Zenith Energy - Capital/Financing Update 2018

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this Document or the action you should take, you are recommended to seek your own financial advice immediately from an appropriately authorised stockbroker, bank manager, solicitor, accountant or other independent financial adviser who, if you are taking advice in the United Kingdom, is duly authorised under the Financial Services and Markets Act 2000 (“FSMA”).

This Document comprises a prospectus relating to Zenith Energy Ltd. (the “Company”) prepared in accordance with the Prospectus Rules of the Financial Conduct Authority (the “FCA”) made under section 73A of FSMA and approved by the FCA under section 87A of FSMA. This Document has been filed with the FCA and made available to the public in accordance with Rule 3.2 of the Prospectus Rules. Application has been made to the FCA for all of the common shares in the Company to be issued in connection with the Placing (the “ Placing Shares ”) to be admitted to the Official List maintained by the FCA (the “ Official List ”) (by way of a standard listing under Chapter 14 of the listing rules published by the UK Listing Authority under section 73A of FSMA as amended from time to time (the “ Listing Rules ”)) and to the London Stock Exchange plc (the “ London Stock Exchange ”) for the Placing Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities (together, “ Admission ”). It is expected that Admission will become effective, and that unconditional dealings in the Placing Shares will commence, at 8.00 a.m. on 26 June 2018.

THE WHOLE OF THE TEXT OF THIS DOCUMENT SHOULD BE READ BY PROSPECTIVE INVESTORS. YOUR ATTENTION IS SPECIFICALLY DRAWN TO THE DISCUSSION OF CERTAIN RISKS AND OTHER FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON SHARES, AS SET OUT IN THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 19 OF THIS DOCUMENT.

The Directors, whose names appear on page 41, and the Company accept responsibility for the information contained in this Document. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this Document is in accordance with the facts and contains no omission likely to affect its import.

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Zenith Energy Ltd.

(Incorporated in British Columbia, Canada under the Business Corporations Act (British Columbia))

Placing of 46,500,000 Placing Shares at a Placing Price of 4 pence per Common Share Subscription for 4,000,000 Subscription Shares at a Subscription Price of 4 pence Offer for Subscription for up to 20,000,000 Offer Shares at an Offer Price of 4 pence per Common Share

COMMON SHARES IN ISSUE IMMEDIATELY FOLLOWING THE PLACING AND SUBSCRIPTION

210,421,766

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Allenby Capital Limited Daniel Stewart & Company plc Optiva Securities Financial Adviser Broker Broker

The Placing comprises an offer by the Company of 46,500,000 Placing Shares. Daniel Stewart & Company plc, who is authorised and regulated by the FCA in the United Kingdom, is acting exclusively for the Company and no one else in relation to the Placing. Daniel Stewart & Company plc will not regard any other person (whether or not a recipient of this Document) as its client in relation to the Placing and will not be responsible to anyone (other than the Company) for protections afforded to the clients of Daniel Stewart & Company plc or for providing any advice in relation to the Placing, the contents of this Document or any transaction or arrangement referred to herein. No liability whatsoever is accepted by Daniel Stewart & Company plc for the accuracy of any information or opinions contained in this Document or for the omission of any material information, for which it is not responsible. However, nothing in this paragraph excludes or limits any responsibility which Daniel Stewart & Company plc may have under FSMA or the regulatory regime established thereunder, or which, by law or regulation cannot otherwise be limited or excluded.

Allenby Capital Limited, who is authorised and regulated by the FCA in the United Kingdom, is acting exclusively as financial adviser the Company in relation to the Admission and no one else. Allenby Capital Limited will not regard any other person (whether or not a recipient of this Document) as its client in relation to the Admission and will not be responsible to anyone (other than the Company) for protections afforded to the clients of Allenby Capital Limited or for providing any advice in relation to the Admission, the Placing, the contents of this Document or any transaction or arrangement referred to herein. No liability whatsoever is accepted by Allenby Capital Limited for the accuracy of any information or opinions contained in this Document or for the omission of any material information, for which it is not responsible. However, nothing in this paragraph excludes or limits any responsibility which Allenby Capital Limited may have under FSMA or the regulatory regime established thereunder, or which, by law or regulation cannot otherwise be limited or excluded.

This Document does not constitute an offer to sell or an invitation to subscribe for, or the solicitation of an offer or invitation to buy or subscribe for, Common Shares in any jurisdiction where such an offer or solicitation is unlawful or would impose any unfulfilled registration, publication or approval requirements on the Company.

The Common Shares are and, notwithstanding Admission, will continue to be, listed on the TSX Venture Exchange, a market operated by the TMX Group. However, this Document has not been approved by any securities regulatory authority in Canada.

The Common Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the “ Securities Act ”), or the securities laws of any state or other jurisdiction of the United States or qualified for sale under applicable securities laws of Australia, Canada, Japan or the Republic of South Africa. Subject to certain exceptions, the Common Shares may not be, offered, sold, resold, transferred or distributed, directly or indirectly, within, into or in the United States or to or for the account or benefit of U.S. persons (as defined in Rule 902 under the Securities Act) or to persons in the United States, Australia, Canada (other than pursuant to exemptions from the prospectus requirement under Canadian securities legislation), Japan, the Republic of South Africa or any other jurisdiction where such offer or sale would violate the relevant securities laws of such jurisdiction. The Placing Shares may not be resold in Canada or to a resident of Canada for a period of four months and one day following Admission.

The distribution of this Document in or into jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this Document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

Application has been made for the Placing Shares, Offer Shares, Subscription Shares and Admission Shares to be admitted to the standard list segment of the Official List. The Company’s existing Common Shares (apart from the Admission Shares) are currently admitted to the standard list segment of the Official List. A Standard Listing affords investors in the Company a lower level of regulatory protection than that afforded to investors in companies with Premium Listings on the Official List, which are subject to additional obligations under the Listing Rules.

It should be noted that neither the UK Listing Authority nor the London Stock Exchange has the authority to (and will not) monitor the Company’s compliance with any of the Listing Rules or the disclosure requirements and transparency rules which the Company has indicated herein that it complies with on a voluntary basis, nor to impose sanctions in respect of any failure by the Company to so comply.

Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of FSMA or Rule 3.4 of the Prospectus Rules, the publication of this Document does not create any implication that there has been no change in the affairs of the Group since, or that the information contained herein is correct at any time subsequent to, the date of this Document. Notwithstanding any reference herein to the Company’s website, the information on the Company’s website does not form part of this Document.

This prospectus is dated 20 June 2018.

			Page
PART	1	SUMMARY............................................................................................................	4
PART	2	RISK FACTORS ......................................................................................................	19
PART	3	PRESENTATION OF FINANCIAL AND OTHER INFORMATION..............................	32
PART	4	CONSEQUENCES OF A STANDARD LISTING........................................................	34
PART	5	IMPORTANT INFORMATION ................................................................................	36
PART	6	EXPECTED TIMETABLE OF PRINCIPAL EVENTS....................................................	38
PART	7	PLACING AND PRIMARY BID OFFER STATISTICS ................................................	39
PART	8	DIRECTORS, SECRETARY AND ADVISERS............................................................	40
PART	9	ITALY AND AZERBAIJAN ......................................................................................	42
PART	10	INFORMATION ON THE GROUP ..........................................................................	49
PART	11	DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE ..........	66
PART	12	THE PLACING, SUBCRIPTION AND THE PRIMARYBID OFFER..............................	71
PART	13	SELECTED FINANCIAL INFORMATION ................................................................	74
PART	14	OPERATING AND FINANCIAL REVIEW ................................................................	91
PART	15	CAPITALISATION AND INDEBTEDNESS................................................................	102
PART	16	HISTORICAL FINANCIAL INFORMATION..............................................................	103
PART	17	TAXATION ............................................................................................................	104
PART	18	ADDITIONAL INFORMATION................................................................................	108
PART	19	NOTICES TO INVESTORS......................................................................................	140
PART	20	CREST AND DEPOSITORY INTERESTS..................................................................	142
PART	21	DEFINITIONS..........................................................................................................	145
PART	22	GLOSSARY OF TECHNICAL TERMS......................................................................	151
PART	23	COMPETENT PERSON’S REPORT ........................................................................	154

PART 1 SUMMARY

Summaries are made up of disclosure requirements known as “ Elements ”. These Elements are numbered in Sections A—E (A.1—E.7).

This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.

~~SECTION A INTRODUCTION AND WARNINGS~~	~~SECTION A INTRODUCTION AND WARNINGS~~	~~SECTION A INTRODUCTION AND WARNINGS~~
~~–~~
A.1	Warning to investors	This summary should be read as an introduction to this Document. Any decision to invest in the Common Shares should be based on consideration of this Document as a whole by the investor. Where a claim relating to the information contained in this Document is brought before a court the plaintiff investor might, under the national legislation of the EEA States, have to bear the costs of translating this Document before legal proceedings are initiated. Civil liability attaches only to those persons who have tabled this summary including any translation thereof, but only if this summary is misleading, inaccurate or inconsistent when read together with the other parts of this Document or it does not provide, when read together with the other parts of this Document, key information in order to aid investors when considering whether to invest in such securities.
A.2	Consent for intermediaries	Not applicable. The Company has not given its consent to the use of this Document for the resale or final placement of the Placing Shares by financial intermediaries.
~~SECTION B ISSUER~~
~~–~~
B.1	Legal and commercial name	The legal and commercial name of the issuer is Zenith Energy Ltd.
B.2	Domicile/Legal Form/Legislation/ Country of Incorporation	The Company is a corporation domiciled in British Columbia, Canada. The Company was incorporated and registered as Canoel International Energy Ltd. under the Business Corporations Act (British Columbia) on 20 September 2007 and changed its name to Zenith Energy Ltd. on 2 October 2014. The Company’s registered corporation number is BC0803216. The Company is governed by its Articles and the principal legislation under which the Company operates and under which the Common Shares are issued is the Business Corporations Act (British Columbia), SBC 2002 c57.
B.3	Current operations/ Principal activities and markets	Introduction The Company is an international oil and gas exploration, development and production company incorporated and domiciled in Canada. The Company has a portfolio of oil and gas assets in Italy and Azerbaijan. The Group’s principal assets are held through: (i) its wholly�owned subsidiary, Zenith Aran Oil Company Limited (“Zenith Aran”), which holds an 80% interest in three petroleum producing onshore fields in Azerbaijan; and (ii) Canoel Italia S.r.l. (in which the Company has a 98.64% shareholding), which holds various working interests in 13 onshore exploration and production properties in Italy.

Business Strategy

The Company’s strategy is, among other things, to (i) grow through international acquisitions; (ii) increase the production and reserves from its international inventory of oil and gas assets; (iii) target its operations at areas with advantageous access points for its exploration activities with a reasonably stable economic and business environment; (iv) develop a balanced portfolio of short, medium and long�term opportunities; (v) seek innovative ways to unlock value; (vi) achieve and maintain a robust, well�funded business with the financial flexibility to fund high�impact exploration, appraisal and development programmes; and (vii) unlock oil and gas reserves still unexploited in old and marginal oil and gas fields through the use of new technology.

Azerbaijan

On 16 March 2016, Zenith Aran entered into a Rehabilitation, Exploration, Development and Production Sharing Agreement (“ REDPSA ”) with the State Oil Company of Azerbaijan Republic (“ SOCAR ”) and SOCAR Oil Affiliate (“ SOA ”). Pursuant to the terms of the REDPSA, the Company and SOA have the exclusive right to conduct petroleum operations from three petroleum�producing onshore fields in Azerbaijan (the “ Azerbaijani Operations ”), through a newly incorporated operating company, Aran Oil Operating Company Limited (“ Aran Oil ”), in which Zenith Aran has an 80% interest. On 24 June 2016, the President of the Republic of Azerbaijan signed the REDPSA into law, following approval and ratification by Parliament on 14 June 2016. The handover of the capital assets previously used in the petroleum operations at the Azerbaijani Operations, from the previous operating company to Aran Oil, officially completed on 11 August 2016.

The three fields which comprise the Azerbaijani Operations (Muradkhanli, Jafarli and Zardab) have a compounded acreage of 642 square kilometres. They produce approximately 300 barrels of crude oil per day at present, although they have produced much larger quantities previously (Source: SOCAR). Aran Oil is the operator of the concession, with the remaining 20% interest being held by SOA. The licence (which is subject to exploitation and production conditions) has a duration of 25 years. A possible additional five�year extension may be approved by SOCAR.

The Company’s share of estimated total proved plus probable oil net reserves (which it could be possible to produce during the relevant 25�year contract period) was assessed at 31,735 MSTB of oil as of 31 March 2018 by the Competent Person.

The Company intends to grow the current base of production in Azerbaijan through investments in technology, enhanced production techniques, significant infill development opportunities and future step� out exploration. The Company considers its operations in Azerbaijan to be a key strategic asset and it is committed to developing its interest in the concession. Since becoming the operator, Zenith Aran has commenced a progressive programme of workovers and refurbishments of the existing wells. This has increased production by 25 bbls of oil per day (to 300 bbls per day) since 11 August 2016, an increase of 9%.

The Company’s Azerbaijani operations produced 70,270 barrels of oil in the nine months to 31 December 2017, and 68,166 barrels of oil in the period from 11 August 2016 to 31 March 2017.

Italy

On 18 November 2010, Zenith established Canoel Italia S.r.l., a 98.7%� owned subsidiary of the Company, incorporated in Italy. On 5 June 2013, the Company completed the acquisition of various interests in 13 Italian producing and exploration properties. The assets comprise six operated onshore gas production concessions, three non�operated onshore gas production concessions, an operated exploration permit, a non�operated exploration permit and two exploration permit applications.

The Company’s share of estimated total proved plus probable natural gas net reserves (relating to the Torrente Cigno, Misano Adriatico, Lucera and San Mauro concessions) was assessed at 16,398 Mmscf and condensate net reserves were assessed at 257Mbbls as of 31 March 2018 by the Competent Person.

The Company’s Italian operations produced in the nine months to 31 December 2017:

13,199 MCF of natural gas;
782 barrels of condensate; and
• 7,185 MWh of electricity.
B.4a Significant Trends Significant recent trends affecting the Group and the industry in which the Company operates include the following: • The global recession has created new challenges for oil and gas companies, who are currently faced with several near�term threats to returns. Conversely, the long�term outlook and prospects for growth remains optimistic. The industry is therefore being pressured to develop strategic responses to the conflict between near�term pressures and long�term potential.
Some companies in the industry have avoided or addressed immediate financial crisis challenges, but some still face refinancing and cash flows insufficient to sustain debt service, along with ongoing investment in operations and growth.
Upstream input costs in the industry (including equipment, materials and services) represent up to 80% of total operating costs and have not fallen as rapidly as commodity prices.
It is becoming increasingly important for oil and gas companies to capture the value of technology and technology application.
Strong demand growth post�recovery from the financial crisis may lead to increasing environmental concerns, carbon regulation and energy security issues.


B.5	Group Structure	The Company is the parent company of the Group. The Subsidiaries of the Company are as follows (the Company does not have any other subsidiaries or investments in other companies): Jurisdiction of Proportion of Group Name incorporation ownership interest Principal activity Ingenieria Petrolera Colorado, USA 100.00% Oil services Patagonia Ltd. Conoel Italia Srl Italy 98.64% Gas, electricity and condensate production Altasol SA Switzerland 100.00% Oil trading Zena Drilling Limited Ras Al Khaimah 100.00% Oilfield Service FTZ, UAE company Zenith Aran Oil British Virgin 100.00% Oil production Company Limited Islands Aran Oil Operating British Virgin 80.00% Oil production Company Limited Islands Leonardo Energy Italy 48.00% Service company Consulting Srl Zenith Energy England 100.00% Administrative service (O & G) Limited & Wales company
B.6	Major Shareholders	Under Canadian law, any person or company that has beneficial ownership of, or control or direction over, whether direct or indirect, or a combination of beneficial ownership of, and control or direction over, whether direct or indirect, securities of an issuer carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities, including securities (issued and unissued) that the person or company is the beneficial owner of, which are convertible into voting securities within 60 days following that date, or has a right or obligation permitting or requiring the person or company, whether or not on conditions, to acquire beneficial ownership of the security within 60 days, by a single transaction or a series of linked transactions, is required to notify their holdings publicly. As at 4 June 2018 (being the latest practicable date before publication of this Document), the Company is not aware of any Shareholders that have a notifiable interest under Canadian law. The Company makes all the required disclosures under the DTR, and as at 19 June 2018, the following required disclosure under the DTR:
		Number of % of Issued Name Shares held Shares held MIRABAUD & CIE SA 11,556,167 7.23 DEAN ANTONY CLARK 8,640,000 5.40

the DTR:
	Number of	% of Issued
Name	Shares held	Shares held
MIRABAUD & CIE SA	11,556,167	7.23
DEAN ANTONY CLARK	8,640,000	5.40

B.7 Historical Key The table below sets out summary audited Consolidated Statement of Financial Financial Position as at 31 March 2015, 2016 and 2017, and for the Information unaudited nine months ended 31 December 2017, together with the comparative period (31 December 2016).

