UK: Valiant Petroleum Announces Operational Update and Forward Work Programme

Valiant Petroleum plc (“Valiant” or the “Company”)  provides the following update with regard to its operations during the second half of 2010 and forward work programme for 2011 and beyond.

Highlights

· 2010 Production at upper end of guidance, 2011 anticipated at 6,500-7,500 barrels of oil per day (“bopd”)

· Dons momentum continued – Phase II development completed, Area ‘H’ drilling ahead, Phase III accelerated

· Farm-in transaction executed on Handcross giving Valiant control over 90% of prospect and unlocking potential to drill in 2011

· 24 month exploration programme of up to nine wells targeting in excess of 200 million barrels of oil equivalent (“mmboe”) of net prospective resources

· Exploration portfolio strengthened with 26th round wins, including high impact Isabella prospect in the Central North Sea with Apache North Sea Limited

· Credit commitments received in excess of $350 million target for senior debt refinancing

Don Fields Production

Production from the Don Fields (Don Southwest and West Don) remains strong following the successful completion of the second phase of development on the fields and the Company is currently on track to deliver production towards the upper end of its 2010 guidance range of 6,500-7,500 bopd.

Don Southwest (Valiant; 40.0%) has continued to exceed expectations with the most recent producer and water injection wells drilled into the ‘Horst’ Panel as part of Phase II helping to maintain gross production levels from the field consistently in excess of 20,000 bopd.

West Don (Valiant; 17.275%) has continued to produce towards the lower end of expectations during the second half of 2010 primarily due to on-going operational issues with one of the production wells. Following a rig intervention, the well was suspended in November which has allowed the third producer on the field to be brought on-stream at stabilised rates of 20,000 bopd. The operator is currently considering options for the suspended production well. The cost of intervening and suspending the second production well is anticipated to be $5 million net to Valiant and will be recognised in operating expenses during the 2010 financial year.

Production guidance for 2011 is maintained at 6,500-7,500 bopd, representing a plateau from 2010 and reflecting continued investment in the Don Fields.

Don Fields Development and Exploration

Continued success on the Don Fields has resulted in the recent commitment to the third phase of development on Don Southwest which will target Area ‘6’ in the north of the field. Phase III operations have been accelerated and are due to commence shortly utilising the John Shaw semi-submersible drilling rig with production anticipated to come on-stream during the summer of 2011.

Drilling operations are currently underway on Don Southwest to appraise Area ‘H’ which was initially discovered in 2009. The internal pre-drill estimates for gross recoverable resources associated with Area ‘H’ are 10 mmbbls and a result from the well is anticipated in mid December. The joint venture partners are investigating options to include any discovery on Area ‘H’ into the Phase III programme targeting first oil before the end of 2011.

Valiant also announces that the initial well to be drilled as part of the Phase III programme will be into Area ‘E’ – an exploration target which Valiant currently estimates could contain gross resources of 7-10 million barrels of oil (“mmbbls”) – with results expected towards the end of January.

Other Developments

Following the announcement of Valiant becoming operator of the Causeway field (Valiant: 24.5-54.5%) in March this year, considerable work has been undertaken by the Company to move the development forward towards a final investment decision. A revised development plan anticipates production from the East, Far East and Central panels of the field and negotiations are at an advanced stage with local infrastructure owners regarding the optimal export route. Valiant is investigating financing options for the development and it is anticipated that a new Field Development Plan will be submitted to the Department for Energy and Climate Change (“DECC”) during the first half of 2011 which could see first oil from Causeway within 12 months of development sanction.

Exploration

· Farm-in transaction executed on Handcross giving Valiant control over 90% of prospect and unlocking potential to drill in 2011

· 24 month exploration programme of up to nine wells targeting in excess of 200 million barrels of oil equivalent (“mmboe”) of net prospective resources

· Preparation work begun to facilitate drilling of the material Isabella prospect in 2012

Valiant is currently firming-up an exciting exploration programme over the next 24 months in addition to its planned appraisal and exploration wells on the Don Fields. This drilling programme will target up to nine wells in its three core areas in the Northern North Sea, Central North Sea and West of Shetlands exposing Valiant to net estimated prospective resources in excess of 200 mmboe. These wells are anticipated to include both a number of prospects in Valiant’s current inventory and those successfully awarded as part of the 26th UK Offshore Licensing Round 9 (“26th Round”), in which Valiant emerged as one of the most successful applicants winning 7 licences (5 operated) covering 18 blocks or part blocks.

Northern North Sea:

Valiant has identified the South Cladhan leads in Blocks 210/29c and 210/30b (Valiant; 100%, operator) which are believed to be an extension of the Cladhan channel-sand play which was discovered immediately to the north of Valiant’s acreage in 2009 by Sterling Resources Ltd and successfully appraised earlier this year. It is anticipated that a well will be drilled into this block during the second half of 2011 following the drilling campaign on the Cladhan discovery to the north during Q1 2011. Valiant is currently in advanced discussions with various parties regarding potential transactions on South Cladhan and will update the market in due course.

Valiant, alongside its partners Apache North Sea Limited and EnQuest plc, is provisionally planning an exploration well toward the end of 2011 or beginning of 2012 on the Tryfan prospect (Valiant; 33.33%) located in Blocks 3/17. Tryfan has gross P50 prospective resources of 24 mmbbls and benefits from both strong seismic and electromagnetic anomalies.

