Niche Group (The)

Embargoed: 0700hrs, 6 December 2011

The Niche Group (Berlin: NZG.BEnews) plc

(“Niche” or the “Company”)

Preliminary Results for the Twelve Months Ended 30 June 2011

Niche, the AIM listed investment company with interests in gas exploration and development activities onshore Turkey, announces preliminary results for the twelve months ended 30 June 2011.

Chairman’s Statement

I am pleased to provide my first Chairman’s Statement to accompany our annual report for the year to 30 June 2011. Substantial progress has been made on two fronts:

· Corporate: to further develop, fund and implement our investment strategy; and

· Operational: the progress of our investee companies to develop and monetise assets.

Corporate Development

Funding mp; Investments

Niche Group’s strategy is to invest in the natural resources sector. Since our initial convertible loan to Oman Resources in 2010, we have focused on the Turkish energy market which the board considers represents a significant opportunity for value creation, both through the near-term implementation of gas production and the upside offered by further exploration activity. This strategy has been well supported by the investment community and Niche Group has raised gross funds of £26,317,212 during the period under review. Such funding enabled Niche Group, during the period, to:

i. lend a further £13,660,000 to Oman Resources to fund additional farm-ins, drilling and infrastructure programmes, thereby increasing the convertible loans to Oman Resources to £18,610,000 which would convert, either at Niche Group’s option or automatically on the occurrence of certain specified events, into 35.7% of Oman Resources, and if the loans are not repaid by the due date being 30 December 2011, Niche Group, by exercising its security (as described in the Directors’ Report), would end up owning 100% of Oman Resources; and

ii. acquire a 5% interest in Arar Petrol ve Gaz AUPAS for £8,000,000

With the benefit of substantial asset development since Niche Group’s initial convertible loan, Oman Resources has seen its asset base of best estimate gross recoverable Reserves, Contingent and Prospective Resources increase significantly, as detailed in their Competent Person’s Report, (issued October 2011).

At the same time as Niche Group’s most recent convertible loan to Oman Resources, the Company acquired a 5% stake in Arar Petrol ve Gaz AUPAS (“Arar”). Founded in 2002, Arar has grown to become the second largest petroleum licence holder in Turkey with 21 exploration licences, including the Konya and Hatay Blocks, in which Oman Resources has a 50% interest. Arar’s acreage offers a combination of low risk development opportunities and frontier exploration. It has drilled over 50 wells over the past decade and is a fully integrated oil and gas company with staff and equipment for in-house seismic and interpretation, logging and drilling. Fatih Alpay, the founder of Arar, has more than 26 years of drilling experience as an independent contractor for international oil companies in Turkey and internationally.

I am pleased to welcome Mr Alpay as a significant shareholder in Niche Group following his personal acquisition, in April 2011, of 14,285,700 Niche Group shares equivalent to approximately 2.1% of the Company.

Board Changes

Shortly after joining in November (Stuttgart: A0Z24Enews) 2011, as a non-executive director, the board asked me to lead the Company as its Executive Chairman. The board would like to place on record its thanks to Nigel Little, who stepped down from the board due to ill health, for his significant contribution to the development of Niche Group to date.

The board was pleased to appoint Chris Weafer in September 2011 as Non-executive Director. Chris is an expert in the upstream oil and gas industry and continues his thirty year career as a top-ranking strategist and investment analyst. We will look to make further strategic board appointments when appropriate.

Financial Results

As an investing company, Niche Group has no revenues. The Company recorded a loss for the year of £774,438 (2010: £895,201). This loss includes £208,764 (2010: £40,522) in respect of share based payments. The Company had cash at bank at 30 June 2011 of £1.87million.

As Niche Group has loaned significant sums of money to Oman Resources, I consider it appropriate for me to expand on the corporate activities of Oman Resources.

Oman Resources Operational Development

Licence portfolio

Oman Resources significantly expanded its licence interests in onshore Turkey by farming in for a 50% interest in a further three blocks in the Hatay region, operated by Arar (the “Operator”). The Hatay Blocks, numbered AR/ARR/4396, AR/ARR/4395 and AR/ARR/4394 are situated in the Iskenderun Basin, close to the Eastern Mediterranean Sea. The blocks offer the potential for near term gas production from shallow accumulations, as well as larger, deeper potential. This increases Oman Resources’ licence portfolio to four blocks in which it holds a 50% interest.

Seismic acquisition and interpretation

The Operator completed a 226 line-km 2D seismic acquisition programme over the southern portion of the Konya Block 4077, funded by Oman Resources. The data were sent for processing in Ankara and Houston. The new data confirms the presence of a large structural high with multiple fault closures in the western part of the block, and improves our understanding of the overall prospectivity of Block 4077. In addition, a number of potential leads have been identified in the eastern portion of the block.