Consolidated Statement of Financial Position

Unaudited
9 months ended
1111111
31�Dec�16
31�Dec�17
CAD
CAD
$’000
$’000
ASSETS
Non�current assets
Property, Plant and
Equipment
1,066,398
1,075,743
Capitalised expenses
—
2,378
Other receivables
161
430
111 111
1,066,559
1,078,551
Current Assets
Other
2,278
2,2080
Cash and cash
equivalents
315
2,358
111 111
2,593
4,566
111 111
TOTAL ASSETS
1,069,152
1,083,117
333 333
EQUITY AND LIABILITIES
Equity attributable
to equity holders
for the parent
Total equity
606,174
578,917
Current Liabilities
Trade and other Payables
4.893
3.857
Oil share agreement
1,063
—
Azerbaijan
Commitments
502
440
Debt
2,160
3,152
111 111
Total current
Liabilities
8,618
7,449
Non�current
liabilities
Debt
3,685
2,339
Decommissioning
Provision
9,704
7,980
Azerbaijan
Commitments
287,044
484,034
Deferred taxation
153,927
2,398
111 111
Total non�current
Liabilities
454,317
497,177
111 111
TOTAL EQUITY
AND LIABILITIES
1,069,311
1,080,059
333 333

Audited financial year ended
1111111111
31�Mar�15 31�Mar�16 31�Mar�17
CAD
CAD
CAD
$’000
$’000
$’000
16,993
14,598
1,072,993
—
—
—
355
207
401
111 111 111
17,048
14,805
1,073,334
1,262
1,365
1,838
936
138
3,924
111 111 111
2,198
1,492
5,762
111 111 111
19,246
16,297
1,079,096
333 333 333
4,289
(2,278)
575,447
2,235
3,266
2,912
1,005
1,027
—
—
—
440
2,367
3,907
973
111 111 111
5,607
8,200
4,325
1,174
1,595
912
5,779
7,897
7,980
—
—
484,034
2,397
883
2,398
111 111 111
9,350
10,375
499,324
111 111 111
19,246
16,297
1,079,096
333 333 333

The table below sets out the audited Consolidated Statement of Comprehensive Income for the years ending 31 March 2015, 2016 and 2017 and for the unaudited nine months ended 31 December 2017, together with the comparative period (31 December 2016).

Consolidated Statement of Comprehensive Income

Unaudited
9 months ended
1111111
31�Dec�16
31�Dec�17
CAD
CAD
$’000
$’000
Continuing operations
Revenue
2,977
4,402
Cost of Sales
(2,327)
(2,935)
111 111
Gross Profit/(Loss)
650
1,467
111 111
Administrative expenses
(3,697)
(962)
Gain (impairment) on
business Combination
771,189
—
111 111
Operating Profit/
(Loss)
768,142
505
111 111
Other
385
64
111 111
Profit/(loss) for the
year before Taxation
767,757
569
111 111
Taxation
(153,044)
—
Profit/(loss) from
Discontinued operations
Net of tax
—
—
111 111
Profit/(loss) for the
year attributable to
owners of the Parent
614,713
569
111 111
Other Comprehensive
Income
(8,428)
68
Total Comprehensive
Income for the year
attributable to owners
of the Parent
606,285
637
111 111
Earnings per share (CAD)
Basic
10.59
0.01
Diluted
5.90
0.01

Audited financial year ended
1111111111
31�Mar�15 31�Mar�16 31�Mar�17
CAD
CAD
CAD
$’000
$’000
$’000
4,439
1,960
4.424
(2,481)
(2,365)
(4,332)
111 111 111
1,958
(405)
92
111 111 111
(2,949)
(2,449)
(4,155)
—
(5,025)
576,010
111 111 111
(991)
(7,879)
571,947
111 111 111
(1,285)
(1,310)
(206)
111 111 111
(2,276)
(9,189)
571,741
111 111 111
(99)
1,514
—
—
—
(4,363)
111 111 111
(2,375)
(7,675)
567,378
111 111 111
(1,598)
(142)
1,595
(3,973)
(7,817)
568,973
111 111 111
(0.11)
(0.23)
8.15
(0.11)
(0.23)
4.54

The table below sets out extracts from the audited Consolidated Statement of Cash Flows of the Group for the years ending 31 March 2015, 2016 and 2017 and for the unaudited nine months ended 31 December 2017, together with the comparative period (31 December 2016).

Consolidated Statements of Cash Flows

Unaudited
9 months ended
1111111
31�Dec�16
31�Dec�17
CAD
CAD
$’000
$’000
Net cash flows
from operating
activities
(1,909)
2,775
Net cash flows
from investing
Activities
(81)
(7,414)
Net cash flows
from financing
Activities
1,876
3,073
Net cash flows
from discontinued
operations
—
—
Net (decrease)/
increase in cash
(114)
(1,566)
Foreign exchange
effect on cash held
in foreign
Currencies
(5)
—
Cash and cash
equivalent at end
of year
19
2,358

Audited financial year ended
1111111111
31�Mar�15 31�Mar�16 31�Mar�17
CAD
CAD
CAD
$’000
$’000
$’000
(634)
(2,474)
(1,459)
(1,017)
(155)
(401)
1,903
1,977
5,710
—
—
(59)
252
(652)
3,791
(27)
(146)
(5)
936
138
3,924

The summary below presents certain significant changes to the Group’s audited financial condition and operating results during the years ending 31 March 2015, 2016 and 2017, and for the unaudited nine months ended 31 December 2017, together with the comparative period (31 December 2017).

Financial Position

The non�current asset base increased in 2017, in comparison to 2015 and 2016, because during the year the Group expanded its asset base through the acquisition of interests in Azerbaijan which were formally completed in August 2016 and the Group started crude oil production of approximately 275 barrels of oil per day in Azerbaijan. This resulted in a bargain net purchase of CAD$579 million being CAD$1,065 million of development and production assets, less future payments of CAD$6 million for compensatory oil, CAD$479 million of capital expenditure commitments and CAD$2 million of decommissioning expenses. This acquisition resulted in an increase of about $2million in oil and gas revenues against the prior year.

The Group disposed of its assets in Argentina in February 2017, to focus on producing and developing activity in Azerbaijan.

In addition to these events, on 11 January 2017 the Group announced that its entire Common Share capital was admitted to the standard list segment of the Official List and to trading on the London Stock Exchange’s Main Market.

The Group raised approximately CAD$3.2 million from investors in 2015 and 2016. In connection with the IPO, the Group successfully placed

33,322,143 Common Shares at £0.07 (CAD$0.11) per share. On completion of the IPO Placing the gross proceeds available to the Group were approximately £2,333k (CAD$3,824k) and the net proceeds were approximately £2,016k (CAD$3,305k). The Group issued broker warrants to subscribe for 1,114,286 Common Shares exercisable for 24 months from closing at a price of £0.07 per Common Share, in connection with the IPO Placing. The Company raised a total of £4,068k (CAD$7,362k), net of finder’s fees, through the placing of 58,018,858 Commion Shares subsequent to the IPO Placing, upto and including the January Placings, exercise of stock options and warrants by shareholders.

Cash Flows

Zenith has funded its cash requirements from equity and debt sources as well as seeking value from deals undertaken which the Directors anticipate will allow for improved cash generation.

In addition, management of debt (e.g. renegotiation of loans) and finance funding has allowed Zenith to fund its activities despite being in a net current liability position for each of the three years presented.

Cash used in investing activities totalled CAD$401k (31 March 2016: CAD$576k and 31 March 2015: CAD$1,017k). The cash from financing activities in 2017 totalled CAD$5,710k, principally due to the proceeds from the IPO, less net repayment of loans.

Closing cash

As at 31 March 2017 the Group held CAD$3,924k in cash (31 March 2016: CAD$138k and 31 March 2015: CAD$936k). As at 31 December 2017 the Group held CAD$2,358k in cash.

Revenues

The following table shows the revenue generated by region and by production.

Revenues (net of royalties)

Unaudited 9 months ended 1111111 31�Dec�16 31�Dec�17 CAD CAD $’000 $’000 Revenues Oil (Argentina) net of royalties 78 — Oil (Azerbaijan) 2,777 3,785 Gas (Italy) 110 116 Condensate (Italy) 39 45 Electricity (Italy) 480 456 111 111 TOTAL 2,984 4,402 333 333	Audited financial year ended 1111111111 31�Mar�15 31�Mar�16 31�Mar�17 CAD CAD CAD $’000 $’000 $’000 3,362 1,169 72 — — 3,772 989 466 31 88 63 47 n.a 262 574 111 111 111 4,439 1,960 4,496 333 333 333

Oil

Oil revenues increased in 2017 due to improvement in production related to the handover in Azerbaijan. The decline in revenues in 2016 resulted from lost production due to the collapse of the storage tank owned by YPF and used by the Company, and the subsequent temporary interruption of production in Argentina. These properties were sold in February 2017.

Gas

Gas revenue decreased in 2016 and 2017. This was due primarily to the reclassification of the gas produced from the Torrente Cigno Concession. On 1 October 2015, the Company acquired co�generation equipment and facilities from the owner of the plant that treats gas from the Masseria Vincelli 1 well in the Torrente Cigno Concession. The acquisition will enable the company to produce electricity from the gas produced by the Masseria Vincelli 1 well and sell it directly into the national energy grid.

Gas produced from the Torrente Cigno Concession is now used to produce electricity. Following the Company’s acquisition of co� generation equipment and facilities on 1 October 2015, the Company became the new electricity producer and classifies its 45% share of gas production at the Torrente Cigno Concession as gas sales volumes for electricity.

Condensate revenue decreased in 2017 due to a period of production disruption of 40 days in the Torrente Cigno Concession arising from extraordinary and adverse weather conditions.

Costs

Production costs were affected by the end of production in Argentina, in 2016, and the commencement of production in Azerbaijan in 2017.

Office and administrative costs have increased in 2017 as a result of the costs related to the Azerbaijan Acquisition, and the costs related to the IPO.

The production costs in the 9 months ended 31 December 2017, compared to the comparative period ended 31 December 2016, increased as a result of increased costs of the Azerbaijan Acquisition.

The office and administrative costs in the 9 months ended 31 December 2017, compared to the comparative period ended 31 December 2016, decreased as consequence of the capitalisation of the costs related to the Azerbaijan Acquisition, and the costs related to the IPO.

PERIOD SUBSEQUENT TO THE PERIOD COVERED BY THE FINANCIAL INFORMATION

In the period starting from 1 January 2018 to the date of this Document, production has remained steady in Italy and Azerbaijan. The financial position of the Company has been affected by funding its cash requirements from equity, to finance its workover plans and the purchase of machinery for its assets in Azerbaijan. The Company announced two share placings, one in Canada and one in the UK, during January 2018, raising a combined total of CAN$1.66m to finance its workover plans and the purchase of machinery for assets in Azerbaijan.

Save as disclosed in this Document, there have not been any other significant changes to the Company’s financial condition and operating results in the period covered by, and subsequent to, the period covered by the financial information.

		Save as disclosed in this Document, there have not been any other significant changes to the Company’s financial condition and operating results in the period covered by, and subsequent to, the period covered by the financial information.
B.8	Selected Pro	This has been prepared for illustrative purposes only. Because of its
	Forma Financial	nature, the pro forma financial information below addresses a
	Information	hypothetical situation and, therefore, does not represent the Company’s
		actual financial position or results.

Unaudited pro�forma statement of net assets

					Unaudited
					pro�forma
Company’s net					net assets
	assets as of				of the
31 December 17		Adjustment	Adjustment	Adjustment	Company
	Note 1	Note 2	Note 3	Note 4
	CAD$000’s	CAD$000’s	CAD$000’s	CAD$000’s	CAD$000’s
ASSETS
Non�current assets
Property and equipment	1,075,743	1,142	—	—	1,076,885
Capitalised expenses	2,378	—	—	—	2,378
Other receivables	430	—	—	—	430
	111	111	111	111	111
	1,078,551	1,142	—	—	1,079,693
Current Assets
Inventory	296	—	—	—	296
Trade and other recivables	1,912	—	—	—	1,912
Financial Instruments	—	—	—	—	—
Cash and cash equivalents	2,358	170	—	2,991	5,519
	111	111	111	111	111
	4,566	170	—	2,991	7,727
	111	111	111	111	111
TOTAL ASSETS	1,083,117	1,312	—	2,991	1,087,420
	333	333	333	333	333
LIABILITIES
Non�current liabilities
Borrowings	2,339	—	—	—	2,339
Convertible loans	—	—	—	—	—
Decommissioning provision	7,980	—	—	—	7,980
Deferred Consideration
payable	484,034	—	—	—	484,034
Deferred taxation (STET)	2,398	—	—	—	2,398
	111	111	111	111	111
Total non�current liabilities	496,751	—	—	—	496,751
	111	111	111	111	111
Current liabilities
Trade and other payables	3.857	(283)	546	(546)	3.574
Borrowings	2,771	—	—	—	2,771
Deferred Consideration
payable	440	—	—	—	440
Convertible Loans	381	—	—	—	381
Total current liabilities	7,449	(283)	546	(546)	7,166
	111	111	111	111	111
NET ASSETS	578,917	1,595	(546)	3,537	583,683
	333	333	333	333	333

Notes:

The financial information relating to the Company has been extracted without adjustment from the unaudited interim financial information set out in Part 16 (Historical Financial Information) of this Document.
The CAD$1,595k (approximately £938k) adjustment represents the placement of no. 4,000,000 shares at cad$ 0.125 (approximately £0.0742) per share, and no. 9,000,000 shares at cad$ 0.1287 (approximately £0.0742) per share subsequent to the placing closed by the Company in January 2018. This fund raising will result in a cash increase of CAD$1,595k (£938k), net of cost incurred in connection with placement of total CAD$63k (£37k). The cash was used to finance its continued investment in its Azerbaijan field operations and for general working capital.
The CAD$546k (£312k) adjustment represents the costs related the IPO, that will be paid using the IPO cash increase or shares.
The CAD$3,537k (£2.020k) adjustment represents the placement of 50,500,000 shares at £0.04 per share, that will be take place concurrently with the admission to the London Stock Exchange. This fund raising will result in a cash increase of CAD$ 2,991k (£1,708k), net of cost incurred in connection with placement of total CAD$546k (£312k).
The Pro Forma Financial Information excludes an unaudited pro forma statement of results on the basis that the adjustment above has no effect on the results for the period ended 31 December 2017.
The Pro Forma Financial Information does not reflect any changes in the trading position of the Company or any other changes arising from other transactions, since 31 December 2017. There are no other significant changes to the issuer’s financial condition and operating results, other than those disclosed.

B.9 Profit forecast or Not applicable; no profit forecasts or estimates are made. estimates

B.10	Qualified audit report	Not applicable; the audit reports on the historical financial information for the years ended 31 March 2017, 2016 and 2015 do not contain any qualifications.
B.11	Working capital explanation	Not applicable; the Company is of the opinion that, taking into account the Net Proceeds receivable by the Company, the working capital available to the Group is sufficient for its present requirements, that is for at least the next 12 months from the date of this Document.

		~~SECTION C SECURITIES~~
		~~–~~
C.1	Description of the type and class of the securities being offered	The securities which will be subject to an application for admission to the Official List of the FCA and to trading on the London Stock Exchange’s main market for listed securities are common shares of the Company of no par value, which are registered with ISIN number CA98936C1068 and SEDOL number BYNXNZ9.
C.2	Currency of the securities issue	The Placing Price, Subscription Price and Offer Price are payable in Pounds Sterling.
C.3	Issued share capital	The Company currently has 159,921,766 common shares in issue, all fully paid, and admitted to trading on the Toronto Stock Exchange Venture Exchange, of which 153,200,119 fully paid common shares in issue are also admitted to trading on the Main Market of the London Stock Exchange. The Directors are authorised to issue an unlimited number of Common Shares. There are no provisions in the Articles that require new Common Shares to be issued on a pre�emptive basis to existing Shareholders and there are no statutory pre�emption rights.
C.4	Rights attached to the securities	The Common Shares rank equally for voting purposes. On a show of hands, each Shareholder has one vote and on a poll each Shareholder has one vote per Common Share held.
C.5	Restrictions on transferability	Not applicable. All Common Shares, including the Placing Shares, Subscription Shares and Offer Shares, are freely transferable, subject to Canadian securities laws.
C.6	Application for admission to trading on a regulated market	Application has been made for the Placing Shares, Subscription Shares, Offer Shares and the Admission Shares to be admitted to the standard segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities. It is expected that Admission will become effective and that unconditional dealings will commence at 8.00 a.m. on 26 June 2018. Application will also be made to list the Placing Shares on the TSXV, however the Placing Shares, Subscription Shares and Offer Shares may not be resold in Canada or to a resident of Canada for a period of four months and one day from Admission.
C.7	Dividend policy	The Company has never declared or paid any dividends on the Common Shares. The Company currently intends to retain future earnings, if any, for future operations, expansion and debt repayment, if necessary. Therefore, at present, there is no intention to pay dividends and a dividend may never be paid. Any decision to declare and pay dividends will be made at the discretion of the Board of Directors.

