12 July 2018

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Cluff Natural Resources PLC Cluff is a UK-focused oil and gas investing company with a core asset base in the

Southern North Sea (SNS). With a strategic focus on gas in particular, the company

has established an exciting programme to drill up to three exploration wells in 2019

targeting combined estimated P50 prospective gas resources of over 1.3 TCF. Cluff

augmented its North Sea acreage position significantly in May 2018 with the

provisional award of licences covering ten full and part oil and gas blocks as part of

the UK’s 30th Offshore Licensing Round.

Cluff’s core existing asset base is represented by 100% interests in licences P2248 and

P2252 in the UK SNS. These large blocks, covering 1,525 km2, were awarded to the

company in the 28th Offshore Licensing Round and are estimated to contain prospective gas

resources of between 1.2 TCF to 11 TCF with a P50 estimate of 3.9 TCF across all prospects

in the enlarged SNS portfolio.

Licence P2248 contains several large prospects on trend with existing discoveries and

producing fields in the immediate area. In particular, the Cadence prospect is believed to be

represented by multiple stacked reservoirs which could be targeted by a single exploration

well. Cadence has been ascribed a P50 prospective resource of 929 BCF of gas and a 26%

geological chance of success (GCoS). At present, it is the company’s intention to drill an

exploration well in Q3 2019.

This licence also contains three Bunter sandstone prospects; Bassett, Bathurst and Beckett

with a combined estimated P50 prospective resource of 806 BCF of gas. Exploration wells

in this area are expected to be comparatively inexpensive at less than £9m given the

shallow target depths and a single well with an attractive GCoS of 37% is planned to target

a P50 prospective resource of 128 BCF of gas on the Basset structure in Q2 2019.

Success with a well on Bassett is likely to de-risk the larger Bathurst and Beckett prospects

to a significant degree accelerating the potential for further drilling activity after 2019. The

block also benefits from close proximity to infrastructure and pipelines which have the

potential to reduce future development costs to an appreciable degree.

Licence P2252 also contains several large prospects and Cluff has outlined plans to drill the

Pensacola prospect with estimated prospective gas resources of at least 270 BCF and a

GCoS of 20% with an exploration well in Q4 2019.

In May 2018, Cluff was provisionally awarded licences by the UK OGA covering ten full and

part blocks as part of the 30th Offshore Licensing Round. Three of these blocks are located

in the Central North Sea (CNS) region north of the SNS and include oil prospects further

diversifying the portfolio. However, the licences located in Cluff’s core SNS region are of

particular interest to the company.

The seven new blocks in the SNS contain a portfolio of leads and prospects with estimated

prospective gas resources of nearly 1.9 TCF. Further work is required to reprocess 2D and

3D seismic data and undertake sub-surface studies on these potential targets. However,

Cluff has already highlighted several potentially exciting structures, including Burbank (est.

200 BCF), Cortez South (est. 331 BCF) and the large Cupertino lead (est. 820 BCF), which

merit further exploration activity over the longer term.

Cluff recently secured a six-month extension of the licence terms relating to P2248

and P2252 until 30 November 2018 to enable the company to continue its efforts to

secure farm-out partners or strategic investors to fund exploration drilling in 2019.

With 100% equity interests in both assets, Cluff possesses maximum flexibility to

introduce new partners and with our conservatively risked indicative valuation of at

least £127m for the company’s three high-graded targets alone, we remain confident

that the company can attract farm-in partners or alternative financing ahead of a ‘drill

or drop’ decision for each licence by 30 September 2018.

Stock Data

Share Price: 2.1p

Market Cap.: £11.3m

Shares in issue: 538.2m

Company Profile

Sector: Oil & Gas

Ticker: CLNR

Exchange: AIM

Activities

Cluff is an oil and gas investing company

with a primary focus on gas exploration

opportunities the UK Southern North Sea

(SNS). The company recently expanded its

asset portfolio with the provisional award

of ten full and part oil and gas blocks

located in the SNS and the Central North

Sea region.

Share price performance

Source: LSE

Turner Pope contact details

Turner Pope Investments (TPI) Ltd

6th Floor

Becket House

36 Old Jewry

London

EC2R 8DD

Tel: 0203 621 4120

Email: info@turnerpope.com

Web: www.turnerpope.com

Disclaimer and risk warnings

Attention is drawn to the disclaimers

and risk warnings at the end of this

document.

This is a non-independent marketing

communication. The analyst who has

prepared this report is aware that TPI has a

relationship with the company covered in

this report. Accordingly, it has not been

prepared in accordance with legal

requirements designed to promote the

independence of investment research and

is not subject to any prohibition on dealing

ahead of the dissemination of investment

research.

TPI has acted as a placing agent for Cluff

Natural Resources PLC.

Retail clients (as defined by the rules of

the FCA) must not rely on this document.

Barney Gray Research Analyst

Tel: 0203 621 4120 barney@turnerpope.com

12 July 2018

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Core asset base – the UK Southern North Sea Cluff Natural Resources (Cluff) is an oil and gas investing company with a focus on exciting low cost, high-

impact gas exploration assets in the UK Southern and Central North Sea. The company’s management team,

with Algy Cluff in the key role of Chairman, possesses deep and wide ranging experience within the natural

resources sector and the North Sea in particular (see Appendix 1 for detailed management biographies).

Cluff’s core asset base is situated in the UK Southern North Sea (SNS). The company possesses 1,974 km2 of

gross area under licence, representing the largest acreage position in the SNS Carboniferous hydrocarbon

fairway. This extensive portfolio comprises 11 blocks of which all but two are 100% owned and operated by

Cluff. This provides the company with maximum operational flexibility to expedite potential farm-out deals

with third parties. The acreage position, which is outlined in greater detail on the map below, contains at

least 26 independently verified leads and prospects with potential resource upside in excess of 4.3 TCF.

