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NORTHCOTE ENERGY LIMITED - Increases Interest in Horizon Project, Oklahoma

NORTHCOTE ENERGY LIMITED - Increases Interest in Horizon Project, Oklahoma

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 Northcote Energy Ltd / Index: AIM / Epic: NCT / ISIN: VGG6622A1057 / Sector:
                                   Oil & Gas

13 February 2013

              Northcote Energy Ltd (`Northcote' or `the Company')

Exercise of Option to Increase Interest in Horizon Project, Oklahoma

Northcote (AIM: NCT), an onshore US oil and gas exploration and production company, is pleased to announce that it has exercised two of its options, as described in the Company's AIM Admission Document, to acquire an additional 10 per cent. working interest (the `Horizon Option') and an average 2.2 per cent. royalty interest (the `WCR Royalty Option') in the Horizon Project in Osage County, Oklahoma (the`Project') which includes nine producing wells in the proven Mississippi Lime Formation.

Key Highlights

  * Horizon Option and WCR Royalty Option exercised to:
  *
      + Increase working interest in the Project from an average of 28.5 per
        cent. to an average of 37.5 per cent.
      + Increase net revenue interest (after other royalties and other working
        interests) in the Project from 21.4 per cent. to 30.1 per cent.
      + Increase net attributable oil and condensate proved reserves by 37.4
        per cent. from 661 Mbbl to 908.5 Mbbl and increase net attributable gas
        proved reserves by 40.7 per cent. from 1,678 MMcf to 2,361.4 MMcf
  * Horizon Option exercised for consideration of 18,083,183 new ordinary
    shares of no par value in Northcote (the `Shares') and a five year
    US$192,500 promissory note
  * WCR Royalty Option exercised for consideration of a cash payment of
    US$50,000, the issue of 5,424,955 new Shares and a five year US$49,000
    promissory note
  * Total Share consideration of 23,508,138 Shares represents approximately
    2.64 per cent. of Northcote's enlarged issued share capital
  * Increases exposure to recently initiated workover and forthcoming fracture
    stimulation programmes at the Horizon Project
   

Northcote's Chief Executive Officer Randy Connally said, "We are delighted to have exercised these options to increase our interests in the Horizon Project which will have an immediate positive impact on our net reserves and production and is in line with our stated strategy. Importantly it will enable Northcote to increase its exposure to the development programme currently underway across Horizon's portfolio which has already resulted in a doubling of daily production in one well, and is targeting a substantial jump in net production and revenues. This is an important step towards meeting our end of year production target.

"We are also pleased with the vendors' decision to accept the majority of the consideration in equity, which we view as a vote of confidence in our business model and highly experienced team. Looking ahead, Northcote is now better placed to capture more of the potential value uplift achievable through our upcoming fracture stimulation programme which is due to commence late February/ early March."

Horizon Option

Horizon Drilling Partners, LP (`Horizon') granted Northcote's wholly owned subsidiary, Northcote USA Inc, an option to acquire an additional 10 per cent. working interest in the nine unfracked horizontal wells and surface infrastructure in Osage County for US$800,000. This option is more fully described in paragraph 13.2(e) of Part V of the Company's AIM Admission Document.

Northcote USA has now exercised this option and the parties have agreed that the consideration outstanding after pre-payments shall be satisfied as follows:

1. US$500,000 by the issue of 18,083,183 fully paid Shares in Northcote at a

price of 1.75p per Share to rank pari passu with existing Shares in issue;

and

2. US$192,500 by the issue of a promissory note on the terms set out below.

The new Shares issued to Horizon will be subject to the same lock in and orderly market arrangements as their existing Shares (until 14 January 2014) which are described in the AIM Admission Document.

WCR Royalty Option

WCR Royalties LLC (`WCR') granted Northcote's wholly owned subsidiary, Northcote USA Inc, an option to acquire an average 2.2 per cent. royalty interest in the nine unfracked horizontal wells in Osage County for US$300,000. The option is more fully described in paragraph 13.2(f) of Part V of the Company's AIM Admission Document.

Northcote USA has exercised the option and the parties have agreed that the consideration outstanding after pre-payments shall be satisfied as follows:

1. a cash payment of US$50,000;

2. US$150,000 by the issue of 5,424,955 fully paid Shares in Northcote at a

price of 1.75p per Share to rank pari passu with existing Shares in issue;

and

3. US$49,000 by the issue of a promissory note on the terms set out below.

Promissory Notes

The promissory notes are unsecured and shall mature five years from the date of delivery of the assignment of the relevant interest. Interest shall accrue at 4.5 per cent. per annum and is payable monthly. After three years, monthly payments of 2 per cent. of the original principal shall be payable. The outstanding principal and interest is payable at maturity.