	~~SECTION D SECURITIES~~	~~SECTION D SECURITIES~~	~~SECTION D SECURITIES~~
	~~–~~
	D.1	Key information on the key risks that are specific to the issuer or its industry	International operations are subject to political, economic and other uncertainties, including, among others, risk of war, risk of terrorist activities, border disputes, expropriation, renegotiations or modification of existing contracts, restrictions on repatriation of funds, import, export and transportation regulations and tariffs, taxation policies including royalty and tax increases and retroactive tax claims, exchange controls, limits on allowable levels of production, currency fluctuations, labour disputes, sudden changes in laws, government control over domestic oil and gas pricing, and other uncertainties arising out of foreign government sovereignty over the Company’s operations. Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could cause substantial damage to oil and natural gas wells, production facilities, other property or the environment, or personal injury. Oil and natural gas are internationally traded commodities and subject to significant price variations over time. Oil and natural gas operations (exploration, production, pricing, marketing and transportation) are subject to extensive controls and regulations imposed by various levels of government, which may be amended from time to time. Governments may regulate or intervene with respect to price, taxes, royalties and the exportation of oil and natural gas. Such regulations may be changed from time to time in response to economic or political conditions. There is also the risk that implementation of new regulations or the modification of existing regulations affecting the oil and natural gas industry could reduce demand for natural gas and crude oil and increase the Company’s costs, any of which may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. The Company is subject to significant environmental regulations in respect of its operational activities in all jurisdictions and seeks to conduct its operations in an environmentally responsible manner and to maintain the productivity goals achieved. Compliance with such legislation can require significant expenditures and a breach of applicable environmental legislation may result in the imposition of fines and penalties, some of which may be material. Should the Company be unable to fully fund the cost of remedying an environmental problem, the Company might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. The Company’s business can involve significant capital expenditure and it may require additional capital to fund the acquisition and development of additional value enhancing exploration, development and production opportunities should they be identified and arise in the future. There can be no assurance that the Company will be able to obtain debt financing or additional equity financing in the amounts required for expenditure beyond its current capital expenditure plans, or, if debt or equity financing is available, that it will be on terms acceptable to the Company. There is a risk that future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient petroleum substances to return a profit. Completion of a well does not assure a profit or recovery of costs. In addition, drilling hazards or environmental damage could greatly

		increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut�ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions. There are numerous uncertainties inherent in estimating quantities of oil, natural gas and natural gas liquids reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set out in this Document are estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results.
D.3	Key information on the key risks that are specific to the securities	Application has been made for the Placing Shares, Subscription Shares, Offer Shares and Admission Shares to be admitted to the standard segment of the Official List. A Standard Listing affords Shareholders and investors in the Company a lower level of regulatory protection than that afforded to investors in companies whose securities are admitted to the premium segment of the Official List, which are subject to additional obligations under the Listing Rules. If the Company offers its Common Shares as consideration in making an acquisition or issues shares to raise funds to pay cash consideration, depending on the number of Common Shares offered and the value of such Common Shares at the time, the issuance of such Common Shares could materially reduce the percentage ownership of the holders of Common Shares and also dilute the value of their holding. The Company’s Common Shares are listed on two separate stock markets. Investors seeking to take advantage of price differences between such markets may create unexpected volatility in share price. Additionally, investors may not be able to easily move shares for trading between such markets. The Company is incorporated in Canada and is subject to Canadian law. The rights and obligations of holders of Common Shares may be different from those of the home countries of international investors. Non�Canadian residents may also find it more difficult and costly to exercise shareholder rights. The issuance of additional Common Shares in connection with future acquisitions, any share incentive or share option plan or otherwise may dilute all other shareholdings and their voting interests. The exercise of Options or Warrants or conversion of Convertible Loan Notes will result in a dilution of Shareholders’ interests if the price per Common Share exceeds the subscription/conversion price payable at the relevant time.

~~SECTION E OFFER~~	~~SECTION E OFFER~~	~~SECTION E OFFER~~
~~–~~
E.1	Total net proceeds/ expenses	The estimated Net Proceeds are approximately £1,708,300. The total expenses incurred (or to be incurred) by the Company in connection with Admission, the Subscription and the Placing are approximately £311,700. No expenses will be charged to the investors. The net proceeds of the PrimaryBid Offer will be up to £800,000, after a commission expense of 5% (up to £40,000) has been deducted. No expenses will be charged to investors.
E.2	Reasons for the offer and the use of proceeds	The Company’s intention is to use the Net Proceeds as follows (in order of priority): Use Amount (GBP) Deposit for the leasing of a new drilling rig £1,500,000 Working capital £208,300 11111 Total £1,708,300 33333
E.3	Terms and conditions of the offer	Any net proceeds of the PrimaryBid Offer will be applied to general working capital purposes. The Placing comprises a total of 46,500,000 Placing Shares to be issued by the Company at a Placing Price of 4 pence per new Common Share, to raise gross proceeds of approximately £1,860,000 (before expenses). The estimated Net Proceeds of the Placing amount to approximately £1,548,300. Each prospective investor has been offered Placing Shares of no par value at the Placing Price and the Placing Shares have been conditionally subscribed for by investors. The Directors have received irrevocable subscription agreements from investors to subscribe for 46,500,000 Common Shares in aggregate at the Placing Price. The undertakings are conditional only on Admission. The Placing Shares will be issued credited as fully paid and will, on Admission, rank_pari passu_in all respects with all other Common Shares including the right to receive all dividends or other distributions declared, made or paid after Admission. The Placing Shares to be issued by the Company pursuant to the Placing will represent approximately 22.10% of the Enlarged Common Shares in Issue. On Admission the Company will have a market capitalisation (at the Placing Price) of approximately £8.42m assuming 46,500,000 Placing Shares are issued at the Placing Price. The Subscription is for 4,000,000 Subscription Shares at the Subscription Price of 4 pence per Common Share. The Subscription Shares will be issued credited as fully paid and will, on Admission, rank_pari passu_in all respects with all other Common Shares including the right to receive all dividends or other distributions declared, made or paid after Admission. The PrimaryBid Offer for up to 20,000,000 Offer Shares at the Offer Price of 4 pence per Common Share will be open on 20 June 2018. This will raise gross proceeds of up to £800,000. The PrimaryBid Offer is not underwritten. All Offer Shares will be issued, payable in full, at the Offer Price. The Offer Shares will be issued credited as fully paid and will, on Admission, rank pari passu in all respects with all other Common Shares including

		the right to receive all dividends or other distributions declared, made or paid after Admission. The Company expressly reserves the right to determine, at any time prior to Admission, not to proceed with the Placing, Subscription and/or the PrimaryBid Offer. Following Admission, the Net Proceeds and the net proceeds of the PrimaryBid Offer will be placed on deposit with the Company’s bankers.
E.4	Material interests	Not applicable; there are no interests, known to the Company, that are material to the issue/offer or which are conflicting interests.
E.5	Selling Shareholders/ Lock�up agreements	Not applicable; no person or entity is offering to sell the relevant securities. There are no lock�up arrangements. The Placing Shares, Subscription Shares and Offer Shares cannot be resold in Canada for a period of 4 months and 1 day from issue under Canadian securities rules.
E.6	Dilution	Under the Placing and Subscription, 50,500,000 new Common Shares have been conditionally subscribed for by investors at the Placing Price/Subscription Price, representing 24.00% of the Enlarged Common Shares in issue. Shareholdings immediately prior to Admission will be diluted on Admission by approximately 37.35% as a result of the Placing Shares, Admission Shares and Subscription Shares issued pursuant to the Placing and Subscription Shareholdings immediately prior to Admission will be further diluted on Admission by up to 13.06% as a result of the issue of the Offer Shares.
E.7	Expenses charged to investors	Not applicable; no expenses will be charged to the investors.

PART 2 RISK FACTORS

The Group’s business, financial condition or results of operations could be materially and adversely affected by the risks described below. In such cases, the market price of the Common Shares may decline due to any of these risks and investors may lose all or part of their investment. Additional risks and uncertainties not presently known to the Directors, or that the Directors currently deem immaterial, may also have an adverse effect on the Group. The Directors consider the following risks to be the material risks for potential investors in the Company, but the risks listed do not necessarily comprise all those associated with an investment in the Company.

Any investment in the Common Shares is speculative and subject to a high degree of risk. Prior to investing in the Common Shares, prospective investors should carefully consider the risks and uncertainties associated with any investment in the Common Shares, the Group’s business and the industry in which it operates, together with all other information contained in this Document, including, in particular, the risk factors described below. Following the occurrence of any such event, the value of Common Shares could decline, and investors could lose all or part of their investment. Prospective investors should note that the risks relating to the Group, its industry and the Common Shares summarised in Part 1: “Summary” of this Document are the risks that the Company believes to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Common Shares. However, as the risks which the Group faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in Part 1: “Summary” of this Document but also, among other things, the risks and uncertainties described below. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.

The following factors do not purport to be a complete list or explanation of all the risk factors involved in investing in the Common Shares and should be used as guidance only. Additional risks and uncertainties that are not currently known to the Group, or that it currently deems immaterial, may individually or cumulatively also have an adverse effect on the Group’s business, results of operations, financial condition and prospects. If this occurs, the price of the Common Shares may decline, and investors could lose all or part of their investment. Prospective investors should also consider carefully whether an investment in the Common Shares is suitable for them in light of the information in this Document and their personal circumstances and, if they are in any doubt, should consult with an independent financial adviser authorised in their jurisdiction who specialises in advising on the acquisition of shares.

RISKS RELATING TO THE GROUP’S FOREIGN OPERATIONS

RISKS RELATING TO FOREIGN OIL AND GAS OPERATIONS

International operations are subject to political, economic and other uncertainties, including, among others, risk of war, risk of terrorist activities, border disputes, expropriation, renegotiations or modification of existing contracts, restrictions on repatriation of funds, import, export and transportation regulations and tariffs, taxation policies including royalty and tax increases and retroactive tax claims, exchange controls, limits on allowable levels of production, currency fluctuations, labour disputes, sudden changes in laws, government control over domestic oil and gas pricing, and other uncertainties arising out of foreign government sovereignty over the Company’s international operations. With respect to taxation matters, there is the risk that the governments and other regulatory agencies in the foreign jurisdictions in which the Company operates and intends to operate in future may make sudden changes in laws relating to royalties or taxation or impose higher tax rates which may affect the Company’s operations in a significant manner. These governments and agencies may not allow certain deductions in calculating tax payable that the Company believes should be deductible under applicable laws or may have differing views as to values of transferred properties. This can result in significantly higher tax payable than initially anticipated by the Company. In many circumstances, re�adjustments to tax payable imposed by these governments and agencies may occur years after the initial tax amounts were paid by the Company, which can result in the Company having to pay significant penalties and fines. Furthermore, in the event of a dispute arising from international operations, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be

successful in subjecting foreign persons to the jurisdiction of courts in Canada. The Company operates in such a manner as to mitigate its exposure to these risks; however, there can be no assurance that the Company will be successful in protecting itself from the impact of all these risks.

Foreign oil and gas operations involve substantial costs and are subject to certain risks owing to the underdeveloped nature of the oil and gas industry in such countries. The oil and gas industries in various countries are not as developed as the oil and gas industry in UK, Canada and the United States. As a result, drilling and development operations may take longer to complete and may cost more than similar operations in UK, Canada and the United States. The availability of technical expertise, specific equipment and supplies is more limited in various countries other than in UK, Canada and the United States. Such factors may subject oil and gas operations in other countries to economic and operating risks not experienced in UK, Canada and the United States.

The Company has entered into an exclusivity agreement for the acquisition of various production and exploration licences in Indonesia (the “ Proposed Acquisition ”). The Proposed Acquisition remains at an early stage and there can be no guarantee that the transaction will be successfully completed. Completion of the Proposed Acquisition remains conditional on, inter alia , completion of satisfactory due diligence, the entering into of binding agreements and financing of the Proposed Acquisition. Zenith is considering a number of funding options to finance the Proposed Acquisition including debt and equity, whilst seeking to avoid significant dilution to existing Shareholders, and no funds raised from the Placing will be used to satisfy any consideration for the Proposed Acquisition if it is proceeded with.

The Proposed Acquisition may be subject to regulatory approval from the TSXV.

RISKS RELATING TO THE GROUP’S OPERATIONS IN AZERBAIJAN

Investors in emerging markets such as Azerbaijan should be aware that these markets are subject to greater risk than more developed markets, including in some cases significant legal, economic and political risks. Investors should also note that emerging economies, such as Azerbaijan’s, are subject to rapid change and that the information set out in this Document may become outdated relatively quickly.

The disruptions recently experienced in the international capital markets have led to reduced liquidity and increased credit risk premiums for certain market participants and have resulted in a reduction of available financing. Companies located in countries in the emerging markets may be particularly susceptible to these disruptions and reductions in the availability of credit or increases in financing costs, which could result in them experiencing financial difficulty.

In addition, the availability of credit to entities operating within the emerging markets is significantly influenced by levels of investor confidence in such markets as a whole and so any factors that impact market confidence (for example, a decrease in credit ratings or state or central bank intervention in one market) could affect the price or availability of funding for entities within any of these markets.

REHABILITATION AND PRODUCTION PROGRAMME

Pursuant to the terms of the REDPSA, Zenith Aran and SOA prepared and submitted a rehabilitation and production programme to achieve an average daily crude oil production from the Contract Rehabilitation Area of 1.5 times the average daily production rate in 2015, for at least 90 consecutive days, by no later than two years following SOCAR’s approval of the programme. SOCAR approved the programme on 3 October 2017. The 2015 average daily production was approximately 310 STB/d and accordingly the new target will be at least 465 STB/d.

The rehabilitation and production programme also include a work programme that plans, between 2017 and 2020, to workover 44 existing wells, in three fields, which are currently inactive or produce at low rates (< 5 STB/d).

In addition to the marginal producing wells in Muradkhanli and Jafarli, four non�producing wells and one marginally producing well completed in the Maykop zone in the Zardab field are expected to be worked over in 2019 and 2020 and to be returned to production after wellbore and sand production problems have been resolved. The Company has also purchased an additional workover rig which will be used to perform additional workovers of various wells and has installed new electro submersible pumps (ESPs) which will be utilised during 2018 to assist with production increase plans.

The Company intends to acquire a modern drilling rig capable of drilling to 4,500 m to carry out the fifteen� year drilling program. It is estimated that five new wells will be drilled in 2019 and ten wells in each year until the anticipated drilling program is completed in 2033.

The workover interventions will be financed using local cash flow. The Company believes that the acquisition of a modern drilling rig will allow the Company to be completely independent, to be able to plan its own development, operate autonomously with its own equipment and personnel and obtain a considerable financial saving.

The Company believes that, despite the delays and the relative by limited success of the workover interventions carried out until now, the goal of achieving an average daily crude oil production from the Contract Rehabilitation Area of 1.5 times the average daily production rate in 2015, for at least 90 consecutive days, by no later than two years following SOCAR’s approval of the programme will be reached by no later than 3 October 2019, given the Company’s investment and development plan.

Further, based on the Company’s review of the Azerbaijani Operations and the average daily crude oil production from the Contract Rehabilitation Area in 2015 (which the Company considers to be low), the Directors consider the material risk factor that Aran Oil Operating Company Limited, the “Joint Operating Company” formed by Zenith Aran and SOA, will not achieve the minimum production required by the RESPSA to be low. The Company considers that currently there are no material risks related to the rehabilitation and production programme because the only material risk, in the event that Zenith Aran and SOA do not achieve the minimum average daily crude oil production rate within two years following SOCAR’s approval of the programme, is that it will be in material breach of the REDPSA and SOCAR will have a right to terminate the provisions of the REDPSA relating only to the Contract Rehabilitation Area.

The expiry date of 3 October 2019 is considered reasonable to achieve the minimum production required by the RESPSA, as the Company plans between 2018 and 2020 to workover a total of 38 existing wells which are currently inactive or produce at low rates to bring rates up to as much as 40STB/d per well, using improved technology, non�damaging fluids and optimised treatments. It is expected that 12 wells will be worked over in 2018, 15 wells in 2019 and 11 in 2020.

