing your entitlement under the Open Offer. You should refer to the procedure for application set out in paragraph 4.5(b) of Part III of the Circular.

The latest time for applications under the Open Offer to be received is 11.00 a.m. on 28 February 2019. The procedure for application and payment depends on whether, at the time at which application and payment is made, you have an Application Form in respect of your entitlement under the Open Offer or have Open Offer Entitlements credited to your stock account in CREST in respect of such entitlement. The procedures for application and payment are set out in Part III of the Circular. Further details also appear in the Application Form which has been sent to Qualifying Non-CREST Holders.

Qualifying CREST Holders who are CREST sponsored members should refer to their CREST sponsors regarding the action to be taken in connection with the Circular and the Open Offer.

11. Overseas Shareholders

Information for Overseas Shareholders who have registered addresses outside the United Kingdom or who are citizens or residents of countries other than the United Kingdom appears in section 6 of Part III of the Circular, which sets out the restrictions applicable to such persons. If you are an Overseas Shareholder, it is important that you pay particular attention to that section of the Circular.

12. Additional Information

Your attention is drawn to the additional information set out in Parts II to IV (inclusive) of the Circular. In particular, you should carefully read Part IV of the Circular entitled "Risk Factors" which describes certain risks associated with an investment in Cabot Energy.

13. Directors' Recommendation

The Board considers the Proposals to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of all Resolutions 1 to 3 as Paul Lafferty, currently the only shareholding Director, intends to do in respect of his own shareholding. If the Resolutions are not passed, the Fundraising will not proceed and the Company may not be able to continue to trade as a going concern.

