Annual Financial Report

SALAMANDER ENERGY plc

ANNUAL REPORT AND ACCOUNTS

31 DECEMBER 2018

COMPANY NUMBER: 05934263

Introduction

This Strategic Report has been prepared solely to provide additional information to shareholders to assess the Company’s strategies and the potential for those strategies to succeed.

The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

The Directors, in preparing this Strategic Report, have complied with s414C of the Companies Act 2006.

This Strategic Report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Salamander Energy plc and its subsidiary undertakings when viewed as a whole.

The Strategic Report discussed the following areas:

Review of the business is discussed in the following sections:

•  Operational review
•  Financial review

Operational review

Highlights

Our 2018 operational activities included phase 4 on the Bualuang oil field which is split into two parts in effect work relating to 2018 and 2019, which we refer to respectively as Phase 4A and Phase 4B. The Kerendan field has continued to produce steadily in line with expectations at an average daily rate in 2018 of 16.8 MMscfd (gross). We have started to see the beginning of the natural reservoir decline, with the majority of production now coming from two of the four wells. On the 6 September 2018 we completed the acquisition of a package of Southeastern Asian assets from Santos. This consisted of three producing assets (i) a 31.875% working interest in the Block 12W PSC in Vietnam (ii) a 45% operated interest in the Sampang PSC in Indonesia and (iii) a 67.5% operated interest in the Madura Offshore PSC in Indonesia for a total cash consideration of $148.7 million.

Our production base averaged 17,100 boepd. This delivered revenues of $298 million, net of hedging (excluding Sinphuhorm which is equity accounted), up $109 million or 58% on 2017 and included the first full year of production and cash flow contribution from the Kerendan field.

Looking to 2019 our focus going forward is to build a strong, cash generative production base which will serve as a platform to support both further growth. The addition of the new production assets in Vietnam and Indonesia was a first step in this direction.

Bualuang, Thailand (26.8 MMbo 2P, 10.3 MMbo net 2C)

Production at the Bualuang oil field averaged 8,100 boepd across the year, which was supported by stable production with uptime of approximately 98%. The objective of Phase 4A was to boost production from the existing facilities and comprised drilling three new producing wells and four workovers, plus some preparatory project work ahead of Phase 4B, as well as the drilling of an exploration well testing a near-field prospect, B8/38-11, which was unsuccessful.

The drilling campaign commenced six weeks later than envisaged due to a combination of poor weather and the late arrival of the rig. Once the rig was on location the team did a first class job executing the campaign and completed it safely, 38 days faster than planned and approximately 20% under budget.

Phase 4B will see a new, 12 slot, conductor-supported platform, called the Charlie platform, installed at the Bualuang field. We will also increase the water disposal capacity from 75,000 barrels per day to 100,000 barrels per day; this extra fluid-handling capacity will help with recovery.

The platform is currently under construction in the Naval Shipyard at Sattahip by BJC Heavy Industry and is expected to be lowered into place in June to facilitate the start of drilling in July 2019. During the shutdown for installation, we will take the opportunity to make repairs and upgrades to Alpha and Bravo platform equipment. First oil from the Charlie platform is expected in October 2019 and, on completion of the Phase 4 programme, field production is expected to peak at 14,000 bopd.

Kerendan, Indonesia (14.3 MMboe 2P, 80.6 MMboe net 2C)

The Kerendan field has continued to produce steadily in line with expectations at an average daily rate in 2018 of

16.8 MMscfd (gross). We have started to see the beginning of the natural reservoir decline, with the majority of production now coming from two of the four wells. We are planning stimulation through acid fracture work in June 2019, which we hope will restore the productivity of the existing K4 and K6 wells.

Interpretation is well underway on the 3D seismic that was completed at the end of 2017. This has helped to better define the reservoir distribution and together with the latest audit by ERCE indicates that the contingent resources in the field have increased from 457 Bcf (gross) to 583 Bcf. Our internal view is that we have up to 1.9 Tcf of gas in place across the whole Kerendan structure, all connected.