If fully successful, the workover of 12 wells in 2018 could increase production by up to 40STB/d, achieving a field production rate of up to 780STB/d by the end of the 2018 financial year.

An additional increase in production up to the Company’s goal of 1,000 STB/d could be achieved from the resizing or resetting of EPS’s and purchase additional equipment. That case has not been reflected in the economics analysis in this Document. On that basis, the field oil production rate will exceed 1.5 times the average 2015 rate in late 2018, ensuring that the Company will retain its rights under the REDPSA.

MINIMUM EXPLORATION WORK PROGRAMME

Pursuant to the terms of the REDPSA, within the four�year period commencing on the Effective Date, Zenith Aran and SOA will be required to carry out a minimum exploration work programme including the following:

to carry out an upper section site investigation survey to ensure a safe and environmentally sound base for drilling, and to shoot, process and interpret two�dimensional seismic or a minimum of sixty square kilometres of three�dimensional seismic (this will be decided by the Company at the relevant time), in the specified exploration area; and
to drill a well to a depth of five thousand metres from the ground surface, or to the depth of 50 metres below the top of the Upper Cretaceous formation, whichever occurs first, and evaluate the drilled well using an appropriate logging and testing programme.

If Zenith Aran and SOA fail to perform any of the above obligations, they will be in material breach of the REDPSA and SOCAR will have a right to terminate the provisions of the REDPSA relating to the contract exploration area (but not effecting the Contract Rehabilitation Area). The Contract Exploration Area has zero value attributed to it in the CPR.

The REDPSA does not contain any milestones in respect of the minimum exploration work programme. Based on the Company’s review of the Azerbaijani Operations, the Directors consider the risk that Aran Oil Operating Company Limited, the “Joint Operating Company” formed by Zenith Aran and SOA, will not achieve the minimum exploration work programme to be low. Aran Oil Operating Company Limited will fund

the minimum exploration work programme using its accumulated cash flows from the Azerbaijani Operations.

If the Company fails to comply with its exploration obligations, the Company’s understanding of the contract is that the related sanction will be to lose the exploration portion of the licence only which will not interfere with its development plans, will have no effect on its financial and economic performance and will not affect its ability to perform its other obligations under the contract.

To mitigate this risk, the Company has established a team of independent geologists, who have joined its staff to develop this particular programme. They are initially focussed on geological mapping and log digitizing of the area in order to improve understanding of field geology. This has included the contracting of approximately £30,000.00 in independent geological consulting services, and about £9,600 in data collection, processing and log digitizing.

AZERBAIJAN COULD BE AFFECTED BY REGIONAL TENSIONS AND UNREST

Like other countries in the region, Azerbaijan, which is bordered by Russia, Georgia, Armenia, Turkey and Iran, could be affected by political unrest both within its borders and in surrounding countries, and any resulting military action may have an effect on the world economy and political stability of other countries.

There have been a number of political and military disputes in the region. For example, in August 2008, the conflict in the Tskhinvali Region/South Ossetia of Georgia escalated as Georgian troops engaged with local militias and Russian forces that crossed the international border. In the days that followed the initial outbreak of hostilities, Georgia declared a state of war as Russian forces launched bombing raids deep into Georgia, targeted and destroyed Georgian infrastructure, blockaded part of the Georgian coast, took control of Tskhinvali and the Abkhazia region and landed marines on the Abkhaz coast. After five days of heavy fighting, the Georgian forces were defeated, enabling the Russians to enter Georgia uncontested and occupy the cities of Poti, Gori, Senaki and Zugdidi. During this period, transit through the pipelines crossing Georgia was temporarily stopped, which cut off one of the Company’s three principal export routes. Future such occurrences whether in Georgia, in one of the Republic’s other neighbours or in the region generally could have a material adverse effect on the Company’s business, prospects, financial condition, cash flows or results of operations.

Azerbaijan and other countries in the region could be affected by terrorism and by military or other action taken against sponsors of terrorism in the region, which could, in turn, have a significant adverse effect on Azerbaijan’s economy.

THE IMPLEMENTATION OF FURTHER MARKET�BASED ECONOMIC REFORMS IN AZERBAIJAN INVOLVES RISKS

The need for substantial investment in many enterprises has driven the Azerbaijani Government’s privatisation programme, although the Company is not aware of any plans to privatise SOCAR or any of its subsidiaries, joint ventures or associates. The programme has excluded certain enterprises deemed strategically significant by the Azerbaijani Government, although major privatisations in key sectors have taken place, such as full or partial sales of certain industrial producers, financial institutions and service companies.

Economic performance in the private sector is still constrained by an inadequate business infrastructure. Further, the considerable amount of cash transactions in the economy and the significant size of the shadow economy (including under reporting of income) adversely affect the implementation of reforms and hamper the efficient collection of taxes.

OFFICIAL DATA IN AZERBAIJAN MAY BE UNRELIABLE

Official statistics and other data published by the Azerbaijani Government, its Central Bank, and its agencies may be substantially less complete or researched and, as a result of this and other factors, be less reliable than those published by comparable bodies in other jurisdictions. Accordingly, the Company cannot assure prospective investors that the official sources from which the Company has drawn some of the information set out herein are reliable or that the information is complete. In addition, the Company, to an extent, relies on such official sources in conducting and planning its business. Any discussion of matters relating to Azerbaijan herein may, therefore, be subject to uncertainty due to concerns about the reliability or completeness of available official and public information.

THERE ARE RISKS ASSOCIATED WITH THE UNDERDEVELOPMENT AND EVOLUTION OF THE LEGISLATIVE, TAX AND REGULATORY FRAMEWORK IN AZERBAIJAN

Since the break�up of the Soviet Union, the Azerbaijani Government has rapidly introduced laws, regulations and legal structures to foster the development of a market system and integration with the world economy. The speed with which legislation has been drafted has resulted in legislation that in many instances has left key issues unresolved, is frequently contradictory, inadequate or incomplete, and is susceptible to conflicting interpretations and overlapping jurisdictions between government bodies and has substantive gaps. In certain cases, legislation or implementing regulations may be unpublished or unavailable. Moreover, the absence of definitive interpretations of many of the provisions of these new laws, and the absence of a tradition in Azerbaijan of a judiciary that is insulated from current political or other considerations, can make the application of laws uncertain.

The commitment of Azerbaijani Government officials and agencies to comply with legal obligations and negotiated agreements has not always been reliable, and there is a tendency for the authorities to take arbitrary action. Legal redress for breach or unlawful action may not be readily available or may be subject to significant delays. These factors, which are not uncommon to transitional legal systems, make an investment subject to higher risks and greater uncertainties than would be the case in more developed legal systems.

FOREIGN JUDGMENTS AND ARBITRAL AWARDS MAY NOT BE ENFORCEABLE IN AZERBAIJAN

In the absence of reciprocity of enforcement of court judgments with foreign countries (including by virtue of bilateral treaties, of which very few are in force), Azerbaijani courts are unlikely to enforce a judgment of a court established in a country other than Azerbaijan, invoking statutory grounds for setting aside foreign judgments by asserting, for example, that the matter is subject to the exclusive jurisdiction of Azerbaijani courts or the courts of the country where the foreign or non�Azerbaijani judicial decision was adopted do not enforce the judicial decisions of Azerbaijani courts on a reciprocal basis. Although Azerbaijan is a signatory to certain conventions on the recognition and enforcement of foreign arbitral awards, the enforcement of such awards in local courts remains largely untested. Azerbaijani courts can be arbitrary in their decisions and the possibility cannot be excluded that judges may misapply Azerbaijani laws (including, inter alia , those concerning grounds for declining enforcement).

RISKS RELATING TO THE COMPANY AND ITS OPERATIONS

ACTIVITIES IN THE OIL AND GAS SECTORS CAN BE DANGEROUS, POSING HEALTH, SAFETY AND ENVIRONMENTAL RISKS

Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property as well as the environment or personal injury. In particular, the Group may produce sour natural gas in certain areas. An unintentional leak of sour natural gas could result in personal injury, loss of life or damage to property and may necessitate an evacuation of populated areas, all of which could result in liability to the Group. In accordance with industry practice, the Company is not fully insured against all of these risks, nor are all such risks insurable. Although the Company maintains liability insurance in an amount that it considers consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits, in which event the Company could incur significant costs. Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including encountering unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any of these risks may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

REGULATORY

Oil and natural gas operations (exploration, production, pricing, marketing and transportation) are subject to extensive controls and regulations imposed by various levels of government, which may be amended from time to time.

Governments may regulate or intervene with respect to price, taxes, royalties and the exportation of oil and natural gas. Such regulations may be changed from time to time in response to economic or political

conditions. There is also the risk that implementation of new regulations or the modification of existing regulations affecting the oil and natural gas industry could reduce demand for natural gas and crude oil and increase the Company’s costs, any of which may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. In order to conduct oil and gas operations, the Company will require licenses from various governmental authorities. There can be no assurance that the Company will be able to obtain all of the licenses and permits that may be required to conduct operations that it may wish to undertake.

ENVIRONMENTAL CONCERNS

The Company is subject to significant environmental regulations in respect of its operational activities in all jurisdictions and seeks to conduct its operations in an environmentally responsible manner and to maintain the productivity goals achieved. All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial and local laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and natural gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach of applicable environmental legislation may result in the imposition of fines and penalties, some of which may be material. Should the Company be unable to fully fund the cost of remedying an environmental problem, the Company might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require the Company to incur costs to remedy such discharge. Although the Company believes that it will be in material compliance with current applicable environmental regulations, no assurance can be given that environmental laws will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

Italy is a signatory to the United Nations Framework Convention on Climate Change and has ratified the Kyoto Protocol, and thus required to establish legally binding targets to reduce nation�wide emissions of carbon dioxide, methane, nitrous oxide and other “greenhouse gases”. There is the risk that the Company may be subject to legislation in Italy regulating emissions of greenhouse gases. The direct and indirect costs of complying with these emissions regulations may adversely affect the business of the Company.

SIGNIFICANT CAPITAL EXPENDITURE

The Company’s business can involve significant capital expenditure and it may require additional capital to accelerate development plans relating to its existing assets in Azerbaijan and to fund the acquisition and development of additional value enhancing exploration, development and production opportunities should they be identified and arise in the future. If such acquisitions are identified and the Company is not generating sufficient cash flows from its operations at that time to fund these it may enter into significant borrowing arrangements in addition to raising further equity financing for its acquisition, exploration, development and production plans. There can be no assurance that the Company will be able to obtain debt financing or additional equity financing in the amounts required for expenditure beyond its current capital expenditure plans, or, if debt or equity financing is available, that it will be on terms acceptable to the Company.

Moreover, future activities may require the Company to alter its capitalisation significantly. If the Company fails to generate or obtain sufficient capital for its acquisition, exploration, development and production plans (beyond the Company’s current planned capital expenditure), this could have a material adverse effect on the Company’s future long term growth prospects.

AVAILABILITY OF DRILLING EQUIPMENT AND ACCESS

Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment (typically leased from third parties). There is a risk that demand for such limited equipment or access restrictions may affect the availability of such equipment to the Company and may delay exploration and development activities.

OPERATIONAL RISKS

Even with a combination of experience, knowledge and evaluation, oil and natural gas development involves risks that the Company may not be able to overcome. The long�term commercial success of the Group depends on its ability to find, acquire, develop and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, any existing reserves the Group may have at any particular time, and the production therefrom, will decline over time as such existing reserves are exploited. A future increase in the Group’s reserves will depend not only on its ability to explore and develop any properties it may have from time to time, but also on its ability to select and acquire suitable producing properties or prospects. No assurance can be given that the Group will be able to continue to locate satisfactory properties for acquisition or participation. Moreover, if such acquisitions or participations are identified, management of the Company may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations unfeasible. There is no assurance that further commercial quantities of oil and natural gas will be discovered or acquired by the Group.

There is a risk that future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but also from wells that are productive but do not produce sufficient petroleum substances to return a profit. Completion of a well does not assure a profit or recovery of costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut�ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other geological and mechanical conditions. While diligent well supervision and effective maintenance operations can contribute to maximising production over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

TITLE TO ASSETS

Although title reviews may be conducted prior to the purchase of oil and natural gas producing properties or the commencement of drilling wells, there is the risk that such reviews do not guarantee or certify that an unforeseen defect in the chain of title will not arise to defeat the Company’s claim which may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

RESERVE ESTIMATES

There are numerous uncertainties inherent in estimating quantities of oil, natural gas and natural gas liquids reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth herein are estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results. For these reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times may vary and risk exists when relying upon such estimates. The Company’s actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.

Estimates of proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves, rather than actual production history. Recovery factors and drainage areas were estimated by experience and analogy to similar producing pools. Estimates based on these methods are generally less reliable and a higher level of risk exists than those based on actual production history. Subsequent evaluation of the same reserves based upon production history and production practices will result in variations in the estimated reserves and such variations could be material.

In accordance with applicable securities laws, the Company’s independent reserves evaluators have used forecast prices and costs in estimating the reserves and future net cash flows as summarised herein. Actual future net cash flows will be affected by other factors, such as actual production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.

Actual production and cash flow derived from the Company’s oil and gas reserves will vary from the estimates contained in the reserve evaluations, and there is the risk that such variations may be material. The reserve evaluations are based in part on the assumed success of activities the Company intends to undertake in future years. The reserves and estimated cash flows to be derived there from contained in the reserve evaluations will be reduced to the extent that such activities do not achieve the level of success assumed in the reserve evaluations. The reserve evaluations are effective as of a specific effective date and have not been updated and thus do not reflect changes in the Company’s reserves since that date.

PRICES, MARKETS AND MARKETING

Brent oil prices declined sharply from the second half of 2014 to 2015. While they have recovered significantly from the low point of 2015, they remain well below the prices prevailing in the five years prior to these falls. Oil prices are expected to remain volatile in the near future as a result of market uncertainties over supply and demand. Volatile oil and gas prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on such value. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation projects.

In addition, bank lending to the Company may, in part, be determined by the Company’s borrowing base. A sustained material decline in prices could reduce the Company’s borrowing base, therefore reducing the bank credit available to the Company which could require that a portion, or all, of the Company’s bank debt be repaid.

Any material decline in oil and natural gas prices could result in a reduction of the Group’s net production revenue. The economics of producing from some wells may change as a result of lower prices, which could result in reduced production of oil or gas and a reduction in the volumes of the Group’s reserves. The Group might also elect not to produce from certain wells at lower prices. All of these factors could result in a material decrease in the Group’s expected net production revenue and a reduction in its oil and gas acquisition, development and exploration activities. Prices for oil and gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors beyond the control of the Group. These factors include economic conditions in Europe, the United States and Canada, the actions of OPEC, governmental regulation, political stability in the Middle East, the foreign supply of oil and gas, risks of supply disruption, the price of foreign imports and the availability of alternative fuel sources. Any substantial and extended decline in the price of oil and gas would have an adverse effect on the Group’s carrying value of its reserves, borrowing capacity, revenues, profitability and cash flows from operations and may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

There is the risk that marketability and price of oil and natural gas that may be acquired or discovered by the Company is and will continue to be affected by numerous factors beyond its control. The Company’s ability to market its oil and natural gas may depend upon its ability to acquire space on pipelines that deliver natural gas to commercial markets. The Company may also be affected by uncertainty of deliverability, as well as extensive government regulation relating to price, taxes, royalties, land tenure, allowable production, the export of oil and natural gas and many other aspects of the oil and natural gas business.

VARIATIONS IN FOREIGN EXCHANGE RATES AND INTEREST RATES

World oil and gas prices are quoted in United States dollars and the price received by Canadian incorporated producers is therefore affected by the Canadian/US dollar exchange rate. A significant portion of the Company’s international activities are conducted in Euros in Italy, New Manat in Azerbaijan and Pounds Sterling in the United Kingdom where the Company is exposed to changes in foreign exchange rates as operating expenses, capital expenditures, and financial instruments fluctuate due to changes in exchange rates. The Company does not use derivative instruments to hedge its exposure to foreign exchange risks. In recent years, the Canadian dollar has fluctuated materially in value against the United States dollar. Material increases in the value of the Canadian dollar lead to the risk of negatively impacting the Company’s production revenues. Future Canadian/United States exchange rates could accordingly impact the future value of the Company’s reserves as determined by independent evaluators.

To the extent that the Company engages in risk management activities related to foreign exchange rates, there is a credit risk associated with counterparties with which the Company may contract. An increase in interest rates could result in a significant increase in the amount the Company pays to service debt.