The new seismic, combined with existing seismic data for Block 4077, was incorporated with the first Competent Persons Report (“CPR”) in July 2011 and updated in October 2011.

Resources Update

The latest independent evaluation of the recoverable hydrocarbons across Oman Resources’ assets in Turkey – the CPR – was carried out by Senergy (GB) Ltd. The CPR showed:

· Best estimate Reserves on Hatay Block 4396 of 46.5 Bcf gas recoverable net to Oman Resources following Senergy’s upgrade of Prospective Resources to Reserves

· Best estimate Prospective Resources across Hatay Blocks 4395 mp; 4394 of 63.4 Bcf gas recoverable net to Oman Resources

· Best estimate combined Reserves + Resources (Euronext: ERS.NXnews) across the Hatay Blocks of 109.9 Bcf gas recoverable net to Oman Resources

· Best estimate Reserves, Contingent and Prospective Resources across Oman Resources’ whole portfolio of 259.4 Bcf gas recoverable net to Oman Resources (previously 162 Bcf, July 2011)

· Best estimate NPV10 attributable Reserves, un-risked Contingent Resources and Prospective Resources across Oman Resources’ whole portfolio of US$583.4 million net to Oman Resources

A full summary of the current recoverable Reserves and Prospective Resources in the Hatay licences and the Contingent Resources in the Konya licence can be found in the Company’s announcement to the market made on 27 October 2011 which can be found on the Company’s website at www.nichegroupplc.co.uk/investor-relations/announcments.aspx.

Konya Block 4077

The most significant developments on this block relate to the Gulhanim-2 well (G-2). This well encountered three separate hydrocarbon-bearing zones. Gas and gas condensate discoveries, previously announced, were made at Shallow (post-salt) and Intermediate (pre-salt) depths. A third, Deeper (pre-salt), pay zone encountered a 38m gross interval of porous and permeable carbonates. A combination of oil and gas was encountered in each of the pay zones of the deeper discovery. The Deeper zone encountered gas and gas condensate/oil at each of the three intervals, indicating the potential for near-term production of gas and oil from the well, initially from the Deeper zone, in carbonates of the Caldag Formation. Fluid samples of the oil were tested on site and were confirmed to be a light gravity crude oil – ranging from 37 to approximately 55 degrees API (Munich: A0J2Q1news) .

The Operator cleaned the well and stabilised the well pressure to prepare for production testing from the Caldag pay zone and we look forward to progress reports.

Operations continue at the G-1 well. The well was temporarily plugged back to 1300m, and two shallow sand intervals were perforated (1124-11130m mp; 1277-1283 m). Acid stimulation is planned before testing the two intervals. It is recalled that equivalent sands in the G-2 well had very good gas shows.

Hatay Blocks

Block 4396

Block 4396 contains the Hamam-1 well, the first well on Oman Resources’ assets to produce gas to an onsite compressed natural gas bottling plant, selling to local gas markets at present in small volumes. The Operator has submitted its application for construction of the 30km pipeline tie-in to the main existing network. BOTAS pipeline pricing for natural gas was US$8.5/mcf. The Hamam-1 well tested earlier this year with a stabilised flow rate of 3.5mmcf/gas per day.

A new appraisal well, Ciftlik-1, has recently been spudded to test potential shallow gas accumulations northwest of Hamam-1.

Work-over operations are planned for two older wells, Yesiltepe-1 mp; -2.

Block 4395

The Operator spudded the Kastal-1 Exploration Well to test the first of two prospects identified in Block 4395, targeting the Miocene sandstones of the Kizildere Fm. Kastal-1 was temporarily suspended because of drilling problems. Work-over operations are planned for two older wells (Gozlugol-1 and Gokdere-5).

Block 4394

Workover operations are planned for the Cumalar-1 well.

Outlook

The board is firmly of the opinion that the Turkish oil and gas sector represents a substantial opportunity for value creation, as illustrated in the latest determinations of the CPR. The Company is uniquely positioned, through its relationship with one of Turkey’s most established petroleum licence holders/operators, to gain access to this opportunity and has made great progress in establishing a foothold. I have, since joining the board, been in discussions with Oman Resources with a view to maximising the value represented to Niche Group shareholders from its convertible loans in Oman Resources and I look forward to updating shareholders regarding this at the appropriate time.