Definitions

 
 "2D seismic"                     geophysical data that depicts the subsurface 
                                   strata in two dimensions 
 "2P"                             the sum of proved and probable reserves 
                                 ------------------------------------------------- 
 "3D seismic"                     geophysical data that depicts the subsurface 
                                   strata in three dimensions. 3D seismic 
                                   typically provides a more detailed and 
                                   accurate interpretation of the subsurface 
                                   strata than 2D seismic 
                                 ------------------------------------------------- 
  "Admission"                     the admission of the Subscription Shares 
                                   and the Open Offer Shares to trading 
                                   on AIM becoming effective in accordance 
                                   with the AIM Rules 
                                 ------------------------------------------------- 
 "AIM"                            AIM, a market operated by the London 
                                   Stock Exchange 
                                 ------------------------------------------------- 
 "AIM Rules"                      the AIM Rules for Companies published 
                                   by the London Stock Exchange governing 
                                   the admission to, and the operation of, 
                                   AIM 
                                 ------------------------------------------------- 
 "Application Form"               the application form accompanying the 
                                   Circular to be used by Qualifying Non-CREST 
                                   Holders in connection with the Open Offer 
                                 ------------------------------------------------- 
 "Articles"                       the articles of association of the Company 
                                   as at the date of the announcement 
                                 ------------------------------------------------- 
 "Board"                          the board of directors of the Company 
                                 ------------------------------------------------- 
 "boe"                            barrels of oil equivalent. One barrel 
                                   of oil is approximately the energy equivalent 
                                   of 5,800 cf of natural gas 
                                 ------------------------------------------------- 
 "bopd"                           barrels of oil per day 
                                 ------------------------------------------------- 
 "bpd"                            barrels per day 
                                 ------------------------------------------------- 
 "Business Day(s)"                any day on which banks in London are 
                                   open for business (excluding Saturdays, 
                                   Sundays and public holidays) 
                                 ------------------------------------------------- 
 "Cabot Canada"                   Cabot Energy Inc, a wholly owned subsidiary 
                                   of the Company 
                                 ------------------------------------------------- 
 "Canadian Assets"                all licences, wells and facilities relating 
                                   to the Rainbow Assets and the Virgo Assets, 
                                   Alberta, Canada 
                                 ------------------------------------------------- 
 "Circular"                       the Circular to be posted shareholders 
                                   convening the General Meeting 
                                 ------------------------------------------------- 
 "City Financial"                 City Financial Investment Company Limited 
                                 ------------------------------------------------- 
 "Companies Act"                  the Companies Act 2006, as amended 
                                 ------------------------------------------------- 
 "Company" or "Cabot              Cabot Energy Plc, a Company incorporated 
  Energy"                          in England and Wales with company number 
                                   02933545 whose registered office is Riverbank 
                                   House, 2 Swan Lane, London, EC4R 3TT, 
                                   United Kingdom 
                                 ------------------------------------------------- 
 "contingent resources"           those quantities of petroleum estimated, 
                                   as of a given date, to be potentially 
                                   recoverable from known accumulations 
                                   by application of development projects, 
                                   but which are not currently considered 
                                   to be commercially recoverable due to 
                                   one or more contingencies 
                                 ------------------------------------------------- 
 "CREST"                          the computerised settlement system (as 
                                   defined in the Regulations) operated 
                                   by Euroclear which facilitates the transfer 
                                   of title to shares in uncertificated 
                                   form 
                                 ------------------------------------------------- 
 "CREST member"                   a person who has been admitted by Euroclear 
                                   as a system-member (as defined in the 
                                   Regulations) 
                                 ------------------------------------------------- 
 "CREST participant"              a person who is, in relation to CREST, 
                                   a system-participant (as defined in the 
                                   Regulations) 
                                 ------------------------------------------------- 
 "CREST payment"                  as such term is defined in the CREST 
                                   Manual issued by Euroclear 
                                 ------------------------------------------------- 
 "CREST sponsor"                  a CREST participant admitted to CREST 
                                   as a CREST sponsor 
                                 ------------------------------------------------- 
 "CREST sponsored member"         a CREST member admitted to CREST as a 
                                   sponsored member (which includes all 
                                   CREST Personal Members) 
                                 ------------------------------------------------- 
 "Deferred B Shares"              a deferred share of 99p issued as part 
                                   of the Share Capital Reorganisation. 
                                   The Deferred B Shares will have no value 
                                   or voting rights 
                                 ------------------------------------------------- 
 "Directors"                      the directors of the Company at the date 
                                   of the Circular, as set out on page 7 
                                   of the Circular 
                                 ------------------------------------------------- 
 "enabled for settlement"         in relation to Open Offer Entitlements, 
                                   enabled for the limited purpose of settlement 
                                   of claim transactions and unmatched stock 
                                   event transactions (each as described 
                                   in the CREST Manual issued by Euroclear) 
                                 ------------------------------------------------- 
 "Enlarged Issued Share           the issued ordinary share capital of 
  Capital"                         the Company immediately following the 
                                   Share Capital Reorganisation and the 
                                   issue of the Fundraising Shares 
                                 ------------------------------------------------- 
 "Euroclear"                      Euroclear UK & Ireland Limited, the operator 
                                   of CREST 
                                 ------------------------------------------------- 
 "Excess Application              to the extent that the Open Offer Entitlements 
  Facility"                        to Open Offer Shares are not subscribed 
                                   for in full by Qualifying Shareholders, 
                                   the facility for Qualifying Shareholders 
                                   to apply for additional Open Offer Shares 
                                   over and above their Open Offer Entitlements, 
                                   subject to the terms and conditions 
                                 ------------------------------------------------- 