BORROWING LEVELS, LEVERAGE AND RESTRICTIVE COVENANTS

The ability of the Company to make payments or advances will be subject to applicable laws and contractual restrictions in the instruments governing any indebtedness of the Company. The degree to which the Company is leveraged could have important consequences for shareholders including: (i) the Company’s ability to obtain additional financing for working capital, capital expenditures or acquisitions in the future may be limited; (ii) all or part of the Company’s cash flow from operations may be dedicated to the payment of the principal of and interest on the Company’s indebtedness, thereby reducing funds available for future operations; (iii) the Company’s borrowings may be at variable rates of interest, which would expose the Company to the risk of increased interest rates; and (iv) the Company may be more vulnerable to economic downturns and be limited in its ability to withstand competitive pressures. These factors could have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

ISSUANCE OF DEBT

From time to time the Company may enter into transactions to acquire assets or the shares of other organisations. These transactions may be financed in whole or in part with debt, which may increase the Company’s debt obligations above industry standards for oil and natural gas companies of a similar size. Depending on future exploration and development plans, the Company may require additional equity and/or debt financing that may not be available or, if available, may not be available on favourable terms. Neither the Company’s Articles nor its by�laws limit the amount of debt that the Company may incur. There is the risk that the level of the Company’s debt obligations from time to time could impair the Company’s ability to obtain additional financing on a timely basis to take advantage of business opportunities that may arise.

HEDGING

From time to time the Company may enter into agreements to receive fixed prices on its oil and natural gas production to offset the risk of revenue losses if commodity prices decline; however, if commodity prices increase beyond the levels set in such agreements, there is a risk as the Company will not benefit from such increases and the Company may nevertheless be obligated to pay royalties on such higher prices, even though not received by it, after giving effect to such agreements. Similarly, from time to time the Company may enter into agreements to fix the exchange rate of Canadian to United States dollars in order to offset the risk of revenue losses if the Canadian dollar increases in value compared to the United States dollar; however, if the Canadian dollar declines in value compared to the United States dollar, the Company will not benefit from the fluctuating exchange rate.

INSURANCE

The Company’s involvement in the exploration for and development of oil and natural gas properties may result in the Company becoming subject to liability for pollution, blow outs, leaks of sour natural gas, property damage, personal injury or other hazards. Although the Company maintains insurance in accordance with industry standards to address certain of these risks, such insurance has limitations on liability and may not be sufficient to cover the full extent of such liabilities. In addition, such risks are not, in all circumstances, insurable or, in certain circumstances, the Company may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of any uninsured liabilities would reduce the funds available to the Company. The occurrence of a significant event that the Company is not fully insured against, or the insolvency of the insurer of such event, leads to the risk of a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

MANAGEMENT OF GROWTH

The Company may be subject to growth�related risks including capacity constraints and pressure on its internal systems and controls. The ability of the Company to manage growth effectively will require it to continue to implement and improve its operational financial systems and to expand, train and manage its employees. The inability of the Company to deal with this growth may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

THIRD�PARTY CREDIT RISK

The Company may be exposed to third party credit risk through its contractual arrangements with its current or future joint venture partners, marketers of its petroleum and natural gas production and other parties. If

entities fail to meet their contractual obligations to the Company, this may have a material adverse effect on the Company’s business, financial condition, and operations. In addition, poor credit conditions in the industry and of joint venture partners may impact a joint venture partner’s willingness to participate in the Company’s ongoing capital programme, potentially delaying the programme and the results of such programme until the Company finds a suitable alternative partner.

CONFICTS OF INTEREST

Certain Directors of the Company are also directors of other oil and gas companies and as such may, in certain circumstances, have a conflict of interest requiring them to abstain from certain decisions. Conflicts, if any, will be subject to the procedures and remedies of the Business Corporations Act (British Columbia).

RELIANCE ON KEY PERSONNEL

The Company’s success depends in large measure on certain key personnel. The loss of the services of such key personnel may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. The Company does not have any key person insurance in effect. The contributions of the existing management team to the immediate and near�term operations of the Company are likely to be of central importance. In addition, the competition for qualified personnel in the oil and natural gas industry is intense and there can be no assurance that the Company will be able to continue to attract and retain all personnel necessary for the development and operation of its business. Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of the management of the Company.

COMPETITION

The petroleum industry is competitive and investing in the Company contains an inherent level of risk. The Company will compete with numerous other organisations in the search for, and the acquisition of, oil and natural gas properties and in the marketing of oil and natural gas. The Company’s competitors will include oil and natural gas companies that have substantially greater financial resources, staff and facilities than those of the Company. The Company’s ability to increase its reserves in the future will depend not only on its ability to explore and develop its present properties, but also on its ability to select and acquire other suitable producing properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural gas include price and methods and reliability of delivery and storage. Competition may also be presented by alternate fuel sources.

SEASONALITY

The level of activity in the international jurisdictions where the Company is or is intending to be active is influenced by seasonal weather patterns. There is the risk that seasonal factors and unexpected weather patterns may lead to declines in exploration and production activity and corresponding declines may delay the Company’s activities and/or affect the prices for the Company’s sales.

POSSIBLE FAILURE TO REALISE ANTICIPATED BENEFITS OF FUTURE ACQUISITIONS AND DISPOSALS

The Company may make acquisitions and dispositions of businesses and assets in the ordinary course of business. Achieving the benefits of any future acquisitions depends in part on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner as well as the Company’s ability to realise the anticipated growth opportunities and synergies from combining the acquired businesses and operations with its own. The integration of acquired businesses requires substantial management effort, time and resources and may divert management’s focus from other strategic opportunities and operational matters during this process. The integration process may result in the loss of key employees and the disruption of ongoing business, customer and employee relationships that my adversely affect the Company’s ability to achieve the anticipated benefits of these and future acquisitions. Non�core assets may be periodically disposed of, so that the Company can focus its efforts and resources more efficiently. Depending on the state of the market for such non�core assets, certain non�core assets of the Company, if disposed of, could be expected to realise less than their carrying value on the Company’s financial statements.

EXPIRATION OF PERMITS, LICENCES AND LEASES

The Company’s properties are held in the form of permits, licenses, leases and working interests in permits, licenses and leases. If the Company or the holder of the permit, license or lease fails to meet the specific

requirement of a permit, license or lease, the permit, license or lease may terminate or expire. There can be no assurance that any of the obligations required to maintain each permit, license or lease will be met. The termination or expiration of the Company’s permits, licenses or leases or the working interests relating to a permit, license or lease may have a material adverse effect on the Company’s results of operations and business.

DELAY IN CASH RECEIPTS

In addition to the expected time�lags in payment by producers of oil and natural gas to the operators of the Company’s properties, and by the operators to the Company, payments between any of such parties may also be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, delays in the connection of wells to a gathering system, blowouts or other accidents, recovery by the operator of expenses incurred in the operation of the Company’s properties or the establishment by the operator of reserves for such expense.

IMPACT OF FUTURE EXPENDITURES

The reserve values of the Company’s properties, as estimated by independent engineering consultants, are based in part on cash flows to be generated in future years as a result of future capital expenditures and therefore contain a level of risk. The reserve values of the Company’s properties, as estimated by independent engineering consultants, will be reduced to the extent that such capital expenditures on such properties do not achieve the level of success assumed in such engineering reports.

CHANGES IN LEGISLATION

It is possible that the Canadian and international governments and provincial/state or regulatory authorities may choose to change the income tax laws, royalty regimes, environmental laws or other laws applicable to oil and gas companies and that any such changes could materially adversely affect the Company and the market value of its Common Shares. In addition, it is also possible that changes to legislation, which could adversely affect the market value of the Company could occur in other jurisdictions where the Company operates.

RISKS RELATING TO THE SHARES

THE COMMON SHARES ARE LISTED ON THE STANDARD SEGMENT OF THE UK OFFICIAL LIST AND AFFORD INVESTORS A LOWER LEVEL OF REGULATORY PROTECTION THAN A PREMIUM LISTING

The existing Common Shares (other than the Admission Shares) are admitted to the standard segment of the Official List. An application will be made also to admit the Placing Shares and Admission Shares to the standard segment of the Official List. A Standard Listing affords investors in the Company a lower level of regulatory protection than that afforded to investors in a company with a Premium Listing, which is subject to additional obligations under the Listing Rules. A Standard Listing does not permit the Company to gain a FTSE indexation, which may have an adverse effect on the valuation of the Common Shares.

SHAREHOLDERS WILL NOT HAVE THE OPPORTUNITY TO VOTE TO APPROVE TRANSACTIONS

Unless such approval is required by law or other regulatory process, Shareholders will not have the opportunity to vote on transactions even if Common Shares are being issued as consideration for the transaction. Chapter 10 of the Listing Rules relating to significant transactions will not apply to the Company while the Company has a Standard Listing. The Company does not expect that Shareholder approval will be required in connection with transactions, and therefore, investors will be relying on the Company’s and the Directors’ ability to identify potential targets, evaluate their merits, conduct or monitor diligence and conduct negotiations.

INVESTORS WILL EXPERIENCE A DILUTION OF THEIR PERCENTAGE OWNERSHIP OF THE COMPANY ON THE EXERCISE OF OUTSTANDING OPTIONS, WARRANTS OR CONVERSION OF CONVERTIBLE LOAN NOTES OR IF THE COMPANY DECIDES TO OFFER ADDITIONAL COMMON SHARES IN THE FUTURE

Other than the Placing, the Company has no current plans for an offering of its Common Shares. However, the Company may make future acquisitions or enter into financings or other transactions involving the issuance of securities of the Company, including Common Shares, which may be dilutive. The Company may also issue additional Common Shares from time to time as the Board may determine pursuant to its

Stock Option Plan. The exercise of Options or Warrants or conversion of Convertible Loan Notes will have a dilutive effect on Shareholder’s percentage ownership of the Company and may result in a dilution of Shareholders’ interest if the price per Common Share exceeds the subscription/conversion price payable at the relevant time.

SHAREHOLDERS WILL NOT BE ENTITLED TO THE TAKEOVER PROTECTIONS PROVIDED BY THE CITY CODE

The City Code applies, inter alia , to offers for all listed public companies considered by the Panel on Takeovers and Mergers to be incorporated or resident in the United Kingdom, the Channel Islands or the Isle of Man. The Company is not so incorporated or resident and therefore Shareholders will not receive the benefit of the takeover offer protections provided by the City Code. As the Company is a reporting issuer in Alberta and British Columbia, certain offers to purchase outstanding shares of the Company may be subject to the application of Canadian securities laws which require the making of an offer on identical terms to all shareholders in the local jurisdiction (with limited exceptions). Such rules are not necessarily equivalent to the rules under the City Code. Moreover, such laws may not necessarily apply where an offer is not made to a shareholder in Canada. Canadian securities laws provide that a person or company (the “offeror”) that offers to purchase equity or voting securities (such as the Company’s Common Shares) of a reporting issuer from security holders in Canada and resulting in an offeror owning or exercising control or direction, directly or indirectly, over equity or voting securities representing 20% or more of the outstanding securities of the class (including securities that the person or company has the right or obligation to acquire within 60 days, with or without conditions) must, subject to certain exemptions, make the offer, on identical terms, to all security holders in Canada in accordance with a number of requirements (referred to as “Canadian takeover bid rules”). Exemptions from the Canadian takeover bid rules are available in certain circumstances, including in the case of certain private transactions involving five or fewer vendors where the purchase price does not exceed 115% of the market price of the shares. Another exemption is available in the case of purchases on the open market where the aggregate number of shares pursuant to this exemption together with other acquisitions does not exceed 5% of the issued and outstanding shares over a twelve�month period.

The Canadian takeover bid rules apply where purchases are made from shareholders in Canada. Although Canadian securities regulatory authorities do have discretion to commence regulatory proceedings on the basis of public interest notwithstanding the fact that the relevant parties are not residents of Canada, the purchase and sale of securities from or by shareholders who are not in Canada may not necessarily be afforded the protection of the Canadian takeover bid rules.

THE COMPANY IS INCORPORATED IN CANADA, AND AS SUCH IS SUBJECT TO CANADIAN COMPANY LAW

The Company is a company incorporated under the Business Corporations Act (British Columbia), and as such its corporate structure, the rights and obligations of Shareholders and its corporate bodies may be different from those of the home countries of international investors. Furthermore, non�Canadian residents may find it more difficult and costly to exercise shareholder rights. International investors may also find it costly and difficult to effect service of process and enforce their civil liabilities against the Company or some of its directors, controlling persons or officers.

THE COMMON SHARES ARE LISTED ON TWO SEPARATE STOCK MARKETS AND INVESTORS SEEKING TO TAKE ADVANTAGE OF PRICE DIFFERENCES BETWEEN SUCH MARKETS MAY CREATE UNEXPECTED VOLATILITY IN THE SHARE PRICE, INVESTORS MAY EXPERIENCE DIFFERENT LEVELS OF LIQUIDITY BETWEEN THE TWO MARKETS, AND INVESTORS MAY EXPERIENCE DIFFICULTIES IN MOVING THEIR SHARES AND TRADING ARRANGEMENTS BETWEEN THE TWO MARKETS

The Common Shares are admitted to trading on both the TSXV and the Main Market of the London Stock Exchange. While shares are traded on both markets, price and volume levels for Common Shares may fluctuate significantly on either market, independent of the share price or trading volume on the other market. Investors could seek to sell or buy Common Shares to take advantage of any price differences between the two markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both Common Share prices on either exchange and in the volumes of Common Shares available for trading on either market. In addition, holders of Common Shares in either jurisdiction will not be immediately able to transfer such shares for trading on the other market without effecting necessary procedures with the Company’s transfer agents/registrars and will require share trading facilities in both markets. This could result in time delays and additional cost for Shareholders.

INVESTORS MAY NOT BE ABLE TO REALISE RETURNS ON THEIR INVESTMENT IN COMMON SHARES WITHIN A PERIOD THAT THEY WOULD CONSIDER TO BE REASONABLE

Investments in Common Shares may be relatively illiquid. There may be a limited number of Shareholders and this factor, together with the number of Common Shares to be issued pursuant to the Placing, may contribute both to infrequent trading in the Common Shares on the London Stock Exchange and to volatile Share price movements. Investors should not expect that they will necessarily be able to realise their investment in Common Shares within a period that they would regard as reasonable. Accordingly, the Common Shares may not be suitable for short�term investment. Admission should not be taken as implying that there will be an active trading market for the Common Shares, and future trading volumes may not be as high as those in the past. Even if trading volumes improve compared with past levels, the market price for the Common Shares may fall below the Placing Price.

THE COMPANY DOES NOT CURRENTLY INTEND TO PAY DIVIDENDS AND ITS ABILITY TO PAY DIVIDENDS IN THE FUTURE MAY BE LIMITED

The Company has never declared or paid any dividends on the Common Shares. The Company currently intends to retain future earnings, if any, for future operations, expansion and debt repayment, if necessary. Therefore, at present, there is no intention to pay dividends and a dividend may never be paid. Any decision to declare and pay dividends will be made at the discretion of the Board of Directors and will depend on, among other things, the Group’s results of operations, financial condition and solvency and distributable reserves tests imposed by corporate law and such other factors that the Board of Directors may consider relevant.

RISKS RELATING TO TAXATION

FUTURE CHANGES IN TAX REGULATION APPLICABLE TO THE COMPANY’S ENTITIES MAY REDUCE NET RETURNS TO SHAREHOLDERS

The treatment of Group entities is subject to changes in tax regulation or practices in territories in which Group entities are resident for tax purposes. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. Any changes to tax legislation in territories in which the Group entities are resident for tax purposes may have a material adverse effect on the financial position of the Company, reducing net returns to Shareholders. In many jurisdictions, the resources sector is subject to particular taxation regimes which sometimes impose a comparatively heavy burden on activities within the sector and the comments made above are particularly salient in relation to such regimes.

TAX RISKS RELATED TO ITALIAN OPERATIONS

In Italy, for onshore permits, the state royalty on production of both oil and gas is a maximum of 10%, with a provision that no royalties are paid on yearly production less than 125,000 bbls of oil and approximately 700 MMcf of gas, per field (or approximately 340 bbls/d and 1.9 MMcf/d). At the present time, the Group does not pay any state royalties since all its producing fields fall below the minimum royalty threshold. The corporate tax is a maximum of 28% and there are no restrictions on repatriation of profits. Going forward, there is the risk that potential changes in the tax and/or royalty system could have a significant impact on the tax payable by the Group.

TAX RISKS RELATED TO AZERBAIJANI OPERATIONS

There are currently three separate and distinct tax regimes that are applicable in Azerbaijan: (i) the statutory regime, (ii) the tax regime applicable to oil and gas companies and mining companies operating under production sharing agreements (this being the regime applicable to the Company) and (iii) the tax regime for companies working under host government agreements on the “Main Export Pipeline” and the “South Caucasus Pipeline”. Any changes to the tax regimes that currently apply in Azerbaijan may have an adverse effect on the financial position of the Group.

