EnCore Oil plc (EnCore Oil) has reported a net loss from continuing activities of GBP1.5 million, or GBP0.5 loss per share, for the fiscal 2009, compared with the net loss from continuing activities of GBP2.4 million, or GBP0.8 loss per share, in the previous year.

Operational Review:

Drilling programme

EnCore Oil has begun the year with success at Ceres in July 2008 (EnCore Oil 10%; UK North Sea block 47/9c) when the horizontal appraisal well tested gas at a maximum rate of 40 million cubic feet of gas per day (mmscfd) through a 96/64′ choke, exceeding its expectations. The discovery received field development plan (FDP) approval from the Government in September 2009 and is now being developed as a single well sub-sea tie back to the nearby Mercury field. First production is expected in Q4 2009.

In October 2008, EnCore Oil had the second of three successful appraisal wells at Breagh (EnCore Oil 15%; UK southern North Sea block 42/13a). Well 42/13-4 tested gas at a rate of 10.2mmscfd through a 32/64 inch choke at a flowing wellhead pressure of circa 1,630 psi. This well demonstrated productivity from the main and lower Breagh reservoirs on the east of the Breagh structure.

November 2008 saw an oil discovery at Cladhan (EnCore Oil 16.6%; UK Northern North Sea block 210/29a) which confirmed the presence of a stratigraphically trapped 110 feet light oil column with no oil-water contact.

In the same month, the third appraisal well on Breagh spud and was completed in early January 2009. The horizontal well tested gas at a maximum rate of 26 mmscfd through an 80/64 inch choke at a flowing wellhead pressure of circa 890psi and helped define the characteristics and continuity of the accumulation.

Breagh

Following the drilling of the three successful appraisal wells on Breagh, EnCore Oil made the decision, along with the company’s five co-venturers, to market the field for sale. After an active sale process the company and its co-venturers entered into exclusive negotiations with one party, RWE Dea in April 2009 and a sale and purchase agreement was signed on 23 July 2009, post year end. In exchange for the company ‘s 15% equity in the field, EnCore Oil will receive $68.8 million in cash upon completion, 20% of which will be held in an interest bearing escrow account for 12 months as security against any potential warranty or indemnity claims by the purchaser. Completion of the sale is expected in September 2009.

Other portfolio activity

Aside from the company disposal of Breagh, EnCore Oil made one other disposal during the year. In September 2008, the company disposed of its wholly owned subsidiary EnCore Oil Nederland B.V., whose only asset was a 10% interest in the Amstel field offshore of the Netherlands. TAQA Energy B.V. paid $5.5 million cash in a deal which realized a net gain of GBP1.2 million for EnCore Oil.

During the same month, EnCore Oil farmed out percentages of its equity in two licenses.

Firstly, EnCore Oil farmed out 10% of its interest in blocks 210/29a and 210/30a in the Northern North Sea, on which the Cladhan well was drilled in November. Dyas UK Limited contributed to the well on a promote basis as part of the farm out agreement, which left EnCore Oil with a 16.6% interest.

Secondly, 20% of EnCore Oil equity in central North Sea blocks 28/9 and 28/10c was farmed out to Revus Energy (now part of Wintershall) in exchange for contribution to drilling the Catcher well on a promote basis. Following the acquisition of a well site survey in September, the Catcher well was expected to be drilled towards the end of the year, but due to the former operator, Oilexco, being placed into administration in early 2009, this schedule slipped. In May 2009, EnCore Oil took over operatorship of the license and now expect the Catcher well to be drilled in 2010.

November 2008 saw the award of four offshore licenses covering five blocks in the UK 25th offshore licensing round: 15/21g, 48/1d, 9/27c, 14/29d and 14/30c.

Block 15/21g (EnCore Oil 40%; operator) is a traditional license. The work programme comprises seismic reprocessing and a drill-or-drop well decision within two years of the award. Block 48/1d (EnCore Oil 25%; operator) is also a traditional license. The block contains interpreted extensions of the Cobra discovery and the Python prospect in the adjacent blocks and the work programme comprises a drill-or-drop well decision within two years of the award. Block 9/27c (EnCore Oil 100%; operator) is a promote license. The work programme comprises seismic reprocessing and a drill-or-drop well decision to be made within two years of the award. Blocks 14/29d and 14/30c (EnCore Oil 100%; operator) are also promote licenses requiring a drill-or-drop well decision within two years of the award.

Onshore

In March 2009, the access track and site build began on the Markwells Wood prospect on license PEDL 126 (EnCore Oil 10%). It is expected that the well will be drilled in 2010 depending upon rig availability.

In June 2009, EnCore Oil assigned its share of two onshore UK licenses, PEDL 089 and 1153, to Wessex Exploration in return for Wessex settling outstanding cash calls on the licenses. Following seismic studies EnCore Oil concluded that it did not wish to progress any further with a work programme on these licenses.

3D seismic reprocessing work on EnCore Oil’s Biscathorpe license on PEDL 253 (EnCore Oil 60%; operator) was completed in June and the company is now seeking farm-in partners with a view to drilling a well to appraise the Biscathorpe structure in 2010 or 2011. Biscathorpe represents one of the larger remaining unappraised onshore structures, with significant stratigraphic upside potential.

EnCore Oil is hopeful that, now that outline gas sales terms have been agreed, the Kirkleatham gas discovery on license PEDL068 will move quickly to first gas in 2010.

Gas storage

November 2008 saw the results of the pressure test well on the potential gas storage project at Esmond (EnCore Oil 100%; UK North Sea blocks 43/13a, 43/15a & 43/20a). The results showed the reservoir behaviour to be more complex than initially modelled but still technically viable with a different engineering solution.

Following the well result, the operator, Star Energy notified EnCore Oil that they no longer wished to proceed with the Front End Engineering and Design (FEED) phase of the project as, while still technically viable, the project no longer met with their economic and strategic investment criteria.

As a result of the FEED phase being a requirement of Star Energy’s farm in agreement with EnCore Oil, Star Energy’s 50% equity in the Esmond and Gordon licenses reverted back to EnCore Oil in June 2009.

EnCore Oil has reworked possible development options on the project and have recently commissioned Helix RDS to provide an independent assessment of the technical viability of the project, which could then lead to further studies.

In the meantime, given the uncertainty surrounding the project, EnCore Oil wrote off all gas storage project costs to date at the half year, amounting to GBP0.5 million.