 "Excess CREST Open Offer         in respect of Qualifying CREST Holders, 
  Entitlements"                    the entitlement to apply for Open Offer 
                                   Shares in addition to their Open Offer 
                                   Entitlement credited to his stock account 
                                   in CREST under the Excess Application 
                                   Facility, subject to the terms and conditions 
                                   of the Open Offer 
                                 ------------------------------------------------- 
 "Excess Shares"                  New Ordinary Shares in addition to the 
                                   Open Offer Entitlement for which Qualifying 
                                   Shareholders may apply under the Excess 
                                   Application Facility 
                                 ------------------------------------------------- 
 "Existing Ordinary Share(s)"     the 661,986,961 ordinary shares of 1 
  or "Existing Issued              penny each in issue at the date of the 
  Share Capital"                   Circular 
                                 ------------------------------------------------- 
 "FCA"                            the Financial Conduct Authority of the 
                                   United Kingdom 
                                 ------------------------------------------------- 
 "Form of Proxy"                  the form of proxy which accompanies the 
                                   Circular for use in connection with the 
                                   General Meeting 
                                 ------------------------------------------------- 
 "FSMA"                           the Financial Services and Markets Act 
                                   2000 (as amended) 
                                 ------------------------------------------------- 
 "Fundraising"                    together the Subscription and the Open 
                                   Offer 
                                 ------------------------------------------------- 
 "Fundraising Share(s)"           up to 28,528,987 New Ordinary Shares 
                                   to be issued pursuant to the Subscription 
                                   and the Open Offer 
                                 ------------------------------------------------- 
 "General Meeting"                the general meeting of the Company to 
                                   be held at 12:00 p.m. on 1 March 2019, 
                                   notice of which is set out at the end 
                                   of the Circular 
                                 ------------------------------------------------- 
 "Group"                          the Company and its subsidiaries and 
                                   subsidiary and associated undertakings 
                                   at the date of the announcement (and 
                                   "Group Company" shall mean any such company) 
                                 ------------------------------------------------- 
 "H2P"                            High Power Petroleum LLC 
                                 ------------------------------------------------- 
 "H2P UK"                         High Power Petroleum (NOP) UK Limited, 
                                   a wholly-owned subsidiary of H2P 
                                 ------------------------------------------------- 
 "Independent Directors"          Jim Dewar and Rachel Maguire 
                                 ------------------------------------------------- 
 "Issue Price"                    10 pence per New Ordinary Share 
                                 ------------------------------------------------- 
 "Lead"                           a conceptual exploration idea usually 
                                   based on minimal data but with sufficient 
                                   support from geological analogues and 
                                   the like to encourage further data acquisition 
                                   and/or study on the basis that hydrocarbon 
                                   accumulations of unknown size may be 
                                   found in the future 
                                 ------------------------------------------------- 
 "London Stock Exchange"          London Stock Exchange PLC 
                                 ------------------------------------------------- 
 "Member Account ID"              the identification code or number attached 
                                   to any member account in CREST 
                                 ------------------------------------------------- 
 "mmbbls"                         million barrels 
                                 ------------------------------------------------- 
 "mmboe"                          millions of barrels of oil equivalent 
                                 ------------------------------------------------- 
 "Money Laundering Regulations"   the Money Laundering, Terrorist Financing 
                                   and transfer of Funds (information on 
                                   the payer) Regulations 2017 and obligations 
                                   in connection with money laundering under 
                                   the Criminal Justice Act 1993 and the 
                                   Proceeds of Crime Act 2002 
                                 ------------------------------------------------- 
 "New Ordinary Share(s)"          the ordinary shares of 1p each in the 
                                   capital of the Company arising from the 
                                   Share Capital Reorganisation 
                                 ------------------------------------------------- 
 "Notice"                         the notice convening the General Meeting 
                                   which is set out at the end of the Circular 
                                 ------------------------------------------------- 
 "Official List"                  the Official List maintained by the United 
                                   Kingdom Listing Authority 
                                 ------------------------------------------------- 
 "Open Offer"                     the invitation to Qualifying Shareholders 
                                   to subscribe for Open Offer Shares at 
                                   the Issue Price on the terms and subject 
                                   to the conditions set out or referred 
                                   to in Part III of the Circular and, where 
                                   relevant, the Application Form 
                                 ------------------------------------------------- 
 "Open Offer Entitlement"         the pro rata basic entitlement for Qualifying 
                                   Shareholders to subscribe for 1 Open 
                                   Offer Share for every 85.9723377 Existing 
                                   Ordinary Shares held on the Record Date 
                                   pursuant to the Open Offer 
                                 ------------------------------------------------- 
 "Open Offer Share(s)"            up to 7,700,000 Fundraising Shares to 
                                   be offered to Qualifying Shareholders 
                                   pursuant to the Open Offer 
                                 ------------------------------------------------- 
 "Ordinary Share(s)"              the Existing Ordinary Shares and/or the 
                                   New Ordinary Shares, as the context requires 
                                 ------------------------------------------------- 
 "Overseas Shareholder(s)"        Shareholders who are resident in, or 
                                   who are citizens of, or have registered 
                                   addresses in, territories other than 
                                   the United Kingdom 
                                 ------------------------------------------------- 
 "Proposals"                      the Subscription, the Open Offer, the 
                                   Share Capital Reorganisation and the 
                                   additional authorities set out in the 
                                   Resolutions 
                                 ------------------------------------------------- 
 "prospect"                       a project associate with a potential 
                                   accumulation of oil or natural gas that 
                                   is sufficiently well defined to represent 
                                   a viable drilling target 
                                 ------------------------------------------------- 
 "prospective resources"          those quantities of petroleum estimated, 
                                   as of a given date, to be potentially 
                                   recoverable from undiscovered accumulations 
                                   by application of future development 
                                   projects 
                                 ------------------------------------------------- 