Key areas of operation

Source: Company

12 July 2018

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SNS - 28th Offshore Licencing Round assets

Cluff’s core SNS asset base comprises two major assets awarded to the company by the UK Oil and Gas

Authority (OGA) in the UK’s 28th Offshore Licencing Round in November 2014. These licences which are

100% owned by Cluff are P2248 and P2252.

Licence P2248 contains the large Cadence group of prospects, which are estimated to contain unrisked P50

prospective gas resources of 929 BCF over three stacked reservoirs. In addition, the ‘Bunter’ group of

prospects, namely Bassett, Bathurst and Beckett are estimated to contain aggregate P50 gas resources of 806

BCF within all three prospects. The Bunter prospects in particular are located in a proven gas fairway and

given the relatively target water depths, exploration drilling costs are expected to be low in the order of £8m-

£9m for an exploration well.

Licence P2248 - Net prospective resources (BCF) (Cluff: 100%)

Project ID Status Low Mid High Mean Risk factor

P90 P50 P10

Cadence Scremerston Prospect 59 165 410 206 26%

Cadence Fell Sandstone Prospect 111 604 2,175 923 16%

Cadence Camden Prospect 58 160 405 204 26%

Bassett Prospect 36 128 303 153 37%

Bathurst Prospect 119 275 571 317 18%

Beckett Prospect 97 403 892 460 22%

Total 480 1,735 4,756 2,263

Source: Company

Licence P2252 is also highly prospective with the sizable Pensacola target estimated to contain P50

prospective gas resources of 424 BCF over two intervals. This is complemented by the smaller Lytham and

Fairhaven prospects which are estimated to contain a further 212 BCF of gas combined.

Licence P2252 - Net prospective resources (BCF) (Cluff: 100%)

Project ID Status Low Mid High Mean Risk factor

P90 P50 P10

Lytham Permian Prospect 52 123 244 137 49%

Lytham Carboniferous Prospect 12 44 149 68 30%

Fairhaven Prospect 18 45 98 53 43%

Pensacola Fringing Reef Prospect 113 270 650 338 20%

Pensacola Lagoon fill Prospect 67 154 347 186 16%

Total 262 636 1,488 782

Source: Company

Continuation of the core licences

On 31 May 2018, the UK OGA waived its requirement for Cluff to complete a farm-out on P2248 and P2252

by the end of May 2018. The OGA has now extended the Promote Period and the Initial Term of each licence

for six months until 30 November 2018 subject to a ‘drill or drop’ decision being made by 30 September 2018.

This move will enable Cluff to continue the farm-out process while also enabling the company to explore

other forms of financing to support future drilling activities on these licences.

12 July 2018

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SNS - 30th Offshore Licencing Round assets

In May 2018, Cluff was provisionally awarded a portfolio of licences covering 10 full and part oil and gas

blocks as part of the OGA’s 30th Offshore Licensing Round. With the exception of two blocks where Cluff has

been awarded 25% interests with Parkmead Group plc as the operator of both, all the blocks were awarded to

Cluff on a 100% basis.

Blocks awarded in 30th Offshore Licencing Round

Southern North Sea Block Equity Notes

42/14 100%

42/15b 100%

43/7 100%

43/8 100%

48/8b 100%

47/10d 25% Parkmead is operator

48/6d 25% Parkmead is operator

Central North Sea Block Equity Notes

22/19f 100%

22/24f 100% Part block

22/25c 100% Part block

Source: Company

Focus on the SNS

The company believes that the 30th Round portfolio is highly prospective, containing a large number of

undeveloped discoveries, prospects and leads. The table below outlines the prospectivity in the SNS blocks

alone. In addition to two modest discoveries in Furasta and Sloop, the portfolio contains two sizable prospects

in the form of Burbank and Selene and a range of large leads located in the Carboniferous and Permian

intervals.

Lead and prospect portfolio on the SNS licences awarded in the 30th Round licences

Block Key prospect ID Age Status Net Prospective Resources GCoS

P90 P50 P10

42/14 & 42/15b Furasta Triassic Discovery 7.2 17.6 29.6 100%

Burbank Triassic Prospect 70 200 567 32%

Cortez Carboniferous Lead 24 107 433 29%

Cortez South Carboniferous Lead 129 331 732 28%

43/7 & 43/8 Cupertino Scremerston Carboniferous Lead 69 262 914 21%

Cupertino Fell Sandstone Carboniferous Lead 147 558 2,090 19%

48/8b Sloop Permian Discovery 7 18 38 100%

Selene Permian Prospect 191 253 328 38%

Endymion Permian Lead 36 48 62 27%

Rig & Jib Permian Lead 11 29 58 35%

47/10d & 48/6d Bob (Teviot) Permian Discovery 2.8 5.5 10.3 100%

Blackadder Permian Prospect 17.8 28.3 42.5 45%

Total

712 1,857 5,304

Source: Company

12 July 2018

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Upside in the Central North Sea

The part blocks 22/24f and 22/25c in the CNS are located in a comparatively under explored area although

they are adjacent to the large Marnock-Skua field. These blocks contain the Tesla discovery in the Pentland

Formation in addition to the low risk Dewar prospect in the Forties Sandstone.

Block 22-19f is also believed to contain multi-level oil prospectivity in the proven Fulmar, Skagerrak and

Rotliegend formations and previous operators have identified a significant number of additional leads and

prospects which require further assessment by the company.

Cluff’s strategy Cluff has built a large portfolio of exploration and appraisal assets focused predominantly on the SNS. The

group’s strategy is to leverage several factors including an urgent strategic requirement for significant

exploration activity in the UKCS, historically low drilling costs, strong gas prices and a very attractive

supply/demand imbalance in the UK.