Stuart Thomas

Executive Chairman

5 December 2011

Enquiries:

The Niche Group plc

Rakesh Patel

Tel. +44 (0)20 8371 3071

Daniel Stewart mp; Co. Plc – Nominated Advisor and Joint Broker

Oliver Rigby / David Hart

Tel. +44 (0)20 7776 6550

Canaccord Genuity – Joint Broker

Charles Berkeley / Henry Fitzgerald-O’Connor

Tel: +44 (0) 20 7050 6500

M: Communications

Ben Simons

Tel. +44 (0)20 7920 2340

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011




Year ended

30 June

Year ended

30 June




2011

2010









£

£



Administrative expenses



(833,792)

(205,113)

Share based payments



(208,764)

(40,522)




Operating loss



(1,042,556)

(245,635)






Gain / (loss) on disposal of available for sale investment

24,696

(324,557)

Transfer to income statement of fair value reserve relating to impaired assets



(18,877)

(19,318)

Costs relating to aborted acquisition



(202,480)

Finance income



262,299

17,100

Finance costs



(120,311)




Loss on ordinary activities before taxation



(774,438)

(895,201)






Tax on loss on ordinary activities






Loss for the year



(774,438)

(895,201)











Fair value adjustment on available for sale investments



54,600

(3,682)






Total (Other OTC: TTFNF.PKnews) comprehensive loss for the year



(719,838)

(898,883)









Loss per share (pence)





– Basic mp; diluted



(0.19)

(0.50)




STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2011







Share Capital

Share Premium

Share
based payments reserve

Fair value reserves

Retained earnings

Total









£

£

£

£

£

£














As at 1 July 2009

1,029,515

110,026

(41,113)

(992,427)

106,001

Total comprehensive loss for the year

(3,682)

(895,201)

(898,883)

Transfer to income statement of fair value reserve relating to impaired assets

19,318

19,318

Share based payment

40,522

40,522

Issue of share capital

1,804,432

4,348,000

6,152,432

Costs associated with issue of shares

(320,411)

(320,411)

As at 1 July 2010

Total comprehensive gain / (loss) for the year

2,833,947

4,137,615

40,522

(25,477)

54,600

(1,887,628)

(774,438)

5,098,979

(719,838)

Transfer to income statement of fair value reserve relating to impaired assets

18,877

18,877

Share based payment

208,764

208,764

Issue of share capital

4,081,558

22,235,652

26,317,210

Costs associated with issue of shares

(2,243,934)

(2,243,934)

As at 30 June 2011

6,915,505

24,129,333

249,286

48,000

(2,662,066)

28,680,058


STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011




As at

30 June

2011

As at

30 June

2010









£

£






ASSETS





Non-current assets





Investments – available for sale



8,063,001

20,727

Financial assets – loans and receivables



4,950,000







8,063,001

4,970,727

Current assets





Financial assets – loans and receivables

Trade and other receivables



18,610,000

294,976

23,687

Cash and cash equivalents



1,877,713

270,129







20,782,689

293,816

LIABILITIES





Current liabilities





Trade and other payables



(165,632)

(165,564)









Net Current Assets



20,617,057

128,252









NET ASSETS



28,680,058

5,098,979




SHAREHOLDERS’ EQUITY





Called up share capital



6,915,505

2,833,947

Share premium account



24,129,333

4,137,615

Fair value reserves



48,000

(25,477)

Share based payments reserve



249,286

40,522

Retained earnings



(2,662,066)

(1,887,628)




TOTAL EQUITY



28,680,058

5,098,979




The financial statements were approved by the board of directors and authorised for issue on 5 December 2011 and signed on its behalf by:

R Patel

Director

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2011



Year ended 30 June

2011

Year ended

30 June

2010







£

£





Cash flows from operating activities




Cash expended from operations


(842,716)

(79,443)



Net (Frankfurt: A0Z22Enews) cash outflow from operating activities


(842,716)

(79,443)







Cash flows from investing activities




Available for sale financial assets acquired


(8,000,000)

Loans mp; receivables financial assets acquired


(13,660,000)

(4,950,000)

Proceeds from sale of available for sale investments


37,022

188,000

Costs relating to aborted acquisition


(202,480)



Net cash used in investing activities


(21,622,978)

(4,964,480)






Cash flows from financing activities




Proceeds from issue of ordinary shares


26,317,212

5,537,951

Proceeds from loans


31,613

Costs of issue of shares


(2,243,934)

(320,411)



Net cash inflow from financing activities


24,073,278

5,249,153







Net increase in cash and cash equivalents


1,607,584

205,230

Cash, cash equivalents at the beginning of year


270,129

64,899



Cash and cash equivalent at end of year


1,877,713

270,129







Basis of preparation

The principal activity of the Company is the investment in gas exploration, development and production companies, initially in Turkey.

The financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (‘IFRS’) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared under the historical cost convention or fair value where appropriate. The significant accounting policies adopted are described below.

The carrying value of both the convertible loans to Oman Resources amounting to £18,610,000 and the Company’s 5% investment in ARAR of £8,000,000 are included at fair value, which the Directors consider not to be impaired.