 "proven reserves"                those reserves which on the available 
                                   evidence are virtually certain to be 
                                   technically and economically producible 
                                   (i.e. having a better than 90 per cent 
                                   chance of being produced) 
                                 ------------------------------------------------- 
 "Qualifying CREST Holder(s)"     holders of Ordinary Shares in uncertificated 
                                   form on the register of members of the 
                                   Company on the Record Date 
                                 ------------------------------------------------- 
 "Qualifying Criteria"            the restriction on the number of Open 
                                   Offer Shares that each Qualifying Shareholder 
                                   may receive under the Open Offer on the 
                                   basis that no Qualifying Shareholder 
                                   will be entitled to receive in excess 
                                   of such number of Open Offer Shares as 
                                   would 
                                   (a) bring its aggregate interest in the 
                                   Company to more than 29.9 per cent. of 
                                   the Enlarged Issued Share Capital, where 
                                   it did not previously exceed that threshold; 
                                   or 
                                   (b) would result in any qualifying shareholder 
                                   that already owns more than 50 per cent. 
                                   of the Existing Ordinary Shares, decreasing 
                                   its percentage holding to below 50% 
                                 ------------------------------------------------- 
 "Qualifying Non-CREST            holders of Ordinary Shares in certificated 
  Holders"                         form on the register of members of the 
                                   Company on the Record Date 
                                 ------------------------------------------------- 
 "Qualifying Shareholders"        Qualifying Non-CREST Holders and Qualifying 
                                   CREST Holders (other than certain Overseas 
                                   Shareholders) 
                                 ------------------------------------------------- 
 "Rainbow Assets"                 the mineral leases, production facilities 
                                   and wells in the Rainbow area of northwest 
                                   Alberta, Canada 
                                 ------------------------------------------------- 
 "Record Date"                    6:00 p.m. in London on 8 February 2019 
                                 ------------------------------------------------- 
 "Receiving Agent"                Neville Registrars Limited, Neville House, 
                                   Steelpark Road, Halesowen, West Midlands, 
                                   B62 8HD, United Kingdom 
                                 ------------------------------------------------- 
 "Registrar"                      Neville Registrars Limited, Neville House, 
                                   Steelpark Road, Halesowen, B62 8HD, United 
                                   Kingdom 
                                 ------------------------------------------------- 
 "Regulations"                    the Uncertificated Securities Regulations 
                                   2001 (SI 2001/3755), as amended from 
                                   time to time 
                                 ------------------------------------------------- 
 "Regulation S"                   Regulation S under the Securities Act 
                                 ------------------------------------------------- 
 "Regulatory Information          as such term is defined in the AIM Rules 
  Service" 
                                 ------------------------------------------------- 
 "reserves"                       those quantities of petroleum anticipated 
                                   to be commercially recoverable by application 
                                   of development projects to known accumulations 
                                   from a given date forward under defined 
                                   conditions 
                                 ------------------------------------------------- 
 "Resolutions"                    the resolutions to be proposed at the 
                                   General Meeting which are set out in 
                                   the Notice 
                                 ------------------------------------------------- 
 "resources"                      deposits of naturally occurring hydrocarbons 
                                   which, if recoverable, include those 
                                   volumes of hydrocarbons either yet to 
                                   be found (prospective) or if found the 
                                   development of which depends upon a number 
                                   of factors (technical, legal and/or commercial) 
                                   being resolved (contingent) 
                                 ------------------------------------------------- 
 "Restricted Jurisdiction(s)"     the United States of America, Canada, 
                                   Australia, New Zealand, the Republic 
                                   of South Africa, Japan and/or the Russian 
                                   Federation 
                                 ------------------------------------------------- 
 "Securities Act"                 the U.S. Securities Act of 1933, as amended 
                                 ------------------------------------------------- 
 "Share Capital Reorganisation"   the consolidation and sub-division of 
                                   the Existing Ordinary Shares into the 
                                   New Ordinary Shares and the Deferred 
                                   B Shares pursuant to Resolution 1 in 
                                   the Notice 
                                 ------------------------------------------------- 
 "Shareholder(s)"                 holder(s) of Ordinary Share(s) from time 
                                   to time 
                                 ------------------------------------------------- 
 "SP Angel"                       SP Angel Corporate Finance LLP, the Company's 
                                   nominated adviser and broker, a company 
                                   incorporated in England and Wales with 
                                   registered number OC317049, whose registered 
                                   office is at Prince Frederick House, 
                                   35-39 Maddox Street, London W1S 2PP 
                                 ------------------------------------------------- 
 "stock account"                  an account within a member account in 
                                   CREST to which a holding of a particular 
                                   share or other security in CREST is credited 
                                 ------------------------------------------------- 
 "Subscribers"                    H2P, City Financial, Paul Lafferty and 
                                   Northeastern Oilfield Services Limited 
                                 ------------------------------------------------- 
 "Subscription"                   the conditional subscription of the Subscription 
                                   Shares by the Subscribers pursuant to 
                                   the Subscription Agreements 
                                 ------------------------------------------------- 
 "Subscription Agreements"        the conditional subscription agreements 
                                   dated on or about the date of the Circular 
                                   between the Company and each of the Subscribers 
                                 ------------------------------------------------- 
 "Subscription Shares"            20,828,987 Fundraising Shares to be issued 
                                   in the capital of the Company pursuant 
                                   to the Subscription 
                                 ------------------------------------------------- 
 "United Kingdom" or              the United Kingdom of Great Britain and 
  "UK"                             Northern Ireland, its territories and 
                                   possession, and all areas subject to 
                                   its jurisdiction 
                                 ------------------------------------------------- 
 "Virgo Assets"                   the mineral leases, facilities and wells 
                                   in the Virgo area of northwest Alberta, 
                                   Canada 
                                 ------------------------------------------------- 
 