The company has acquired its acreage in relatively shallow water adjacent to existing discoveries and existing

or proposed gas distribution infrastructure in order to minimise future potential development costs. The

company is also seeking to gain maximum exposure at the exploration and appraisal phase, ideally through

utilising the flexibility that 100% ownership of most of the company’s assets provides. As such, Cluff is

actively seeking to attract funding or operating partner ships through farm-in opportunities in order to

advance the development of its core assets.

Value realisation

Cluff states that it is the company’s core strategy to realise value for shareholders through the disposal of

assets to established producers prior to the development phase. Subsequently realised capital can then be

used to fund future exploration or be distributed to shareholders.

In Cluff’s case, the company intends to expedite its current strategy by seeking farm-in opportunities for its

28th Licensing Round assets in order to launch an exploration drilling programme in 2019. Simultaneously,

work to de-risk the company’s 30th Licensing Round portfolio is continuing and Cluff intends to acquire

further seismic data in 2018/19 with a view to exploration drilling in the following years.

Extending the horizons further, Cluff also intends to participate in the 32nd Licencing Round during

2019/2020 by applying for additional acreage and if successful, propagate the company’s strategy further by

conducting seismic activity with a view to further exploration drilling.

A repeatable strategy

We believe that Cluff has built a self-propagating business model. Should Cluff realise value from successful

drilling or asset sales in 2019, new funds can be used to accelerate the development of the 30th Round

portfolio and work up a range of new prospects. With the company’s likely participation in the 32nd Mature

Offshore Licencing Round in 2019/2020, Cluff intends to be in a position to apply for new acreage while

simultaneously bringing in partners to facilitate the drilling of the 30th Round prospects.

12 July 2018

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Strategic focus on gas

Cluff focuses on proven gas basins in the established operating environment of the UK. The UK sector is

particularly attractive to the company given that it has a top quartile fiscal regime and a flexible regulatory

system. In addition, the sector possesses an attractive market backdrop implying that demand for gas and

subsequent pricing will be favourable for gas producers over the next 20 years.

Supply and demand highly favourable

At present, gas provides the energy source for approximately 40%-45% of UK electricity generation depending

on seasonality. As the chart below illustrates, nuclear powered electricity generation remains flat and coal

powered generation has reduced substantially since the start of the decade to the point where coal-fired

electricity production is now virtually non-existent. Although energy derived from renewable sources is

appreciable and likely to continue to increase, gas provides the mainstay of UK power generation, a status

that we expect it to retain for the foreseeable future. Importantly, we also expect gas to replace coal

completely in order to cover seasonal spikes in energy demand as seen clearly on the chart below.

Electricity generation by fuel source

Source: Ofgem

The gas consumption gap

UK gas consumption has exceeded production by a significant margin since the early 1970s and although UK

gas production witnessed an uptick in 2016, this was counter balanced by a more significant increase in gas

consumption as seen on the chart below.

12 July 2018

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British Gas plc indicates that only 43% of UK gas consumption is now derived from domestic production. Of

the balance that is imported to meet demand, 13% is imported in the form of LNG (liquefied natural gas) with

44% delivered via pipelines from continental Europe. This tranche of gas is derived from several locations

including Norway (23% of European gas) but also more politically sensitive regions including Russia which

supplies Europe with 35% of its gas.

Energy security is a substantial political issue and as such, there is a UK government policy framework to

maintain safe and secure future energy supplies. Given the current scale of UKCS gas production and the

potential to extend the productive life of the North Sea for a considerable period, we believe that the

continued growth of UKCS gas production represents a key pillar of UK government policy.

UK gas production vs consumptions (BCF per annum)

Source: BP Statistical Review

UK gas prices are attractive

Cluff indicates that the UK gas production sector also benefits from solid commodity pricing. As can be seen

below, recent data from BP indicates that northern European gas prices converged at a healthy US$6.00 per

mmBtu (mmBtu converts to mcf at a factor of 0.9756, e.g. US$6.00 per mmBtu is equivalent to US$5.85 per

mcf) at the end of 2017 and into Q1 2018 as a function of the increased demand during the winter months.

Although prices remain below the 10-year average, the UK NBP (National Balancing Point) gas price

benchmark consistently trades at a significant premium) to the US Henry Hub benchmark which has been

subdued since 2008. At a current price of cUS$7.00/mcf, NBP is more than double the Henry Hub price.

12 July 2018

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Global gas price indicators (USD per mmbtu)

Source: BP

SNS is a lower cost operating environment

Finally, Cluff is confident that the shallow water areas of the SNS in particular represent a relatively low cost

environment for operators. The price of jack-up rigs has declined significantly since 2015 to average rates of

approximately US$50,000 to US$70,000 per day. It should be noted that the window of opportunity to drill at

historically low costs may shrink beyond 2019 as the trend appears to be for rising rig utilisation which will

eventually feed through into higher day rates.

Northwest Europe harsh standard jack-ups (day rate in US$000 vs utilisation)

Source IHS Markit

12 July 2018

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Core assets: SNS gas basin Cluff is focused on a comparatively under-explored region of the SNS, which is one of the world’s most

prolific gas producing areas. The SNS has been producing gas since the 1960s and the company notes that it

is experiencing a renaissance in recent years, driven by a raft of discoveries including the Breagh, Cygnus,

Tolmount and Pegasus fields.

Cluff’s core assets from the 28th Licencing Round are highlighted below in the solid blue shading on the map

below. The licences are located in an area of stacked plays with reservoirs located at multiple levels. The

company has identified several large prospects on both the P2248 and P2252 licences located within proven

fairways including the Carboniferous and Bunter Sandstone intervals.