PART 3

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

General

No person has been authorised to give any information or to make any representations in connection with the Admission other than the information and representations in this Document and, if any other information is given or representations are made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company or the Directors.

The Company does not accept any responsibility for the accuracy or completeness of any information reported by the press or other media, nor the fairness of appropriateness of any forecasts, views or opinions expressed by the press or other media regarding Admission, the Common Shares, the Company or the Group. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication. Without prejudice to any obligation of the Company under FSMA, the Prospectus Rules, the Listing Rules or the Disclosure Guidance and Transparency Rules, the delivery of this Document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of the Company or to the Group taken as a whole since the date hereof or that the information contained herein is correct as of any time subsequent to its date.

The contents of this Document or any subsequent communications from the Company, the Group or any of their respective affiliates, officers, advisers, directors, employees or agents are not to be construed as advice on legal, business, taxation, accounting, regulatory, investment or any other matters. Each investor should consult his or her own lawyer, financial adviser or tax adviser for legal financial or tax advice, as appropriate.

Investors should read this Document in its entirety.

Presentation of financial information

The financial information, incorporated by reference, in this Document includes:
audited consolidated financial information for the Group as at and for the years ended 31 March 2017, 2016 and 2015; and
unaudited consolidated interim financial information for the Group as at and for the nine months ended 31 December 2017, together with the comparative period (30 December 2016),

in each case, prepared in accordance with IFRS as adopted by the European Union. Unless otherwise indicated, the financial information presented in this Document has been prepared in accordance with IFRS as adopted by the European Union.

Non�financial operating data

The non�financial operating data included in this Document has been extracted without material adjustment from the management records of the Group and is unaudited.

Currencies

In this Document, references to “GBP”, “pounds sterling”, “£”, “pence” or “p” are to the lawful currency of the UK; references to “USD”, “USD $”, “US dollars”, “dollars”, “US $”, “cents” or “c” are to the lawful currency of the United States; references to “Canadian dollars”, “Canadian $”, “CAD” or “CAD $” are to the lawful currency of Canada; references to “Euro”, “EUR” or “d” are to the lawful currency of the member states of the European Union who have adopted the Euro; references to “Swiss Francs” or “CHF” are to the lawful currency of Switzerland and references to “New Manat”, “Manat” or “AZN” are to the lawful currency of Azerbaijan.

The basis of translation of any foreign currency transactions and amounts in the financial information set out in Part 16: “ Historical Financial Information ” is described in Part 16.

Rounding

Percentages and certain amounts in this Document, including financial, statistical and operating information, have been rounded to the nearest thousand whole number or single decimal place for ease of presentation.

As a result, the figures shown as totals may not be the precise sum of the figures that precede them. In addition, certain percentages and amounts contained in this Document reflect calculations based on the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages or amounts that would be derived if the relevant calculations were based upon the rounded numbers.

Third�Party Information

The Company confirms that all third�party information contained in this Document has been accurately reproduced and, so far as the Company is aware and is able to ascertain from information published by such third parties, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where third party information has been used in this Document, the source of such information has also been identified.

Forward�looking statements

Certain statements in this Document including any information as to the Group’s strategy, plans or future financial or operating performance constitute, or may be deemed to constitute, “forward�looking statements”. These forward�looking statements can be identified by the use of forward�looking terminology, including the terms “believes”, “estimates”, “anticipates”, “projects”, “expects”, “intends”, “aims”, “plans”, “predicts”, “may”, “will”, “target”, “continue”, “seeks” or “should” or, in each case, their negative or other variations or comparable terminology or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward�looking statements include all matters that are not historical facts. They appear in a number of places throughout this Document and include statements regarding the intentions, beliefs or current expectations of the Directors of the Company concerning, amongst other things, the investment objectives and policies, financing strategies, performance, results of operations, financial condition, prospects, growth and dividend policy of the Company and the markets in which it and the other companies in the Group operate.

By their nature, forward�looking statements address matters that involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward�looking statements are not guarantees of future performance. The Company’s actual performance, results of operations, financial condition, dividend policy, the development of its financing and operational strategies and the development of the business sector in which the Group operates may differ materially from the impression created by the forward�looking statements contained in this Document. In addition, even if the performance, results of operations, financial condition and dividend policy of the Company, the development of its financing and operating strategies and the development of the business sector in which the Group operates, are consistent with the forward�looking statements contained in this Document, those results or developments may not be indicative of results or developments in subsequent periods.

Except as required by the Listing Rules, the Disclosure Guidance and Transparency Rules, the Prospectus Rules, the London Stock Exchange or otherwise required by law or regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward�looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Prospective investors are advised to read this Document and the accompanying documents in their entirety for further discussion of the factors that could affect the Group’s future performance and the industries and markets in which it operates. In light of these risks, uncertainties and assumptions, the events described in the forward�looking statements in this Document and the accompanying documents may not occur. Prospective investors should note that the contents of these paragraphs relating to forward�looking statements are not intended to qualify the statements made as to sufficiency of working capital in this Document.

No incorporation of website information

The contents of the Company’s website, any website mentioned in this Document or any website directly or indirectly linked to these websites have not been verified and do not form part of this Document and investors should not rely on such information.

Definitions and technical terms

A list of defined terms and technical terms used in this Document is set out in Part 21: “ Definitions ” and Part 22: “ Glossary of Technical Terms ”.

PART 4 CONSEQUENCES OF A STANDARD LISTING

Application has been made for the Placing Shares, Subscription Shares, Offer Shares and Admisison Shares to be admitted to listing on the standard segment of the Official List pursuant to Chapter 14 of the Listing Rules, which sets out the requirements for Standard Listings. The existing Common Shares (other than the Admission Shares) are already listed on the standard segment of the Official List. A Standard Listing affords Shareholders and investors in the Company a lower level of regulatory protection than that afforded to investors in companies whose securities are admitted to a Premium Listing, which are subject to additional obligations under the Listing Rules.

Listing Principles 1 and 2, as set out in Chapter 7 of the Listing Rules, also apply to the Company, and the Company complies with such Listing Principles.

Chapter 14 of the Listing Rules sets out the requirements for Standard Listings and does not require the Company to comply with, inter alia , the provisions of Chapters 6 to 13 of the Listing Rules, which includes, in particular:

Chapter 8 of the Listing Rules regarding the appointment of a listing sponsor to guide the Company in understanding and meeting its responsibilities under the Listing Rules in connection with certain matters. The Company has not appointed and does not intend to appoint such a sponsor in connection with the Placing and Admission;
Chapter 9 of the Listing Rules relating to further issues of shares, issuing shares at a discount in excess of 10% of market value, notifications and contents of financial information;
Chapter 10 of the Listing Rules relating to significant transactions. It should be noted therefore that transactions will not require Shareholder consent, even if Common Shares are being issued as consideration for such transactions. However, the Company will seek Shareholder consent at a general meeting for transactions if it would constitute a reverse takeover;
Chapter 11 of the Listing Rules regarding related party transactions. It should be noted therefore that related party transactions will not require Shareholder consent;
Chapter 12 of the Listing Rules regarding purchases by the Company of its Common Shares. In particular, the Company has not adopted a policy consistent with the provisions of Listing Rules 12.4.1 and 12.4.2. The Company will have unlimited authority to purchase Common Shares; and
Chapter 13 of the Listing Rules regarding the form and content of circulars to be sent to Shareholders.

There are, however, a number of continuing obligations set out in Chapter 14 of the Listing Rules that will be applicable to the Company. These include requirements as to:

the forwarding of circulars and other documentation to the UKLA for publication through the document viewing facility and related notification to a regulatory information service;
the provision of contact details of appropriate persons nominated to act as a first point of contact with the UKLA in relation to compliance with the Listing Rules and the Disclosure Guidance and Transparency Rules;
the form and content of temporary and definitive documents of title;
the appointment of a registrar;
the making of regulatory information service notifications in relation to a range of debt and equity capital issues; and
at least 25% of the Common Shares being held by the public.

In addition, as a company whose securities are admitted to trading on a regulated market, the Company will be required to comply with the Disclosure Guidance and Transparency Rules and the Market Abuse Regulation.

There are no provisions in the Articles that require new Common Shares to be issued on a pre�emptive basis to existing Shareholders and there are no statutory pre�emption rights.

It should be noted that the UK Listing Authority does not and will not have the authority to (and will not) monitor the Company’s compliance with any of the Listing Rules which the Company has indicated herein that it intends to comply with on a voluntary basis, nor to impose sanctions in respect of any failure by the Company so to comply. However, the FCA would be able to impose sanctions for non�compliance where the statements regarding compliance in this Document are themselves misleading, false or deceptive.

It should be noted that the Common Shares are, and will continue to be, listed and posted for trading on the TSXV and consequently obligations arising from applicable securities and corporate legislation in Canada, as well as the rules of the TSXV, will continue to apply to the Company.

PART 5 IMPORTANT INFORMATION

In deciding whether or not to invest in Placing Shares, Subscription Shares or Offer Shares, prospective investors should rely only on the information contained in this Document. No person has been authorised to give any information or make any representations other than as contained in this Document and, if given or made, such information or representations must not be relied on as having been authorised by the Company or the Directors. Without prejudice to the Company’s obligations under FSMA, the Prospectus Rules, Listing Rules and Disclosure Guidance and Transparency Rules, neither the delivery of this Document nor any Placing made under this Document shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this Document or that the information contained herein is correct as at any time after its date.

Prospective investors must not treat the contents of this Document or any subsequent communications from the Company, the Directors, or any of their respective affiliates, officers, directors, employees or agents as advice relating to legal, taxation, accounting, regulatory, investment or any other matters.

The section headed “Summary” should be read as an introduction to this Document. Any decision to invest in the Common Shares should be based on consideration of this Document as a whole by the investor. In particular, investors must read the section headed “Section D—Risks” of the Summary together with the risks set out in the section headed “Risk Factors” beginning on page 19 of this Document.

Any reproduction or distribution of this Document, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the Placing Shares, Subscription Shares or Offer Shares offered hereby is prohibited. Each offeree of Placing Shares, Subscription Shares or Offer Shares, by accepting delivery of this Document, agrees to the foregoing.

This Document does not constitute, and may not be used for the purposes of, an offer to sell or an invitation or the solicitation of an offer or invitation to subscribe for or buy, any Common Shares by any person in any jurisdiction (i) in which such offer or invitation is not authorised; (ii) in which the person making such offer or invitation is not qualified to do so; or (iii) in which, or to any person to whom, it is unlawful to make such offer, solicitation or invitation. The distribution of this Document and the offering of the Common Shares in certain jurisdictions may be restricted. Accordingly, persons outside the United Kingdom who obtain possession of this Document are required by the Company, and the Directors to inform themselves about, and to observe any restrictions as to the offer or sale of Common Shares and the distribution of, this Document under the laws and regulations of any territory in connection with any applications for Common Shares, including obtaining any requisite governmental or other consent and observing any other formality prescribed in such territory. No action has been taken or will be taken in any jurisdiction by the Company or the Directors, that would permit a public offering of the Common Shares in any jurisdiction where action for that purpose is required, nor has any such action been taken with respect to the possession or distribution of this Document other than in any jurisdiction where action for that purpose is required. Neither the Company, nor the Directors accepts any responsibility for any violation of any of these restrictions by any other person.

The Common Shares have not been and will not be registered under the Securities Act, or the securities laws of any state or other jurisdiction of the United States or qualified for sale or distribution under applicable securities laws of Australia, Canada, Japan or the Republic of South Africa. Subject to certain exceptions, the Common Shares may not be offered, sold, resold, reoffered, pledged, transferred, distributed or delivered, directly or indirectly, within, into or in the United States or to or for the account or benefit of U.S. persons (as defined in Rule 902 under the Securities Act) or to persons in the United States, Australia, Canada (other than pursuant to exemptions from the prospectus requirement under Canadian securities legislation), Japan, the Republic of South Africa or any other jurisdiction where such offer or sale would violate the relevant securities laws of such jurisdiction. The Placing Shares, Subscription Shares or Offer Shares may not be resold in Canada or to a resident of Canada for a period of four months and one day following Admission, unless a trade is permitted under Canadian securities laws.

Selling and Transfer Restrictions

Prospective investors should consider (to the extent relevant to them) the notices to residents of various countries set out in Part 19: “ Notices to Investors ”.

Investment Considerations

In making an investment decision, prospective investors must rely on their own examination, analysis and enquiry of the Company, this Document and the terms of the Placing or PrimaryBid Offer, including the merits and risks involved. The contents of this Document are not to be construed as advice relating to legal, financial, taxation, investment decisions or any other matter. Prospective investors should inform themselves as to:

the legal requirements within their own countries for the purchase, holding, transfer or other disposal of the Common Shares;
any foreign exchange restrictions applicable to the purchase, holding, transfer or other disposal of the Common Shares which they might encounter; and
the income and other tax consequences which may apply in their own countries as a result of the purchase, holding, transfer or other disposal of the Common Shares or distributions by the Company, either on a liquidation and distribution or otherwise. Prospective investors must rely upon their own representatives, including their own legal advisers and accountants, as to legal, tax, investment or any other related matters concerning the Company and an investment therein.

An investment in the Company should be regarded as a long�term investment. There can be no assurance that the Company’s objective will be achieved.

It should be remembered that the price of the Common Shares, and any income from such Common Shares, can go down as well as up.

This Document should be read in its entirety before making any investment in the Common Shares. All Shareholders are entitled to the benefit of, are bound by, and are deemed to have notice of, the provisions of the Notice of Articles and Articles of the Company, which investors should review.

PART 6 EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Publication of this Document 20 June 2018 Admission and commencement of unconditional dealings in Placing Shares, Subscription Shares and Offer Shares 8.00 a.m. on 26 June 2018 PrimaryBid Offer period 4.30 p.m. to 9.00 p.m. on 20 June 2018 CREST members’ accounts credited in respect of Depository Interests 8.00 a.m. on 26 June 2018 Despatch of definitive share certificates for Shares no later than 3 July 2018

These dates and times are indicative only, subject to change and may be brought forward as well as moved back, in which case new dates and times will be announced. All references to time in this Document are to London, UK time unless otherwise stated and each of the times and dates are indicative only and may be subject to change.

For the purposes of this Document, the exchange rates applicable are, unless otherwise disclosed, as follows:

From	To	Exchange Rate
USD	GBP	0.752672
GBP	USD	1.327700
EUR	GBP	0.873510
GBP	EUR	1.143500
CAD	GBP	0.571229
CAD	USD	0.757599

PART 7 PLACING AND PRIMARYBID OFFER STATISTICS

Number of Common Shares in issue as at the date of this document	159,921,766
Number of Placing Shares	46,500,000
Number of Subscription Shares	4,000,000
Number of Offer Shares	up to 20,000,000
Total number of Common Shares in issue on Admission (excluding any Offer Shares)	210,421,766
Placing Price per Placing Share	4 pence
Subscription Price per Subscription Share	4 pence
Offer Price per Offer Share	4 pence
Market capitalisation at the Placing Price	£8.42m
Number of Options outstanding at 19 June 2018	11,600,000
Number of Warrants outstanding at 19 June 2018	17,804,706
Number of Common Shares that may result from conversion of Convertible Notes
as at 19 June 2018	903,228
Fully diluted Share Capital on Admission (excluding any Offer Shares)	240,729,700
Estimated Net Proceeds receivable by the Company	£1,708,300
Estimated transaction costs	£311,700

PART 8 DIRECTORS, SECRETARY AND ADVISERS

Directors Jose Ramon Lopez�Portillo (Chairman and Non�Executive Director) Andrea Cattaneo (President, CEO and Director) Luigi Regis Milano (Director) Dario E. Sodero (Non�Executive Director) Saadallah Al�Fathi (Non�Executive Director) Erik Larre (Non�Executive Director) Sergey Borovskiy (Non�Executive Director) Registered Office 20th Floor 250 Howe Street Vancouver BC V6C 3R8 Canada Head Office 15th Floor Bankers Court 850 – 2nd Street S.W. Calgary, Alberta T2P 0R8 Canada Telephone Number: +1 (587) 315 9031 Website www.zenithenergy.ca Legal Advisers to the Company Hamlins LLP (as to English law) Roxburghe House 273�287 Regent Street, London W1B 2AD United Kingdom Legal Advisers to the Company Stikeman Elliott LLP (as to Canadian law) 4300 Bankers Hall West 888 3rd Street S.W. Calgary, AB, Canada Legal Advisers to the Company Studio Legale Pennisi&Farina (as to Italian law) Via Garibaldi 12/9 16124 Genova Italy Legal Advisers to the Company Stikeman Elliott LLP (as to Azerbaijani law) 4300 Bankers Hall West 888 3rd Street S.W. Calgary, AB, Canada BM Morrison Partners Villa 9, English Yard 43, Mammad Araz Street AZ1106, Baku Azerbaijan

Auditors to the Company	PKF Littlejohn LLP
	1 Westferry Circus Canary Wharf
	London
	14 4HD
	United Kingdom
Reporting Accountants	PKF Littlejohn LLP
	1 Westferry Circus
	Canary Wharf London
	E14 4HD
	United Kingdom
Financial Adviser	Allenby Capital Limited
	5 St Helen’s Place
	London
	EC3A 6AB
	United Kingdom
Joint Brokers	Daniel Stewart & Company plc
	33 Creechurch Lane
	London
	EC3A 5EB
	United Kingdom
	Optiva Securities Ltd
	49 Berkeley Square
	London
	W1J 5AZ
	United Kingdom
Competent Person	Chapman Petroleum Engineering Ltd 1122
	4th Street S.W.
	Suite 700
	Calgary Alberta T2R 1M1
	Canada
Depositary and Registrar	Computershare Investor Services Plc
	The Pavilions
	Bridgwater Road
	Bristol
	BS99 6ZZ
	United Kingdom
	Computershare Trust Company of Canada
	100 University Avenue
	8th Floor
	Toronto
	ON M5J 2Y1
	Canada

PART 9 ITALY AND AZERBAIJAN

1. Information on Italy

1.1. Overview of the oil and gas industry in Italy

Italy produces small volumes of natural gas and oil and virtually no coal. Therefore, most of the country’s fossil�fuel supplies (as well as a significant share of its electricity) are imported. They are augmented by local production of energy from renewable sources resulting in an increasing local dependence on imports in recent years.

