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Reviewed Condensed Consolidated Interim Results for the Six Months Ended 31 August 2016

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30 Nov 2016

SacOil Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/000460/06)
JSE share code: SCL AIM share code: SAC
ISIN: ZAE000127460
(“SacOil” or “the Company” or “the Group”)

Reviewed Condensed Consolidated Interim Results for the Six Months Ended 31 August 2016

HIGHLIGHTS
• Award of crude trading agreement in Nigeria
• Successful offtake of a Nigerian crude allocation of 950 000 barrels (475 000 attributable to SacOil) in June 2016 and a second allocation of the same quantity post period
• Commencement of a thermal stimulation programme at Lagia
• Partner TOTAL E&P RDC, operator of Block III, successfully completed the acquisition of 244 km 2D seismic data on the licence area
• Increased availability of new business development opportunities
• Conclusion of a settlement agreement relating to the OPL 233 legal disputes
• Post period, commencing an in-depth review of the Lagia reservoir characterisation for overall field optimisation

Dr Thabo Kgogo, Chief Executive Officer of SacOil commented: “Notwithstanding the challenging backdrop of volatile global oil markets for the duration of the first half of this financial year, we have made positive strides towards the attainment of our key strategic priorities. Our key focus areas this period were the expansion of business development activities, optimisation of production from the Lagia Oil Field (“Lagia”), improvement in the Group’s cost structure, resolution of legacy issues, recovery of funds owed to the Group, the safe running of our operations and engagement with stakeholders on strategic issues. We are satisfied with the progress we have made in each of these initiatives with the limited resources at the Group’s disposal.

The Group has achieved yet another milestone emanating from the recent addition and integration of our crude trading business in Nigeria which generated revenue totalling R341 million. This has contributed to the significant improvement in the operational performance of the Group and the diversification of revenue streams in line with the strategy. It is expected that this segment of the business will continue to provide an additional revenue stream for the remainder of the year.

In an effort to optimise the production profile of Lagia we conducted thermal stimulation on existing wells on the field. Despite these operations, the field’s technical performance remains below expectations and the objective for the remainder of the financial year is to continue to optimise production from Lagia to match the existing oil pricing conditions and to ensure that we achieve a break-even position for the asset. Lagia is complex in nature and will require some time to unlock the real value of the asset. More details on these operations can be found in the operational review below.

Our long-term strategy remains to become a leading sustainable, profitable and independent African energy company. As such, we continue to evaluate multiple projects in our quest to acquire additional cash-generative assets to grow the business. During the period, in the ordinary course of business, we looked at a large number of potential target upstream and downstream assets in Nigeria, Egypt, Tanzania and South Africa. The evaluation of these assets is ongoing and it is expected that our plan to acquire at least one asset will be brought to fruition in the near term. The oil and gas mergers and acquisitions (“M&A”) market has seen vendors become more pragmatic about the valuation of their assets, resulting in a willingness to divest in the prevailing environment.

SacOil’s Board of directors (“BoD”) remains committed to the resolution of the outstanding litigation matters and the recovery of funds owed to the Group where realistically obtainable. We recognise that litigation inherently is a protracted and costly process, however, to date we have concluded the proceedings relating to our exit from OPL 233 in Nigeria. We agreed a settlement with Nigdel United Oil Company which has seen both parties withdraw their respective claims. This settlement removes any distraction in relation to our previous participation in OPL 233. The BoD is confident that this is in the best interest of all our stakeholders, based on the sound legal and financial advice we have received. The Group continues to pursue legal action against Transcorp and the Encha Group to recover amounts owed pursuant to the withdrawal from OPL 281 and under the terms of the written acknowledgement of debt, respectively. The estimated timeline to resolve the Transcorp litigation has been deferred, resulting in a provision for impairment of R48.1 million to account for the time value of money. The amounts owed to the Group under the acknowledgement of debt became due and payable on 29 February 2016, however, Encha has failed to uphold its obligation. Due to the lack of financial information available to the Group on the financial position of Encha, we have impaired the amount in full to satisfy accounting provisions. This does not take away from the fact that Encha has significant assets that the Group will target for the recovery of the amount as it continues to progress the legal matter. Other matters as outlined in more detail in the litigation section below remain outstanding. The BoD continues to make every effort to expedite the resolution of these outstanding matters in order to recover the amounts owed to the Group.

We continued our engagement with various stakeholders on matters of strategic importance. During June and July 2016 we undertook marketing roadshows in Johannesburg, Cape Town and London to raise the profile of the Group and to create an awareness of its investment case amongst various stakeholders.

We continue to focus on minimising the increase in the Group’s expenditure and have managed to contain a significant component of our cost base during the period. As a result of additional business development activities, the ongoing litigation and professional advisory fees relating to the Lagia thermal stimulation initiative throughout the period, we incurred an increase in business development costs, corporate expenses, legal fees and consultation costs. Our aim is to continue minimising the growth in the overall cost base without negatively impacting the strategic objectives of the Group.

As a reputable operator adhering to the highest industry standards, HSE matters continue to be of the utmost importance to us. We are pleased to report that there were no minor or major incidents during the period and the safety records at Lagia and at our other operations were well above industry standards.

Looking ahead, we are cognisant of the fact that we will need to obtain scale through the further addition of cash-generative assets in order to become a business capable of delivering sustainable, long-term growth for its shareholders. Against the backdrop of particularly challenging market conditions for the sector, we have developed a solid platform to grow the Group and continue to make good headway towards our operational and corporate objectives. We are pleased with the Public Investment Corporation’s additional investment which saw its shareholding in the Company increase from 42.17% to 68.65% in October 2016. This provides a cornerstone investor who is supportive of the Group’s growth ambitions. Whilst the interim results highlight uncertainties that exist with respect to the ability of the Group to remain a going concern, the BoD is confident that the Group has adequate cash resources to cover its activities until January 2018. The BoD will continue to pursue cash-generative assets and other sources of funding to ensure that the deficit which exists in the Group’s cash flow forecast to February 2019 is addressed. Post this period, it is our expectation that the Group will hold sufficient assets to ensure sustainable operations. It is also important to highlight that the Group has maintained its debt-free position.

We thank our stakeholders for their continued support as we continue to work towards building a sustainable business.”