Core assets in the SNS gas basin

Source: Company

Acreage located in proven fairways

Current production in the SNS is split between the Permian aged Rotliegend sandstones and older

Carboniferous sandstones which are situated in the north and northeast of the basin. In addition, the early

Triassic Bunter Sandstone, a successor to the Permian Basin, has also proved to be highly prolific. These

proven hydrocarbon fairways contain Cluff’s primary prospect inventory which includes Cadence in the

Carboniferous and Bassett in Bunter Sandstone on Licence P2248.

Cluff notes that emerging plays such as the Zechstein Reefs also hold the potential for major prospectivity and

the company possesses significant prospective resource upside in this formation within its prospect inventory

on Licence P2252.

12 July 2018

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Cluff’s acreage is on trend with several large fields and recent discoveries in the immediate vicinity. These

include:

• Breagh (Carboniferous Scremerston reservoir) – a 600 BCF gas discovery in water depths of c.60m.

Operated by INEOS. First gas was achieved in October 2013.

• Pegasus West Discovery (Carboniferous Namurian sandstone reservoir) – Tested by Centrica at c.91

mmcfpd over three drill stem tests. Suspended as a future producer with a field development plan

anticipated in 2018. Current equity partners are Spirit Energy and Third Energy.

• Cygnus (Carboniferous and Leman reservoirs) – a 630 BCF discovery with upside case of 1.2 TCF.

First gas flowed in early 2016. Current equity partners are Spirit Energy and Neptune Energy.

Exploration on the increase following corporate activity

Cluff believes that activity in the SNS has been supressed to an extent over the last 18 months given that

comparatively high levels of corporate activity have diverted operators’ immediate attention and resources

away from exploration activities. The company highlights recent deals such as Oranje-Nassau Energie’s (ONE)

acquisition of Sterling Resources for US$163m. This enabled ONE to secure a 30% interest in the Breagh gas

field in March 2017.

The Breagh operator, INEOS also acquired DONG Energy for up to US$1.3bn in May 2017. This deal has

provided INEOS with over 100,000 boepd of additional production and a further 570 mmboe of reserves and

resources across the UK, Danish and Norwegian sectors of the North Sea.

Last year was closed out with the formation of Spirit Energy, a merger of Centrica’s Exploration and

Production business and Bayerngas Norge AS in December 2017 and corporate activity continued in February

2018 with the completion of Neptune Energy’s acquisition of Engie E&P for US$3.9bn to create a major pan-

North Sea E&P company.

Upcoming exploration activity

Of particular interest to Cluff will be the expected drilling of the Andromeda Prospect on the Spirit Energy

operated block immediately to the east of P2248. In addition, exploration wells are also planned on the

Ossian-Darach Prospect and the multi-TCF Aurora Prospect located east of P2252 in Q2 2019. This latter

prospect is of particular interest to Cluff given that Aurora is a key analogue for the company’s large Cadence

prospect on which Cluff is planning to drill a well in H2 2019. Exploration success at Aurora, situated in the

Carboniferous Fell Sandstone reservoir would serve to de-risk Cadence to an appreciable degree. Cadence is

examined in greater detail in the next section of this report.

12 July 2018

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Core SNS Licence P2248 Licence P2248 contains several key prospects within Cluff’s portfolio. Of particular interest is the Cadence

Prospect which is estimated to contain a P50 prospective resource of 929 BCF and the Bunter prospects,

represented by three large targets with a combined estimated P50 prospective resource of 806 BCF. The

location of these key targets is illustrated clearly on the map below.

Key prospects on licence P2248

Source: Company

Key prospects – Cadence

Cadence is located on the Pegasus-Andromeda-Crosgan structural trend. Of these structures, Pegasus

represents a major discovery, Andromeda is scheduled to be drilled in late 2018 and Crosgan was a gas

discovery that was plugged and abandoned after encountering gas albeit in a thinner than expected

sandstone.

Cadence is located in early Carboniferous shoreface and fluvial sand reservoirs and as the table below depicts,

is comprised of multiple targets that can be probed by a single exploration well. The largest reservoir target is

the Fell Sandstone, hence the Aurora analogue. However, additional reservoirs, including the Scremerston

and the Camden are also believed to contain significant resource upside. The P50 case is outlined as 929 BCF.

However, if the bounding fault, depicted as the near vertical black line on the seismic chart below, provides

seal to the reservoirs, the upside potential could be as much as 3 TCF as outlined by the P10 case below.

12 July 2018

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Licence P2248 – Net prospective resources (BCF) (Cluff: 100%)

Project ID Status Low Mid High Mean Risk factor

P90 P50 P10

Cadence Scremerston Prospect 59 165 410 206 26%

Cadence Fell Sandstone Prospect 111 604 2,175 923 16%

Cadence Camden Prospect 58 160 405 204 26%

Total 228 929 2,990 1,333

Source: Company

Single well to target multiple targets

Cadence is a four way dip closure and is located at an estimated target depth of 3,100m. It has multi-level

prospectivity with an estimated hydrocarbon column in excess of 500m. The target formations including the

Scremerston, Fell and Yoredale are stacked and a single exploration well, notionally represented by the

dashed line, is planned to probe the crest of each successive structure as outlined below.

Cluff has outlined plans to drill an exploration well on Cadence in Q3 2019 at an estimated cost slightly in

excess of £16m. Given the anticipated cost of such a well, we expect that the company will seek to establish a

farm-out or partnership agreement in order to expedite drilling activity

Cadence prospects highlighted

Source: Company

12 July 2018

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The Bunter Sandstone prospects

The Bunter Sandstone play, a considerably shallower play than the Carboniferous, has proven to be highly

prospective nonetheless. This formation contains the depleted Esmond Gas Complex which comprises the

Esmond, Forbes and Gordon fields located immediately east of Licence P2248.