1.2. Government policy objectives

In 2013, after more than twenty years, the Italian Government released a new National Energy Strategy. The four main pillars of the National Energy Strategy are:

fostering the competitiveness of the Italian economic system;
protecting the environment;
strengthening the security of energy supply; and
promoting green economic growth.

Natural gas and other fossil fuels are central elements in the National Energy Strategy policy. Specific measures include the promotion of a competitive natural gas market, the development of a European� integrated electricity market, an increase in the national production of fossil fuels and the restructuring of the downstream oil market.

1.3. Regulation of the oil and gas industry in Italy

Italy has liberalised its electricity and gas sectors progressively in conformance with EU directives. Transmission and distribution of natural gas and electricity have been unbundled and a regulator, Autorità per l’Energia Elettrica e il Gas, set up to supervise access to networks and to regulate tariffs.

The Italian oil market is fully liberalised, and the Italian Government intervenes only to protect competition or to prevent an abuse of a dominant position.

1.4. Prices, taxes and support mechanisms in Italy

The prices of all forms of energy except electricity are set freely by the market. Additionally, electricity and gas productions are exempt from VAT for producers, except for the final seller to consumers.

Gas consumers have a choice of supply from incumbent suppliers at regulated tariffs or from alternative suppliers at market rates. The choice is non�binding and consumers can change from one service to another at no additional cost.

In Italy, for onshore permits, the state royalty on production of both oil and gas is a maximum of 10%, with a provision that no royalties are paid on yearly production below 125,000 bbls of oil and approximately 700 MMcf of gas, per field (or approximately 340 bbls/d and 1.9 MMcf/d). At the present time, the Group does not pay any state royalties since all its producing fields fall below the minimum royalty threshold.

Italy applies different rates of VAT and excise tax on energy at the national level. Oil products are subject to excise tax and VAT (at a rate of 22%) for gasoline, diesel, light fuel oil and LPG. Natural gas is subject to an excise tax, VAT and additional taxes at the regional level; together they represent approximately 37.4% of the final price paid by end�consumers. A lower rate of VAT, currently 10%, is applied to sales of natural gas up to 480 cubic metres a year, and 22% for the remaining consumption. Different rates of excise tax are levied on gas according to whether the consumer is a business or a household and to the level of consumption.

2. Information on Azerbaijan[1]

2.1. Overview of the oil and gas industry in Azerbaijan

Since gaining independence from the USSR in 1991 (“ Azerbaijan’s Independence ”), the Republic of Azerbaijan’s oil and gas extraction industry has been the major sector of its national economy. Azerbaijan is one of the world’s pioneers in the development of oil and gas fields. In 1846, the first oil well was mechanically drilled in Azerbaijan. By 1901, in excess of 50% of the world’s oil production derived from Azerbaijan.

Post Azerbaijan’s Independence, it continued with the successful development of its oil and gas reserves, and the industry has drawn substantial foreign direct investments. Since early 2014, Azerbaijan’s crude oil reserves were estimated to be 7 billion barrels, and natural gas production was estimated at 35 trillion cubic feet.

The majority of the oil and gas production in Azerbaijan is exported. According to Azerbaijan’s State Statistical Committee, Azerbaijan exported an estimated 738,000 barrels per day (“ bbl/d ”) of crude oil in 2013. Azerbaijan is now one of the major gas exporters in the region with in excess of 8.5 billion cubic meters of natural gas exported in 2014. There are two main natural gas exporters: (i) SOCAR and (ii) the BP�led consortium of international energy companies.

The Company, which is free to sell/export oil without restrictions, currently sells its oil through the Marketing and Operations Department of SOCAR (“ SOCARMO ”). A related commission of 1% of total sales is payable to SOCARMO.

In the last ten years, Azerbaijan has diversified its oil and gas export routes. It aims to transform Azerbaijan into a major energy corridor, through which energy resources of Central Asia will be transported to European consumers. Exports are made to European and Asian countries, which include Ukraine, Turkey and India. Italy and Israel are the biggest importers of Azerbaijani crude oil. Natural gas is exported to Georgia, Turkey, Russia and Iran through various pipelines.

Azerbaijan intends to increase its export of natural gas to approximately 25 billion cubic meters by 2019. In addition, it intends to expand its exports to the EU by the development of the second stage of the Shah Deniz project. As part of the Shah Deniz project, the consortium of international energy companies intends to build the Trans�Anatolian pipeline (“ TANAP ”), which will pass through Turkish territory and the Trans�Adriatic pipeline (“ TAP ”) and will be connected to TANAP to deliver natural gas to Italy through Greece and Albania.

2.2. Domestic market structure

The domestic upstream oil and gas market of Azerbaijan is dominated by SOCAR. SOCAR holds statutory exclusive rights for the development and production in Azerbaijan of oil and natural gas. SOCAR is an integrated energy company, which is active in all segments of the domestic oil and gas industry. Its output from upstream oil and gas developments did not however exceed 25% of the total national oil and gas production in 2013. SOCAR additionally owns and operates the only oil refinery and gas refinery in Azerbaijan and manages the domestic oil and gas pipeline system.

Whilst privatisation of these segments of the oil and gas industry is not at this time planned by the Azerbaijani Government, SOCAR has actively engaged with local and foreign private investors in joint ventures for the provision of domestic oil and gas industry services.

International energy companies participate in the development of oil and gas fields alongside SOCAR’s subsidiaries, predominantly under production sharing agreements (“ PSAs ”) negotiated and signed with the Government of Azerbaijan represented by SOCAR. Since Azerbaijan’s Independence, the Government of Azerbaijan has executed approximately 23 PSAs (including with the Company).

2.3. Government policy objectives

The Government of Azerbaijan has established a favourable investment environment for foreign investors, the result of which has seen billions of dollars of direct investments in the oil and gas industry

1 © This information is taken principally from the Country Q&A Guide titled “ Oil and Gas Regulation in Azerbaijan: overview ” authored by Kamil Valiyev and Rena Eminova. The content was first published in the Energy and Natural Resources Multi�Jurisdictional Guide 2015 and is reproduced with the permission of the publisher, THOMSON REUTERS (PROFESSIONAL) UK LIMITED via PLSclear.

in Azerbaijan. In 2014, more than US $5 billion of foreign direct investment was made into the oil and gas sector according to official data. The Azerbaijani Government has also been investing in the industry through the use of state funds.

The State Programme for the Development of Fuel and Energy Sector (2005 to 2015) sets out the main objectives of the Azerbaijani Government in this area, and as approved by the Presidential Order No. 635 dated 14 February 2005, the objectives are as follows:

Determining the minimum directions of the development of the fuel and energy complex of the Republic of Azerbaijan in accordance with modern requirements.
Carrying out relevant scientific, technical and organisational measures to increase the efficiency of the industry.
Ensuring the implementation of advanced technological measures for the production, processing, transportation, storage, accounting and consumption of energy resources.
Establishing a fair competition environment in the fuel/energy sector.
Attracting more investments for the development of the fuel/energy complex.
Ensuring ecological security in the fuel/energy complex.
Ensuring the due payments of consumed fuel/energy resources (that is, electric energy and natural gas).

2.4. Regulation of the oil and gas industry in Azerbaijan

Azerbaijan does not have an independent public regulator for the oil and gas sector. The Ministry of Energy carries out the regulatory functions in accordance with regulations approved by Presidential decree and other relevant laws and Presidential acts. The Ministry of Energy is required to supervise, and is entitled to issue special permits for, the exploration, exploitation, production, processing, storage, transportation, distribution and use of energy materials and products, which includes oil and natural gas. Additionally, upon authorisation by the President of Azerbaijan, the Ministry of Energy is able to prepare, negotiate and execute agreements for the production of hydrocarbon resources, (for example, PSAs) and also supervise their implementation.

SOCAR has an active role in the oil and gas sector to represent the interests of the state. Through the preparation, negotiation and implementation of the vast majority of PSAs, SOCAR has been acting as a sole representative of the Azerbaijani Government, and substantially contributing to the regulation of foreign oil and gas companies’ activities in Azerbaijan. SOCAR also actively participates in the Azerbaijani Government’s policy�making activities in the oil and gas sector.

There are other ministries and state bodies in Azerbaijan that indirectly regulate the oil and gas industry. These include:

Ministry of Emergency Situations – This ministry has authority for ensuring technical safety at any oil and gas operations that are potentially hazardous. This ministry issues licenses for certain activities in the oil and gas industry, such as for the installation and operation of natural gas facilities, and the construction of drilling facilities. This ministry also carries out the certification of installations and equipment which are used in potentially hazardous objects in the oil and gas industry.
Ministry of the Labor and Social Protection of Population – This ministry has the overall responsibility to ensure compliance with the requirements in relation to the health and protection of labour by employers who are engaged in oil and gas activities.
Ministry of Ecology and Natural Resources – This ministry supervises compliance of oil and gas activities with environmental regulations and standards.

There are numerous laws which regulate oil and gas extraction activities, and which have been adopted since the first years of independence. Additionally, there are two basic regulatory regimes that are applicable to oil and gas exploration and production in Azerbaijan:

Regulatory regime established under the Law on Energy (“Energy Law”) and implemented through energy contracts.
Ad hoc regimes established by specific PSAs.

Energy Law in Azerbaijan regulates the exploration, extraction, distribution, transportation and storage of oil and gas. In order to engage in these activities, both individuals and legal entities are required to obtain a special permit, and also enter into an energy contract with the Ministry of Energy or SOCAR.

As a general rule, all PSAs which are executed by SOCAR on behalf of the Azerbaijani Government are enacted as laws after being executed. A PSA sets out an ad hoc regulatory regime for oil and gas operations carried out on the specific field which is developed under the PSA. The PSA generally regulates:

the ownership of the oil and gas and assets;
health, safety and environmental compliance;
taxation;
import/export operations; and
any profit sharing mechanisms.

2.5. Rights to oil and gas

The Constitution of the Republic of Azerbaijan states that natural resources belong to the state of Azerbaijan, without prejudice to the rights and interests of any individuals or legal entities. The Energy Law (and subsoil law) provides for the state’s exclusive rights of ownership over oil and gas resources.

Rights over land do not involve subsoil rights over oil and gas reserves which are found below the land. The transfer of ownership of oil and gas from the state to private parties is only possible post extraction.

Rights for the exploration, development and production of oil and gas are able to be granted in accordance with the specific type of energy contract, which are awarded to contractors by way of tenders or direct negotiations. Contract such as these are in essence services contracts which are executed between the contractor and the Ministry of Energy or SOCAR. Rights under an energy contract are required to be registered with the Ministry of Energy. Contractors need to also obtain special permits from the Ministry of Energy for engaging in energy activities (including the exploration, development and production of oil and gas). The provisions relating to the protection of environment of contracts for the use of natural resources become effective once approved by the Ministry of Environment and Natural Resources.

Some licensing requirements apply to certain business activities which are associated with oil and gas operations, for example the sale of oil and gas products, the installation and operation of facilities for liquid and natural gas, mining and drilling works and the transportation of dangerous goods (including oil, certain oil products and gas).

Contractors are required to pay specific license fees for engaging in licensable oil and gas activities. The fees can range from AZN150 to AZN11,000. Additionally, payment of taxes is required from contractors and SOCAR in accordance with the tax regime established by the Tax Code of the Republic of Azerbaijan for non�PSA oil and gas activities. In regard to PSA oil and gas activities, certain PSAs will require contractors to pay bonuses to the Government of Azerbaijan which may be conditional on specific events occurring, such as the PSA becoming effective, approval of the development programme, or the production of oil or gas reaching certain levels. Contractors must also pay taxes in accordance with the individual tax regime established under the PSA.

2.6. Restrictions

There are no restrictions set out in the Energy Law for obtaining licenses or entering into energy contracts for private local and foreign companies and individuals. There are however certain

restrictions which are set out by the Azerbaijani President. The production and processing of oil, oil products and natural gas is only capable of being conducted by state enterprises and joint stock companies with a controlling state shareholding. It is possible for enterprises and organisations (for example, SOCAR) which are established by a Presidential decree to engage in a business funded by the state (and in other cases specified by law) to engage in such business without obtaining a license.

Contractors must also return the area located outside the disclosed commercial discovery to the state. Contractors which are producing oil or gas under energy contracts must also sell a certain portion of their production at world market prices to the state on request for domestic consumption needs.

2.7. Transportation by pipeline

The right to develop and operate master energy transportation systems, which includes trunk pipelines, is granted to individuals and legal entities by the execution of an energy contract with the Ministry of Energy or SOCAR.

The requirements for providing gas transportation services by pipelines are set out in the Law on Gas Supply. They are similar to those under the Energy Law.

The energy contract may additionally grant:

the right to build and operate auxiliary infrastructures (for example, for storage);
ownership over such infrastructures; and
the right to transfer the use of infrastructures.

The energy contract is signed for a 20�year term and can be renewed for ten further years. Export and import of third party gas by pipeline agreements become effective upon their approval by the Cabinet of Ministers pursuant to the Law on Gas Supply.

The Government of Azerbaijan has signed host government agreements (“ HGAs ”) with a consortium of international oil and gas companies for the construction and operation of pipelines which are to be used for the export of oil or gas resources developed together with these companies. The HGAs grant certain absolute and unrestricted rights to investors, in connection with the construction and operation of the pipelines. Additionally, energy agreements on master energy transportation systems have to take into consideration competition among the producer of energy materials (including oil and gas and their products). Third party access is required to be granted if the pipeline is operated on an exclusive basis. The oil and gas producer operating the pipeline on an exclusive basis has to grant unused pipeline capacity to interested third parties. Transportation of the third party’s oil or gas must not however hinder the transportation of oil and gas owned by the pipeline owner/operator.

2.8. Health, safety and the environment

2.8.1. Health and safety

There are several laws and other normative acts that regulate the health and safety requirements applying to upstream and midstream oil and gas activities. The main laws of note are the:

2.8.1.1. Law on Technical Safety of the Republic of Azerbaijan, dated 8 June 1999

This law defines oil and gas production facilities and trunk pipelines for the transportation of oil and gas as potentially hazardous production facilities. The law imposes certain obligations on both individuals and legal entities who are exploiting such facilities. These persons are required to comply with all legislation, legal acts, standards, requirements and orders related to the exploitation of these facilities. Users of such facilities are by default liable for any accident or incident which takes place on the facilities.

2.8.1.2. Law on Protection of the Environment of the Republic of Azerbaijan, dated 2 November 1999.

This law aims to ensure environmental safety, prevent negative impact of business and other activities on nature and protect biodiversity. This law sets out the rights and obligations of state authorities and businesses, and environmental requirements in relation to the use of natural resources and the development, construction and exploitation of energy and transportation facilities.

2.8.1.3. Labour Code, dated 1 February 1999

The Labour Code regulates the occupational health and safety regime in the workplace. The Labour Code provides that the owner of the enterprise and employer are responsible directly for compliance with both occupational health and safety rules and regulations. Owners and contractors (as employers) of upstream or midstream facilities may be held liable for violations of the rules and any injuries of employees resulting from non�compliance with the rules.