Work continues on the Tybalt discovery (Valiant; 80%, operator) located in Block 211/8c in order to identify the optimal location to place an appraisal well which will enable Valiant to further understand the extent and connectivity of the reservoir in order to prove-up commercial volumes. Meanwhile, the Company is also working on development and export options.

Valiant has also begun discussions with local infrastructure owners regarding the drilling of a number of its smaller prospects, including Portia, Block 210/25b (Valiant; 100%, operator) and Rosalind, Block 211/11a (Valiant; 100%, operator), which represent an option to accelerate these smaller, lower-risk tie-back opportunities.

Central North Sea:

As part of the 26th Round, Valiant has acquired substantial acreage in Quad 30 surrounding its Viola (Valiant; 50%, operator) exploration well. Following the well result, Valiant has completed a review of the logging while drilling (LWD) data from Viola and remains excited by the area following indications of significant hydrocarbon ‘shows’, thought to be gas/condensate, at the top of a thick body of high-quality Fulmar reservoir sand and beneath a very thick Kimmeridge clay source rock.

Additionally in the 26th Round, Valiant and its partner Apache North Sea Limited were awarded Blocks 30/06a, 11a and 12d containing the Isabella, Mariana and Jessica prospects (Valiant; 50%, operator). Isabella is a gas-prone, Fulmar-play pinching out against a salt-dome and represents a high impact opportunity for the Company with drilling anticipated in 2012 following a multi-azimuth 3D seismic shoot during 2011.

West of Shetland:

Valiant announces the execution of a Farm Out Agreement (the “Agreement”) between its 100% owned subsidiary, Valiant Exploration Limited and Sussex Energy Limited (“Sussex”) relating to the Handcross prospect in Licence P.1631, Block 204/18b. Under the Agreement, Valiant will acquire an additional 40% participating interest (Valiant; 90%, operator) in exchange for the payment of certain dry hole well costs in respect of Sussex’s remaining 10% participating interest. In agreed circumstances, the Agreement also provides certain rights for Sussex to increase its participating interest in the License and Block by a minimum 5% (to a total of 15%). The Agreement remains subject to DECC consent.

The Agreement, along with Valiant’s recent success in the 26th Round securing Blocks 204/14c and 204/19c adjacent to its existing Handcross acreage, gives Valiant control over the entire Handcross prospect with total gross P50 prospective resources of 181 mmboe (including the Handcross North and South prospects).

Valiant would like to drill the prospect during 2011 and the Company is talking to several parties about suitable deepwater drilling rigs which would be available in this timeframe. In addition, Valiant is in discussion with a number of parties who continue to express interest in a potential farm-in to the prospect.

Funding

The Company has now received commitments, subject to documentation, in excess of its initial target of $350 million in relation to the refinancing of its debt facility from a group of international banks led by BNP Paribas and Lloyds Banking Group. The new facility, which is expected to be signed and drawn down in early December, will allow Valiant to refinance both its existing senior and subordinated debt, extend its repayment profile and provide headroom to accommodate new development assets and potential acquisitions.

Valiant is projected to exit the year with net debt of c.$100m, a similar level to that reported at the time of its interim results. Cash balances and undrawn debt headroom are sufficient to fund the accelerated Dons Phase III programme and working capital requirements. In addition, based on current, risked forecast production levels to the end of 2012 and taking into account estimated cash operating costs, Valiant’s operating cash flows are sufficient to support a modest ongoing investment level after covering debt servicing. Cash flows above this level would arise from sustained higher oil prices and strong performance on the Don Fields, including progress on Don Southwest Areas ‘H’ and ‘E’; these will be applied to pursuing Valiant’s exploration programme as and when funding visibility is achieved. Development expenditures on Don Southwest Areas ‘H’ and ‘E’ are anticipated to be funded largely from debt.

Strategy & Summary

Valiant’s strategic focus is the North Sea. The UKCS still has sufficient exploration potential for a company of Valiant’s size, with access to material discoveries as well as smaller tie-back opportunities and Valiant’s exploration programme will contain both. Valiant is positioned with the capability to take small tie-backs all the way through to production as operator, but will seek to partner with larger operators where platform infrastructure is involved. This strategy will expose shareholders to the potential for material exploration success, as well as deliver a solid foundation for production growth.

Valiant is well-positioned among its peers to deliver long-term growth through its balanced portfolio of production, development, appraisal and exploration assets. The last few months have seen tangible progress on the Don Fields, Causeway development and Handcross exploration prospect; and bolstered the Company’s exploration portfolio through its 26th Round wins. Valiant looks forward to an exciting work programme over the next 24 months across its portfolio.

Peter Buchanan, CEO, commented:

“We are pleased to be on track to deliver a strong 2010 following production at the upper end of our guidance range, a discovery on the Tybalt exploration well and notable progress on the Causeway development. With the Handcross transaction announced today and our substantial awards in the 26th Round, Valiant looks forward to maintaining the momentum it has built up over the past year to deliver progress across its portfolio including further phases of the Don Fields development, bringing the Causeway field into production and drilling up to nine exploration wells over the next 24 months including the high impact Handcross and Isabella prospects.”

In accordance with the AIM Rules, the information in this announcement has been reviewed and signed off by Phil Crookall, Technical Director, who has over 20 years relevant experience within the sector.

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Source: Valiant Petroleum  ,December  1, 2010;