Cluff has re-processed much of the recent 3D seismic data covering this area of the licence enabling the

company to identify structures and potential traps with a stratigraphic element. With a key focus on AVO

(amplitude versus offset) data which is due for imminent completion, Cluff has identified several potentially

exciting prospects in this relatively shallow horizon (1,300m – 1,700m TD). The three key targets: Bassett,

Bathurst and Beckett are outlined below.

Licence P2248 – Net prospective resources (BCF) (Cluff: 100%)

Project ID Status Low Mid High Mean Risk factor

P90 P50 P10

Bassett Prospect 36 128 303 153 37%

Bathurst Prospect 119 275 571 317 18%

Beckett Prospect 97 403 892 460 22%

Total 252 806 1,766 930

Source: Company

RMS data with Basset prospect (insert)

Source: Company

12 July 2018

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Highly prospective area

The amplitude analysis over P2248 highlights key areas of prospectivity. In particular, the AVO analysis

depicts the Esmond field to the southeast of Cluff’s focus area and also the Furasta gas discovery to the west

on Cluff’s adjoining acreage which is estimated to contain 30 BCF of gas. The amplitude data highlighting the

key Bassett prospect is also enlarged on the map above.

The Bassett prospect

Although Bassett is the smallest of the three primary prospects in this play, it represents the lowest drilling

risk to the company. The prospect is a low relief four-way dip closure with the P50 case assuming seal against

a major salt wall to the northeast. P50 Prospective Resources are estimated to be 128 BCF although the GCoS

(Geological Chance of Success) is relatively high for an exploration well at 37% indicating confidence

regarding the structure.

Beckett and Bathurst are estimated to contain larger potential resources and exploration success at Bassett

would be likely to increase the current respective GCoSs significantly as the play would be de-risked to a

considerable extent in this area.

Exploration drilling would be inexpensive

With shallow water depths of approximately 60 metres enabling drilling by a jack-up rig complemented by

relatively shallow subsurface targets, Cluff estimates that an exploration well would cost only £8.0m-£9.0m to

drill and test given the short time window required. With a high GCoS, the company has identified Bassett

and its lookalike structures on P2248 as a primary candidate for a farm-out or equity partnership in order to

expedite exploration activity next year.

12 July 2018

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Core SNS Licence P2252 Cluff holds 100% in Licence P2252 which contains the potentially exciting Pensacola Prospect in addition to

smaller prospects represented by Fairhaven and Lytham. These are depicted on the map below.

Key prospects on Licence P2252

Source: Company

The Pensacola Prospect

Cluff states that that the Pensacola Reef Complex is classic patch reef architecture which has been partially

imaged on 3D seismic data. A generic morphological outline of major reef types is depicted in the illustration

below. As can be inferred from the illustration, ancient coral reef architecture provides ideal structures for

subsequent sedimentary infill and can serve as effective trapping mechanisms for hydrocarbons.

Cluff notes that analogous reef structures were also identified over the Crosgan and Aurora prospects

although to date, Crosgan is the only analogue drilled that has flowed gas to date.

12 July 2018

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Morphological expression of major reef types

Source: UPRM Department of Geology

Zechstein Reefs

The Zechstein Reef play has numerous hydrocarbon producing analogues across the North East of England

and the SNS in addition to Holland, Germany, Denmark and Poland. This is as a consequence of the

formation of reefs formed over a period of 5-7 million years in the Zechstein Sea some 250 million years ago.

The Zechstein Sea was a vast shallow and isolated inland sea that was formed when the supercontinent

Pangea was starting to rift apart. Reefs developed on the shores of the Zechstein Sea which was transformed

into a large evaporating basin. The reefs were formed by an accumulation of limestone which created

carbonate barriers at the edge of the sea and repeated cycles of marine flooding and evaporation established

sedimentary deposition cycles which represent today’s hydrocarbon reservoirs. These cycles are well

understood by today’s geologists and have been exploited for oil and gas across the whole North Sea and

northern Europe.

Extent of the Zechstein Reefs – North Sea

Source: The Geological Society

12 July 2018

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Pensacola prospectivity

Cluff has partially imaged the Zechstein reef build up on 3D seismic and notes that the Pensacola prospect is a

7 km by 16 km long fringing reef with a substantial lagoon fill. The company notes that the lookalike Crosgan

discovery flowed gas at a rate of 7.6 mmcfpd from a thin Hauptdolomite interval although the reservoir was

thinner than expected.

3D Imaging of the Pensacola Prospect

Source: Company

Resource estimates

The company expects that at this stage, the fringing reef structure, depicted clearly on the chart above,

represents slightly greater upside in terms of resources and GCoS than the lagoon fill. The company estimates

that an exploration well would cost £10m-£11m on a gross basis and is escalating its plans to schedule

drilling in Q4 2019 subject to the completion of a farm-out or similar agreement to fund part or all of the

exploration drilling expenditure.

Licence P2252 Net prospective resources (BCF) (Cluff: 100%)

Project ID Status Low Mid High Mean Risk factor

P90 P50 P10

Pensacola Fringing Reef Prospect 113 270 650 338 20%

Pensacola Lagoon fill Prospect 67 154 347 186 16%

Total 180 424 997 524

Source: Company

12 July 2018

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Lytham and Fairhaven prospects

At present, we regard the Lytham and Fairhaven prospects as secondary targets on Licence P2252. Both

targets were drilled in the 1980s and 2000s with elevated gas shows. However, no flow testing has been

conducted due to several factors including drilling and technical issues and a lack of fracture connectivity

within the reservoirs.