However, to sell any more gas, we need to have the reserves certified by LAPI ITB, an approved Indonesian government body. They are currently completing their work, but we have no reason to believe their opinion will materially differ from our internal view.

Even taking into account that the PSC will expire in 2033, it is clear that there is material potential resource at Kerendan. The challenge is finding new routes to commercialisation, and then finding an engineering solution to satisfy the commercial solution. Our new team in Indonesia is working on this and we believe we have significantly strengthened our expertise in this area post the integration of the former Santos team.

Sinphuhorm, Thailand (5.7 MMboe 2P, 3.4 MMboe net 2C)

Operated by PTTEP, production from the Sinphuhorm field averaged 79 MMscfd (gross). This was in line with budget and approximately flat year on year. The trend for lower nominations from the Electricity Generating Authority of Thailand (EGAT) that we saw at the end of 2017 continued in the first quarter of 2018 before demand recovered to more than 100 MMscfd for most of the rest of the year.

Whilst encouraged by the stronger demand witnessed for large parts of 2018, we expect there to remain a certain degree of volatility in the nominations for EGAT during 2019.

Madura Offshore and Sampang, Indonesia (12.9 MMboe 2P)

As part of the Santos package, we acquired these gas assets in East Java.

Madura Offshore contains stable production from the Maleo and Peluang fields, and the group has a 67.5% operated interest in the PSC.

Maleo has been producing since 2006 and is past the plateau, in the decline phase. Its output is sold to PGN and PLN through the East Java pipeline. Production was 57% above budget in 2018, partly due to higher gas demand but also due to better reservoir performance, so we see some potential upside. Peluang started producing in 2014 and is on plateau production at the moment. It has also over-produced, at 15% above its budget, mainly due to higher gas demand.

We have also decided to invest in the Meliwis field, discovered in 2016, 11 kilometres south of the Maleo field. The Meliwis development is planned as a single well well-head platform tie-back to Maleo, and would extend the economic field life of the Maleo and Peluang fields. Final investment sign off by the joint venture was achieved in February with the signing of a gas sales agreement. Our share of the PSC is 77.5%, the local partner having declined to participate in the drilling of the successful exploration well.

Madura Offshore and Sampang (Continued)

In Sampang, the Oyong field was found back in 2001 and Wortel five years later. They were put on production in 2007 and 2012 respectively. Oyong is producing gas, Wortel is producing gas and condensate. All production is piped onshore to the processing site at Grati. Together, the Oyong and Wortel fields produced at 33% above budget during 2018, primarily due to higher than forecast gas demand. We will be looking at revising our subsurface models next year, with a view to adding other gas reservoirs.

We also drilled a successful gas exploration well at Paus Biru-1, 27 km east of Oyong, noted in the exploration commentary below, and will be looking to achieve reserves certification in 2019 as a step towards FID. We believe pressure-lowering projects at the Grati processing plant will create further economic value from the fields through extending production life in Oyong and Wortel.

In Sampang there is potential upside from two undeveloped discoveries already on the block. We also see substantial exploration upside within both Sampang and Madura Offshore blocks – however accessing this upside would require PSC extensions as both blocks currently expire in 2027.

Chim Sao/Dua field, 12W PSC, Vietnam (10.5 MMboe net 2P)

Part of the Santos acquisition, the Chim Sao and Dua oil fields in Vietnam are operated by Premier Oil. Chim Sao, the main field, has consistently produced over budget in the past few years and continued this trend in 2018 – outperforming budget by 18%.

In the initial development plan, these fields were expected to produce until around 2020. However, due to the continued outperformance, the fields are now expected to produce out until 2030. Premier has begun a field-life extension assessment of all the facilities, most critically the well head platform and main field flow lines which had 10-year design lives (in line with the original development plan). By 2020 the necessary modifications will have been completed.

In 2019 the operator is planning to conduct a series of well interventions that will help offset the natural reservoir decline rates. Ophir is currently building its own field reservoir model and plans to work with the operator in 2019 to determine the optimum way to create value from these fields in the coming years.

Please click on the attached PDF to view the full announcement.

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.