Reserves and Resources

Detailed below are the net reserves attributable to Northcote's interest after the exercises of the WCR and Horizon Options:

                              Gross Reserves               Net Reserves
                                Oil &   Natural Gas         Oil &   Natural Gas
                           Condensate                  Condensate
                               (Mbbl)        (MMcf)        (Mbbl)        (MMcf)
Total Proved                    6,672        18,757           909         2,361
Total 2P                        8,472        24,124           912         2,369
Total 3P                       10,572        30,334           915         2,378

All reserve estimates have been prepared using standard engineering practices generally accepted by the petroleum industry and conform to the guidelines adopted by the Society of Petroleum Engineers.

All of the technical information, including information in relation to reserves and resources that is contained in this announcement has been reviewed internally by the Company's Technical Director, Mr. Kevin Green. Mr. Kevin Green is a Petroleum Geologist who is a suitably qualified person with over 30 years' experience in assessing hydrocarbon reserves and has reviewed the release and consents to the inclusion of the technical information.

Share Capital

Application will be made for the 23,508,138 new Shares to be admitted to trading on AIM (`Admission') in due course, details of which will be included in a further announcement. Following the issue of the new Shares, the Company's issued share capital consists of 890,412,716 Shares.

Additionally, Horizon will be the holder of 85,025,917 fully paid Shares representing approximately 9.55 per cent. of the enlarged issued share capital of the Company and WCR will be the holder of 5,424,955 fully paid Shares representing approximately 0.61% of the enlarged issued share capital of the Company.

                                   **ENDS**

For further information and the full Admission document visit www.northcoteenergy.com, see below or contact the following:

Randy Connally            Northcote Energy Ltd           +01 214 675 7579
Ross Warner               Northcote Energy Ltd           +44 7760 487 769
Dan Jorgensen             Northcote Energy Ltd           +44 (0) 20 7024 8395
Roland Cornish            Beaumont Cornish Ltd           +44 (0) 20 7628 3396
James Biddle              Beaumont Cornish Ltd           +44 (0) 20 7628 3396
Jerry Keen                Shore Capital Stockbrokers     +44 (0) 20 7408 4090
                          Limited
Bidhi Bhoma               Shore Capital Stockbrokers     +44 (0) 20 7408 4090
                          Limited
Hugo de Salis             St Brides Media and Finance    +44 (0) 20 7236 1177
                          Ltd
Elisabeth Cowell          St Brides Media and Finance    +44 (0) 20 7236 1177
                          Ltd
Notes:

Northcote Energy Ltd is a revenue generative US onshore oil and gas production company focussed on the rapidly emerging Mississippi Lime formation in Oklahoma. The Company participates with leading operators, including Midstates Petroleum and Chesapeake Energy, in low risk development plays where advanced techniques, such as horizontal drilling and fracking, are used to unlock known oil accumulations and dramatically improve recovery rates. Management is focused on increasing production through a multi-well drilling and fracking campaign in 2013.

The Horizon Project, Osage County Oklahoma

Northcote's interests in Osage County comprise working interests in 10 producing wells, of which nine are unfracked horizontal wells producing from the Mississippian formation and one is a vertical well producing from the shallower Layton formation (Burkhart #3).

The workover programme was initiated based on evaluation of wells and bottomhole pressure tests run in December 2012 in preparation for the fracture stimulation programme. As part of the evaluation of wells, it was determined that Northcote could materially increase production from wells that were not part of the planned four well fracture stimulation programme through a workover programme that consisted of, depending on the well, re-acidizing, pumping down fluid levels and in some cases installing larger submersible pumps.

Northcote intends to utilise hydraulic fracturing techniques in relation to the unfracked horizontal wells. Hydraulic fracturing (`fracking') is the primary choice for enhancing production, and typically has the effect of increasing productivity 2 to 30 times compared to an untreated well, by increasing the amount of contact that the well bore has with high quality reservoir rock.

The Company has commenced an evaluation of a number of low cost opportunities to develop other prospective formations on Northcote's existing lease portfolio and other properties. As with the successfully producing vertical Burkhart #3 well, new well opportunities are targeted based on information obtained through the on-going Mississippian programme and are undertaken only in situations where Northcote believes the well will generate compelling economics to Northcote shareholders.