Cluff estimates that further appraisal drilling could cost up to £20m per well which at present, falls outside

the company’s immediate plans.

Licence P2252 Net prospective resources (BCF) (Cluff: 100%)

Project ID Status Low Mid High Mean Risk factor

P90 P50 P10

Lytham Permian Prospect 52 123 244 137 49%

Lytham Carboniferous Prospect 12 44 149 68 30%

Fairhaven Prospect 18 45 98 53 43%

Total 82 212 491 258

Source: Company

12 July 2018

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30th Licensing Round awards – SNS core area As outlined in our introduction, Cluff was provisionally awarded a portfolio of licences covering 10 full and

part oil and gas blocks as part of the OGA’s 30th Offshore Licensing Round in May 2018. With the exception of

two SNS blocks, all the blocks were awarded to Cluff on a 100% basis.

In the SNS core area Cluff has provisionally acquired four highly strategic blocks adjacent to its P2248 licence.

Of particular interest are the Cortez leads and the Burbank prospect on 42/14 and 42/15b in addition to the

Cupertino leads on 43/7 and 43/8 located to the northeast of P2248.

Prospects and leads in Cluff’s core SNS area

Source: Company

Lead and prospect portfolio on the core SNS licences

Block Key prospect ID Age Status Net Prospective Resources GCoS

P90 P50 P10

42/14 & 42/15b Furasta Triassic Discovery 7.2 17.6 29.6 100%

Burbank Triassic Prospect 70 200 567 32%

Cortez Carboniferous Lead 24 107 433 29%

Cortez South Carboniferous Lead 129 331 732 28%

43/7 & 43/8 Cupertino Scremerston Carboniferous Lead 69 262 914 21%

Cupertino Fell Sandstone Carboniferous Lead 147 558 2,090 19%

Total

446 1,476 4,766

Source: Company

12 July 2018

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Blocks 42/14 and 42/15b - Cortez and Burbank (Cluff: 100%)

Block 42/15b already contains Furasta, a modest gas discovery located in the Triassic. However, Cluff believes

that the adjacent block 42/14 could accommodate additional prospectivity. In particular, the Burbank

Prospect is a 200 BCF target located in the Bunter Sandstone and the larger Cortez South lead is a 331 BCF

accumulation at the Carboniferous Scremerston level.

There is already a mix of 2D and 3D seismic data on these blocks. However, Cluff plans to re-process the 2D

data and potentially shoot new 3D seismic as part of plans to firm up these primary targets.

Blocks 43/7 and 43/8 – Cupertino (Cluff: 100%)

This acreage contains the depleted Forbes gas field which drains the Bunter Sandstone interval. Cluff has

identified the Cupertino lead on the Carboniferous which is believed to be a four-way dip structure in footwall

with fault seal upside. Consequently the P10 prospective resource numbers for the Cupertino leads are

considerably higher than the P50 at nearly 3 TCF combined.

Like the analogous Cadence prospect, Cupertino is comprised of stacked Scremerston and Fell Sandstone

reservoirs. The licence already has mixed 2D and 3D seismic data and as with blocks 42/14 and 42/15b, the

company intends to re-process the existing data with the potential to shoot new 3D to firm up the existing

leads.

SNS - Rotliegend area

As outlined on page 2 of this report, the SNS Rotliegend area is located in the central part of the SNS to the

south of Cluff’s core area of focus. Aside from the larger Selene prospect, this area provides Cluff with

strategic entry into a proven hydrocarbon play with the potential for multiple smaller discoveries as outlined

in the table below.

The Permian aged Rotliegend sandstone sequence sits above a secondary Carboniferous sandstone reservoir.

The Rotliegend is a litho-stratigraphic unit (a sequence of rock strata) of middle Permian age that is found in

the subsurface over large areas of western and central Europe and comprises the predominant gas-bearing

reservoir in the Southern North Sea and Anglo-Dutch Basins.

The Rotliegend consists primarily of sandstone and claystone layers and is usually overlain by the limestone

and evaporitic sequences of the Zechstein formation, deposited unconformably on top of regionally variable

sediments formations of late Carboniferous age.

Lead and prospect portfolio on the SNS licences awarded in the 30th Round licences

Block Key prospect ID Age Status Net Prospective Resources GCoS

P90 P50 P10

48/8b Sloop Permian Discovery 7 18 38 100%

Selene Permian Prospect 191 253 328 38%

Endymion Permian Lead 36 48 62 27%

Rig & Jib Permian Lead 11 29 58 35%

47/10d & 48/6d Bob (Teviot) Permian Discovery 2.8 5.5 10.3 100%

Blackadder Permian Prospect 17.8 28.3 42.5 45%

Total

266 382 539

Source: Company

12 July 2018

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Block 48/8b in the SNS Rotliegend area

Source: Company

Prospectivity on Block 48/8b – Selene (Cluff: 100%)

Selene represents the largest potential target in this tranche of Cluff’s portfolio with a P50 prospective

resource estimate of 250+ BCF. However, the company believes that this could be significantly bigger given

that historically, depth conversion has led to uncertainty over volumetrics. A low cost study is likely to provide

greater certainty with regards to resource volumes on Selene which has the potential to increase the size of

the key prospect on this licence significantly.

Blocks 47/10d and 48/6d (Cluff: 25%)

Cluff’s only part owned blocks which are operated by Parkmead Group plc contain the small Teviot (Bob)

discovery and the Blackadder prospect which is a Rotliegend target with a high GCoS.

The company has outlined plans to collaborate on a technical level with Parkmead and any success here is

likely to benefit Cluff given that there is believed to be a direct technical read-across from Blocks 47/10d and

48/6d to the prospects on Block 48/8b which contains Selene and the smaller Rig & Jib and Endymion leads.