A reference to "GBP" is to pounds sterling, the lawful currency of the UK.

A reference to "United States Dollars", "US$" or "$" is to United States dollars, the lawful currency of the United States of America.

A reference to "EUR", "EUR" or "Euro" is to currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended.

Disclaimer

Save where the context requires otherwise, terms used in the Circular shall have the same meanings when used in this announcement.

This announcement does not constitute an offer or an invitation to acquire or dispose of any securities in the United States of America, Canada, Australia, New Zealand, the Republic of South Africa, Japan or the Russian Federation or in any other jurisdiction where such offer or solicitation is unlawful (each a "Restricted Jurisdiction"). This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer to sell or subscribe for or any invitation to purchase or subscribe for any securities in any jurisdiction pursuant to the Open Offer or otherwise. The Open Offer will be made solely pursuant to the terms of the Circular, which will contain the full terms and conditions of the Open Offer. Any decision in respect of, or other response to, the Open Offer should be made only on the basis of the information contained in the Circular. This announcement is an advertisement and not a prospectus. No prospectus is required to be or will published in connection with the Open Offer.

The availability of the Open Offer, and the release, publication or distribution of this announcement and any offering for sale of New Ordinary Shares, in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions. In particular, the Open Offer will not be made directly or indirectly in any Restricted Jurisdiction. Therefore persons into whose possession this announcement comes should inform themselves about and observe any applicable restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction. Shareholders who are in any doubt regarding such matters should consult an appropriate independent adviser in the relevant jurisdiction without delay. To the fullest extent permitted by applicable law, the Company disclaims any responsibility or liability for the violation of such restrictions by any person. The Open Offer is not being, and will not be made, directly or indirectly, in or into or from, whether by the use of mails or any means of instrumentality (including, without limitation telephonically or electronically) of interstate or foreign commerce of, or any facilities of a national securities exchange of, any Restricted Jurisdiction and the Open Offer should not be applied for by any such use, means, instrumentality or facility from or within any Restricted Jurisdiction. Accordingly, copies of this announcement and any documentation relating to the Open Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from whether by the use of mails or any means of instrumentality (including, without limitation telephonically or electronically) of interstate or foreign commerce of, or any facilities of a national securities exchange of, any Restricted Jurisdiction. Persons receiving this announcement (including without limitation custodians, nominees and trustees) must not forward, mail or otherwise distribute or send it in, into or from any Restricted Jurisdiction, as doing so may invalidate any purported application under the Open Offer. Any person (including, without limitation, custodians, nominees and trustees) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or any documentation relating to the Open Offer and/or any other related document to any jurisdiction outside the United Kingdom should inform themselves of, and observe, any applicable legal or regulatory requirements of any relevant jurisdiction.

In particular, the New Ordinary Shares have not been and will not be registered under the United States Securities Act 1933, as amended, or under any of the relevant securities laws of any state or other jurisdiction of the United States of America and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, in or into the United States of America.

SP Angel Corporate Finance LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for the Company and no one else (including the recipients of this announcement) as nominated adviser and will not be responsible to anyone other than the Company for providing the protections afforded to customers of SP Angel Corporate Finance LLP or for advising any other person in relation to the matters described in this announcement.

This announcement contains certain forward-looking statements which are subject to a number of risks and uncertainties, many of which are beyond the Company's control and all of which are based on the Directors' current beliefs and expectations about future events. In some cases, these forward looking statements can be identified by the use of forward-looking terminology, including the terms "targets", "believes", "estimates, "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the Company. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. Persons receiving this announcement should not place undue reliance on forward-looking statements. Forward-looking statements are made only as of the date of this announcement. The Company expressly disclaims any obligation or undertaking to release, publicly or otherwise, any updates or revisions to any forward-looking statement contained in this announcement to reflect any change in its expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based unless so required by applicable law.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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