The Directors have reached this conclusion based upon the latest CPR which provided a potential Net Present Value of US$583.4M (£365m) net to each of Oman Resources and ARAR, which consists of $140.9M net attributable reserves (Proved and Probable), $135.3M net Un-risked Contingent resources and $307.2M Un-risked Contingent resources, in respect of the exploration licences in which Oman Resources has a participating interest with ARAR. The loans are currently convertible at the Company’s option into 35.7% of Oman Resources which equates to a potential Net Present Value share of £130m. Using the same rationale, the 5% direct interest in ARAR has a potential Net Present Value share of £18.25m.

The principal risk associated with the loans is that Oman Resources is not able to repay the loan on the repayment date. The conversion option mitigates the risk of Oman Resources being unable to repay the loan. If the loan is not repaid or converted by 30 December 2011, then Niche would exercise its security and take control of Oman Resources and continue to participate in the arrangements with ARAR, except that Niche Group which currently has conversion rights to an interest in 35.7% in Oman Resources would own with 100% of Oman Resources which has a 50% interest in the Konya and Hatay block licences.

We note that following uncertainties exist in respect of the carrying value of the convertible loans to Oman Resources and the Company’s investment in ARAR:

· the Company will be unable to realise the carrying value of its investment in ARAR or in Oman Resources, (if under the terms of the convertible loans, it assumes full control of Oman Resources);

· that Oman Resources and ARAR are unsuccessful in discovering and developing oil and gas reserves;

· the Company, together with ARAR, are unable to develop such reserves, due to insufficient funds or other factor that could affect development to commercial production.

The Directors have utilised the CPR as a basis for forming an opinion on carrying values, although it is noted that this report includes key assumptions, risk and uncertainties. These include:

· the ability of Oman Resources and ARAR to fund the significant capital expenditure requirement;

· the underlying uncertainties that exist within the oil and gas industry;

· an estimate of resources that was based on data provided by ARAR;

· the ability of ARAR to successfully discover and develop the reserves identified;

· the possibility of dilution of attributable Net Present Value should funds be raised from third parties.

INVESTMENTS – AVAILABLE FOR SALE

The fair value of listed investments is based on their current bid prices in an active market. Unlisted investments are recorded at cost less impairment. Unlisted investments are instruments that do not have a quoted market price in an active market and their fair value cannot be measured reliably. The range of reasonable fair value estimates is significantly wide and the probabilities of the various estimates cannot be reasonably assessed as they relate to the underlying gas reserves in blocks which are currently being explored by a third party company.

At the balance sheet date, £18,877 (2010: £19,318) of losses had been transferred from equity into the income statement.

During the year, the Company acquired a 5% interest in Arar Petrol ve Gaz AUPAS (“ARAR” or the “Operator”), a petroleum exploration company in Turkey, for a consideration of £8,000,000.

FINANCIAL ASSETS – LOANS AND RECEIVABLES

During the year, the Company entered into a succession of convertible loan agreements (the “Loans”) and provided £13,660,000 of financing to Oman Resources, over a period of 9 months. The convertible loans are repayable on 30th December 2011 unless converted into ordinary shares in Oman Resources equivalent to 35.7% of its current issued share capital. Where either (a) Oman Resources completes a fundraising of US$10m or more by way of issue of shares or (b) Oman Resources’ shares are listed on AIM or on a recognised investment exchange or (c) Oman Resources is acquired and such acquisition constitutes a reverse takeover for the purposes of the AIM Rules, then the loans will automatically convert into ordinary shares in Oman Resources. Otherwise, the conversion is at the sole option and discretion of the Company and can be made at any time up to the repayment date (though all loans must be converted at the same time). The loans bear interest at three per cent per annum compounded each month until the repayment date.

The convertible loans are secured by: (a) Oman Resources’ assignment by way of security to the Company of Oman Resources’ contractual rights under the Joint Operating Agreement and the Farm In Agreement; (b) a charge over all the shares held in Oman Resources by Sorbus Holdings S.A.; (c) a charge over all the shares held in Oman Resources by Ghana Oil mp; Gas Limited; and (d) a charge over any shares held by Oman Resources in SFA Grup Petrol ve Gaz Anonim Sirketi if Oman Resources exercises its option to acquire such shares in accordance with the Farm In Agreement.

The risks associated with the recoverability of the convertible loans are included under Principal Risks and Uncertainties in the Directors’ Report, in the Accounting policies – Sources of estimation uncertainty and in the basis of preparation note.

Annual Report mp; Accounts

The annual report and accounts, together with a notice of the Annual General Meeting and proxy form, have been posted to shareholders. The annual report and accounts will be available for shareholders and members of the public at the Company’s Registered Office, Aston House, Cornwall Avenue, London N3 1LF or on the Investor Relations Section of the Company’s website at www.nichegroupplc.co.uk

Leave a Reply