12 July 2018

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Central North Sea assets – Blocks 22/24f and 22/25g - Oil

We believe that Cluff’s 22/19f blocks (Cluff: 100%) represents longer term value to the group. However, the

22/24f block is of particular interest in that the licence contains the Tesla discovery which had oil and gas

shows in the Jurassic Pentland Sandstones although these hydrocarbon accumulations were not tested.

There are additional targets on the part block including Tesla South lead and the Dewar prospect which is

estimated to contain 10 mmboe of oil and condensate in the Forties Sandstone formation. Any future drilling

success here has the potential to diversify the portfolio with the additional of hydrocarbon liquids.

Locations of leads on part Block 22/24f

Source: Company

12 July 2018

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Proposed activity timetable Recent fund raising

Cluff recently raised gross proceeds of £2.0m after the placing of 95.2 million shares at 2.1p per share on 27

June 2018. We expect that this cash, of which we estimate net proceeds to be £1.9m, will be sufficient to fund

the company for at least the next year. The company outlined that the new funds will be used principally for:

• Accelerating the technical and commercial potential of the SNS and CNS assets awarded in the 30th

Offshore Licensing Round and firming up future drilling opportunities

• Continuing the process of securing a partner(s) or strategic investors to fund drilling activities on the

company’s core SNS licences, P2245 and P2252

• Continuing the planning of a potential multi-well drilling programme in 2019 on core exploration

targets on SNS licences P2248 and P2252

• General working capital requirements

Well programme planning

In regard to the planned drilling programme, Cluff notes that providing a detailed work programme and

comprehensive well plans is now a key factor in attracting a potential farm-in partner. As is evident from the

timetable and well costing below, a three well programme focusing on Bassett, Cadence and Pensacola is a

significant financial undertaking and Cluff will be required to bring in partners to expedite this programme in

2019.

It is feasible that the company could fund a single well on Bassett for a considerably more modest cost and

success here could de-risk the lookalike prospects, Beckett and Bathurst for future drilling. However, we

believe that the company would prefer a multi-well programme given the binary nature of potential success

on one well.

Complete flexibility

Given that Cluff holds 100% of the all the core licences in its portfolio, the company has complete flexibility

and control of the structure of any deal that it completes. As such, we believe that the company is in the

strongest position to expedite successfully a deal or deals that will enable the company to participate in an

exciting exploration programme in 2019.

Activity timeline 2018-19

P50

Q3 Q4 Q1 Q2 Q3 Q4 Estimated

Formation Prospect (BCF) GCoS 2018 2018 2019 2019 2019 2019 well cost

Bunter Bassett 128 37% Well Planning

Drilling

£8.8m

Beckett 703 22%

£8.6m

Bathurst 275 18%

£8.8m

Carboniferous Cadence 929 26% Well Planning

Drilling

£16.2m

Zechstein Pensacola 270 20% Well Planning Drilling £10.6m

Source: Company

12 July 2018

- 24 -

Ascribing a value to the core portfolio We have endeavoured to place an indicative value on Cluff’s core portfolio comprising the three key prospects,

Bassett, Cadence and Pensacola. These are considered core given that Cluff is actively planning a drilling

programme to encompass all three prospects with a view to attracting a farm-out or funding partner. Within

our valuation, we have also considered the additional upside represented by the Beckett and Bathurst

prospects which we believe would be prime drilling targets if an exploration well on the low risk Bassett

prospect was successful.

Valuation summary

Item Prospect Bassett Bathurst Beckett Cadence Pensacola Core Total

Prospective Resources BCF 128 275 403 929 270 1,327 2,005

GCoS % 37% 18% 22% 26% 20% 26% 24%

Risked resources BCF 47 50 89 242 54 343 481

NPV per mcf USD 1.02 1.02 1.02 1.02 1.02 1.02 1.02

NPV US$m 48 50 90 246 55 350 491

Commercial risk factor % 50% 75% 75% 50% 50% 50% 57%

Risked NPV US$m 24 13 23 123 28 175 210

Exchange rate (USD/GBP) 1.38

Risked NPV £m 18 9 16 89 20 127 153

Source: TP estimates, Company

Methodology

Within our assumptions, we have used the company’s P50 Prospective Resource estimates as published by the

Xodus CPR (2016). To this we have applied the appropriate GCoS as outlined by Cluff to establish a risked

resource. We have subsequently applied a calculated unit NPV (10%) per mcf of US$1.02 based on a

successful development of the Bassett prospect, representing Cluff’s lowest risk target.

Our unit NPV assumes a range of variables including

• 128 BCF of gas produced over 15 years with production commencing in late 2022

• Peak production of 50 mmcfpd in 2023 declining from 2025 onwards

• Flat gas price of US$6.50 per mcf

• Unit opex per mcf of US$1.33 at peak production rising thereafter

• Drilling capex comprising one exploration well and an additional appraisal well

• Development capex of £40m to complete and tie into infrastructure

• Normal UK petroleum profit tax rates applied

• Average USD/GBP exchange rate of $1.38 to reflect average rate since the start of 2018

We note that Cluff has generated a similar success case unit EMV (Expected Monetary Value) for Bassett

based on a risked average of a set of possible scenarios. It is important to note that the company’s unit EMVs

for the other four prospects under consideration are higher than our ascribed unit value and that Cluff has

calculated a blended average unit EMV of US$1.25 across the portfolio. As such, we believe that our

calculations are particularly conservative.

12 July 2018

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Conclusions

We have also applied a significant commercial risk factor to our calculated NPVs given that Cluff’s exploration

well programme is currently unfunded and therefore, we believe a minimum risk factor of 50% should be

applied to account for the likely ceding of its equity interests in order to facilitate farm-out agreements and

funding.

Our assumptions have also applied an aggressive 75% commercial risk factor to the Bunter prospects, Beckett

and Bathurst given that their drilling is largely contingent on success at Beckett, adding an additional layer of

risk to the valuation.

Consequently, we have aggregated our findings an established a base case valuation of £127m to Cluff’s

current 100% in its core licences only. This valuation of the core portfolio is expanded to £153m with the

inclusion of the aggressively risked additional Bunter prospects.

Major upside potential

There is a very substantial degree of upside within Cluff’s core portfolio that we have not included at this

stage. Firstly, we have not included any value for the Lytham and Fairhaven prospects given that they do not

constitute near term drilling targets. However, these are comparatively small prospects within Cluff’s portfolio

and the real upside arguably resides in the P2248 licence where the resource upside could be as much as 4.7

TCF on a P10 basis. Much of this upside is attributed to the Cadence prospect which was outlined in detail

previously. With 3 TCF of the total additional upside potentially attainable through a single exploration well

on Cadence, we believe that Cluff has the potential to make significant progress attracting farm-in partners

over the next six months.

Finally, we should also note that the company’s 10 blocks acquired in the 30th Round also possess a further

potential upside amounting to nearly 1.9 TCF of gas from only seven of the blocks within this portfolio.

Financial position

Cluff retains a very straightforward financial position. The company’s cost base, which has been reducing

gradually over the last five years, is comprised predominantly of employee and key management costs in

addition to data acquisition and reprocessing.

With regards to the balance sheet, the company ended 2017 with approximately £1.0m in cash. This was

augmented by a placing to raise £750,000 at 1.6p per share before expenses in April 2018 and a further

placing to raise gross proceeds of £2.0m at 2.1p per share at the end of June 2018. We expect that operating

costs will escalate temporarily in 2018 as the company accelerates investment in the progression of its newly

awarded blocks, continues its efforts to establish potential farm-out agreements and advances its well

programme planning for 2019. As such, we believe that the company is funded for the next 12 months

(excluding drilling).

Five year financial summary, 2013A – 2017A

Year ended Dec (GBP) 2013 2014 2015 2016 2017

Profit (loss) before tax -1,928,199 -1,725,014 -1,872,099 -1,730,606 -1,590,203

Loss per share -1.99 -1.11 -1.00 -0.70 -0.46

Cash and cash equivalents 2,931,271 1,207,638 1,114,052 1,707,910 1,016,667

Net assets 2,991,048 1,391,867 1,428,054 2,241,141 1,726,715

Source: Company and RNS

12 July 2018

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Appendix 1 – Company directors Algy Cluff – Chairman

In 1972, Mr Cluff formed CCP North Sea Associates to bid for North Sea oil licences in the UK sector and

subsequently founded Cluff Oil Ltd. CCP discovered the Buchan Field, the 14th commercial oil field in the UK

North Sea, in 1975. He then founded and became Chairman of Cluff Resources plc. From the early 1980s,

Cluff Resources began to focus on mineral exploration in Africa and made several significant discoveries

including the Geita Mine in Tanzania, the Freda Rebecca Mine in Zimbabwe, the Ayanfuri Mine in Ghana and

in Côte d’Ivoire, Yaoure the largest undeveloped gold deposit in West Africa. Mr Cluff was the Founder,

Executive Chairman and CEO of Cluff Gold (now Amara Mining Plc) from 2004 to December 2010, Executive

Chairman until July 2011 and subsequently Non-Executive Chairman up to April 2012, when he stepped

down to concentrate on Cluff Natural Resources.

Graham Swindells – Chief Executive

Mr Swindells joined the company in 2013 as CFO before becoming Finance Director and most recently, Chief

Executive. He previously worked in corporate finance for 12 years, during which time he specialised in

advising mid and small-cap public companies. Most recently, he was a Director in Ernst & Young’s Mergers &

Acquisitions Team. Previously, Graham was a Director in Corporate Finance at Arbuthnot Securities where he

gained significant natural resources experience acting as nominated adviser and broker to a variety of

companies in the sector. He qualified as a Chartered Accountant in Scotland with BDO Stoy Hayward and

subsequently spent two years at PricewaterhouseCoopers specialising in corporate recovery and restructuring.

Graham graduated from the University of Glasgow with a Bachelor of Accountancy Degree.

Andrew Nunn – Chief Operating Officer

Mr Nunn is a Chartered Geologist with over 16 years of experience working on exploration, mining and geo-

environmental projects in Europe, Australasia and Africa. For the last six years he has worked on UK and

European unconventional gas projects including coal bed methane, tight gas and shale gas, most recently as

Exploration Manager for Dart Energy. He holds a B.Sc. (Hons) in Economic Geology and an M.Sc. in

Environmental Management.

Peter Cowley – Non-Executive Director

Mr Cowley is a geologist with 45 years of international experience in the minerals industry and has been

involved in the discovery and development of a number of gold mines in Africa. Peter Cowley was previously

Managing Director of Ashanti Exploration Limited and Group Technical Director of Cluff Resources Plc. He

holds M.Sc. and MBA degrees and is a Fellow of I.M.M.M. Until recently he was also a Non-executive Director

of Banro Corporation and Amara Mining Plc.

Mark Lappin – Non-Executive Director

Mr Lappin has over 35 years of experience in the oil and gas industry. Mark is currently Technical Director at

Cuadrilla and prior to that was Sub-Surface Director for UK and Netherlands at Centrica. Mark began his

career as a Geophysicist at Phillips Petroleum and has held senior technical and commercial roles with Conoco

Phillips, Exxon Mobil and Dart Energy.

12 July 2018

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12 July 2018

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