Most PSAs set out specific health and environmental standards. Contractors are required to develop jointly with SOCAR and the Ministry of Environment and Natural Resources safety and environmental protection standards and practices to regulate their operations. Contractors are required to comply with general Azerbaijani laws and regulations on public health, safety and environment, to the extent that these laws and regulations are no more stringent than international standards.

Under HGAs, participants to the pipeline projects are required to comply with the health and safety standards that are customary in international petroleum transportation projects.

2.8.2. Environmental impact assessments

On receipt of an application to enter into an energy contract, the Ministry of Energy or SOCAR is required to arrange an environmental impact assessment (“ EIA ”) of the operations over the relevant territory. The EIA has to be completed by independent experts.

The EIA is mandatory for PSAs. The terms of the EIA are agreed with the Azerbaijani Government as part of the development programme and serve as a basis for developing the environmental protection standards which apply to the specific upstream project. As a general rule, EIAs under PSAs are completed by independent international consultants. The conclusions of EIAs which are conducted under PSAs must be acceptable to SOCAR. There are no statutory period limitations for the implementation of EIAs and the procedures for the implementation of EIAs are not regulated.

Costs which are associated with the EIAs are covered by the applicant to the energy contract.

2.8.3. Environmental permits

Individual entrepreneurs and companies which are engaged in the upstream and midstream oil and gas sector are subject to a variety of environmental requirements that relate to ( inter alia ) air emissions, water use and disposal, and waste management. The main law in this field is the Law on Protection of Environment.

Businesses have to secure the below listed approvals and permits before they can commence oil and gas operations:

a positive opinion of the Ministry of Environment and Natural Resources issued as a result of the EIA;
an environmental examination conducted by the Ministry of Environment and Natural Resources; and
an environmental passport and passport of hazardous wastes approved by the Ministry of Environment and Natural Resources.

2.9. Decommissioning

Contractors are required to transfer the installations and equipment to the state or new contractors free of charge, in accordance with the energy contract. The energy contract has to include a rehabilitation plan which is approved by SOCAR or the Ministry of Energy, which the contractor is required to implement before the contract expires. In addition, the contractor has to establish a rehabilitation fund to finance the works. The contractor is only able to remove or dispose of its fixed assets after completion of the rehabilitation works.

PSAs regulate the decommissioning obligations of contractors in further detail. The PSAs contain provisions on the abandonment fund that contractors have to establish to finance the abandonment of fixed assets used for oil and gas operations and set out the rules on the contractors’ abandonment plan.

2.10. Sale and trade

There are separate wholesale and consumer markets. Whilst there are no statutory limitations, wholesale and retail sales of oil and gas remain largely under the control of the SOCAR and are regulated by the Azerbaijani Government. The Azerbaijani Government has been considering liberalising and privatising the retail oil and gas market in recent years.

The general export regime is applicable to the export of oil and gas that is not produced under PSAs. Oil and gas which is produced under PSAs are exempt from foreign trade regulations that prohibit, limit and restrict import and export, and country of origin rules.

A contractor is able to freely determine market prices, unless the legislation provides otherwise. Oil and natural gas are however included in the list of goods, services and works that are subject to price regulation by the Azerbaijani Government. The Tariff Council is responsible for price regulation in Azerbaijan and regulates prices of:

domestic wholesale and retail sales of oil, oil products and gas;
services relating to the transportation of oil and natural gas through pipelines; and
services for the storage and distribution of natural gas.

Prices of oil and gas sold in foreign markets are not however regulated.

Unlike other oil producing countries, no royalties are paid in Azerbaijan. However, a tax on profits of between 25% and 32% is typically payable.

2.11. Enforcement of regulation

In accordance with the Energy Law, the Ministry of Energy is able to adopt mandatory rules that apply to the oil and gas industry. Additionally, the Ministry can issue specific orders to oil and gas producers relating to the implementation and enforcement of relevant legislation. The Ministry can impose administrative sanctions in cases of violations of oil and gas legislation and also has the power to suspend the special permits and licences issued to businesses which are engaged in oil and gas activities. Additionally, the Ministry can impose fines for failure to comply with obligations which are set out in the relevant laws.

Regulators’ decisions can be contested that do not comply with substantive or procedural requirements before the administrative�economic court or a district (city) court. Appeals are required to be made within 30 days from the date of official notification of the decision to the appellant.

PART 10 INFORMATION ON THE GROUP

Investors should read this Part 10: “Information on the Group” in conjunction with the more detailed information contained in this Document, including the financial and other information appearing in Part 14: “Operating and Financial Review”.

1. Introduction

The Company is an international oil and gas exploration, development and production company incorporated and domiciled in Canada with operations in Italy and Azerbaijan.

The Group’s principal assets in Azerbaijan and Italy are held through: (i) in respect of Azerbaijan its wholly� owned subsidiary Zenith Aran, which holds an 80% interest in three petroleum producing onshore fields in Azerbaijan; and (ii) in respect of Italy Canoel Italia S.r.l. (in which the Company has a 98.64% shareholding), which hold various working interests in 13 onshore exploration and production properties in Italy, as set out in paragraphs 1.1 and 1.2 below.

1.1 Italy

In Italy, the Group owns various working interests in 13 onshore exploration and production properties and two gas concessions currently shut�in. The two gas concessions (Canaldente and Torrente Vulgano) were assigned to Canoel Italia S.r.l. from the Ministry of Economic Development in 2011, whilst the other onshore exploration and production properties were acquired from Medoilgas Italia S.P.A. and Medoilgas Civita Limited, each a subsidiary of Mediterranean Oil and Gas Plc, in June 2013. The concessions have various expiration dates.

The production and exploration properties comprise the following concessions, permits and applications, further details of which are set out below:

(a) 6 operated onshore gas production concessions:
(i) Torrente Cigno (45% working interest)
(ii) Masseria Grottavecchia (20% working interest)
(iii) San Teodoro (100% working interest)
(iv) Misano Adriatico (100% working interest)
(v) Sant’Andrea (40% working interest)
(vi) Masseria Petrilli (50% working interest)
(b) 3 non�operated onshore gas production concessions:
(i) Masseria Acquasalsa (8.8% working interest)
(ii) Lucera (13.6% working interest)
(iii) San Mauro (18% working interest)
(c) 1 operated exploration permit:
(i) Montalbano (57.15% working interest)
(d) 1 non�operated exploration permit
(i) Colle dei Nidi (25% working interest)
(e) 2 exploration applications:
(i) Serra dei Gatti (100% working interest)
(ii) Villa Carbone (50% working interest)

Torrente Cigno

Description The Group owns a 45% working interest in the Torrente Cigno gas and condensate concession covering approximately 38,163 acres and located onshore in southern Italy, along the Adriatic coast. From 1 October 2015, the Company has used the gas produced to generate electricity which is sold directly to the national electrical grid in Italy.

As at September 2017, production at Torrente Cigno (from one well) was approximately 450 Mscf/d.

Expiry date This concession is scheduled to expire in 2019, for which a 10�year extension was requested on 7 March 2017.

Masseria Grottavecchia

Description The Group owns a 20% working interest in the Masseria Grottavecchia gas concession covering approximately 13,160 acres and located onshore in southern Italy, along the Adriatic coast.

This concession is not currently producing, but development plans are in progress.

Expiry date This concession is scheduled to expire in 2018, for which a 10�year extension was requested on 28 July 2016.

San Teodoro

Description The Group owns a 100% working interest in the San Teodoro gas concession covering approximately 14,640 acres and located onshore in southern Italy, along the Adriatic coast.

This concession is not currently producing, but development plans are in progress.

Expiry date This concession is scheduled to expire in 2019, for which a 10�year extension was requested on 1 December 2016.

Misano Adriatico

Description The Group owns a 100% working interest in the Misano Adriatico gas concession covering approximately 18,610 acres and located onshore in central Italy, along the Adriatic coast.

As at September 2017, production at Misano Adriatico (from one well) was approximately 45 Mscf/d.

Expiry date This concession is scheduled to expire in 2020, with the intention that it be renewed to align with the Company’s additional development plans.

Sant’Andrea

Description The Group owns a 40% working interest in the Sant’Andrea gas concession covering approximately 40,605 acres and located onshore in northern Italy, along the Adriatic coast.

This concession is not currently producing.

Expiry date This concession is scheduled to expire in 2022, with the intention that it be renewed to align with the Company’s additional development plans.

Masseria Petrilli

Description The Group owns a 50% working interest in the Masseria Petrilli gas concession covering approximately 29,227 acres and is located onshore in southern Italy, along the Adriatic coast.

This concession is not currently producing.

Expiry date This concession is scheduled to expire in 2020, with the intention that it be renewed to align with the Company’s additional development plans.

Masseria Acquasalsa

Description The Group owns a 8.8% working interest in the Masseria Acquasalsa gas concession covering approximately 10,200 acres and located onshore in southern Italy, along the Adriatic coast.

This concession is not currently producing.

Expiry date This concession was due to expire during 2005 but the Group has requested an additional ten�year extension on 12 March 2004, and an additional five�year extension on 5 November 2013, which are both currently being evaluated by the competent authorities.

Lucera

Description The Group owns a 13.6% working interest in the Lucera gas concession covering approximately 38,514 acres and located onshore in southern Italy, along the Adriatic coast.

This concession is not currently producing.

Expiry date This concession is scheduled to expire in 2022, with the intention that it be renewed to align with the Company’s additional development plans.

San Mauro

Description The Group owns a 18% working interest in the San Mauro gas concession covering approximately 6,257 acres and located onshore in southern Italy, along the Adriatic coast.

As at September 2017, production at San Mauro (from one well) was approximately 180 Mscf/d.

Expiry date This concession is scheduled to expire in 2020, for which a 10�year extension was requested on 6 February 2018.

1.2 Azerbaijan – REDPSA

On 16 March 2016, the Company’s wholly�owned subsidiary, Zenith Aran, entered into the REDPSA with SOCAR and SOA. The REDPSA covers 642 square kilometres which include the active Muradkhanli, Jafarli and Zardab oil fields located in the Lower Kura Region, about 300 kilometres inland from the city of Baku, Azerbaijan (the “ Azerbaijani Operations ”). Pursuant to the terms of the REDPSA, the Company and SOA have the exclusive right to conduct petroleum operations from the Azerbaijani Operations, through a newly incorporated operating company, Aran Oil Operating Company Limited (“ Aran Oil ”). Aran Oil, in which Zenith has an 80% interest, is the operator of the concession, with the remaining 20% interest being held by SOA.

On 24 June 2016, the President of the Republic of Azerbaijan signed the REDPSA into law, following approval by Parliament on 14 June 2016. The delivery of the capital assets previously used in respect of the petroleum operations at the Azerbaijani Operations, from the previous operating company to Aran Oil, officially completed on 11 August 2016 (“ Handover ” or the “ Effective Date ”). Aran Oil now has operational control of the Azerbaijani Operations. The transfer of operational control did not involve any interruption of petroleum production operations at the Azerbaijani Operations.

As a part of the Handover, an inventory of equipment and material was prepared and the volumes of oil in the pipelines and tanks were recorded. Any revenues related to the existing oil as at the date of Handover will be allocated to SOCAR. As the Azerbaijani Operations are currently producing oil, they have generated revenues for the Company since the completion of the transfer to Aran Oil.

The capital assets which transferred to Aran Oil as part of the Handover include production equipment, vehicles, wells, pumps, storage facilities, tools, generators, compressors, pipelines, offices, warehouses, buildings, rigs, yards, roads, infrastructure, radios, tubular goods, supplies, materials and facilities. The Company appointed a consultant in Azerbaijan to review and report on the availability and the state of the assets prior to Handover.

Aran Oil operates under the terms of the REDPSA. Revenue will be divided between cost recovery petroleum and profit petroleum. Aran Oil will first recover all operating costs from revenues after deduction of compensatory petroleum as explained below. Capital costs will then be recovered from a maximum of 50% of the remaining revenue. Any unrecovered costs can be carried forward to be recovered in future years. The remaining revenue is divided between Aran Oil and SOCAR according to an R�factor model. The R�factor varies as the ratio between Aran Oil’s profits and capital costs vary. Aran Oil’s share of profit petroleum varies between 25% and 80%.

Zenith Aran will pay 100% of all of Aran Oil’s costs (including SOA’s 20%) until the end of the four consecutive calendar quarters where production has been more than two times the average rate in 2015. The carried costs will be recovered from SOA’s profit petroleum after that time. It is expected that the additional carried costs can be taken from Zenith Aran’s profit petroleum.

Zenith Aran and SOA have an obligation:

within one year following the Effective Date, to deliver at no charge to SOCAR 5% of the total production of petroleum produced from the contract rehabilitation area in each calendar quarter; and
commencing on the first anniversary of the Effective Date, to start delivering, at no charge to SOCAR, 15% of the total production of petroleum produced from the contract rehabilitation area in each calendar quarter,

until the amount delivered is the equivalent of approximately 315,000 barrels of “compensatory” crude oil to SOCAR (“ Compensatory Petroleum ”).

The balance of production remaining after (i) the relevant Compensatory Petroleum has been delivered and (ii) quantities to enable recovery of certain operating and capital costs are deducted, is calculated on a quarterly basis and is shared between SOCAR and the Contractor according to a detailed “R factor” model (see above). Further details of the REDPSA are contained in paragraph 25.5 of Part 18: “ Additional Information ”.

Rehabilitation and production programme

As is typical with other onshore projects in Azerbaijan, the contract area to which the REDPSA relates includes areas where existing production needs to be improved (the “ Contract Rehabilitation Area ”) and where new production needs to be developed (the “ Contract Exploration Area ”). Zenith Aran and SOA have different obligations in respect of each area.

The Rehabilitation and Production programme was signed on 3 October 2017 and approved by SOCAR on the same date, and has a term of 25 years for the Contract Rehabilitation Area; a 5 year extension may be approved by SOCAR. It provides for a maximum production of approximately 2,382 barrels of crude oil per day in 2023. The programme will involve drilling 26 development wells: 21 in Muradkhanli and 5 in Jafarli with the cost per well being $4.3million. Therefore, a total of $111.8 million is planned to be spent on drilling. The programme will also involve the workover of 44 wells, which includes 12 old well reactivations, with the cost per workover being $150,000. Therefore, a total of $6.85 million would be spent on the workovers. Additionally, the programme will provide for facility upgrades of $2.5million and involve running a 64km2 3D exploration seismic and drilling a 1�5000m exploration well. The total net cash flow for the programme is $176 million and the total OPEX of $122.5 million and total CAPEX of $121.5 million. An annual plan is required to be prepared each year and presented to SOCAR.

Zenith Aran has acquired the exclusive rights to conduct petroleum operations in three petroleum producing onshore fields in Azerbaijan.

Pursuant to the terms of the REDPSA, Zenith Aran and SOA prepared and submitted a rehabilitation and production programme to achieve an average daily crude oil production from the Contract Rehabilitation Area of 1.5 times the average daily production rate in 2015, for 90 consecutive days, by no later than two years following SOCAR’s approval of the programme. SOCAR approved the programme on 3 October 2017. The 2015 average daily production was approximately 310 STB/d and accordingly the new target will be at least 465 STB/d.

The Company has undertaken nine well workovers between the effective date of the REDPSA in August 2016 and March 2017. The workover on C21 (Jafarli field) was relatively successful, returning the well to production at 10 STB/d. One other workover on M66 (Muradkhanli Volcanic) was partially successful, increasing production from 1.5 STB/d to 3.0 STB/d. Five other workovers are in progress or are waiting for equipment for finishing or milling. Two workovers are considered to be unsuccessful. As experience is gained, it is anticipated that the degree of success will increase.

Electro submersible pumps (ESPs) have been resized and/or set deeper in 10 wells with a total production increase of 88 STB/d. One workover rig is active at present. One new workover rig has been purchased and is scheduled to be operational in June 2018. Additional equipment may be purchased or contracted as required to optimise field redevelopment.

Between 2018 and 2020, the Company plans to workover a total of 44 existing wells which are currently inactive or produce at low rates to bring rates up to as much as 40 STB/d per well, with an estimated average of 15 STB/d per well, using improved technology, non�damaging fluids and optimised treatments. It is estimated that 12 wells will be worked over in 2018, 15 wells in 2019 and 11 wells in 2020.

The historical performance of each well including peak rates, cumulative oil and water production, and recent performance has been studied to identify wells that are likely to have successful workovers. The results of previous workovers have been noted. Although most wells flow to surface, the installation of ESPs was generally very beneficial and is expected to form part of most future workovers. It is predicted that the field oil production rate will exceed 1.5 times the average 2015 rate in late 2018, ensuring that the Company will retain its rights under the REDPSA.

Depending on the results of the programme, the Zardab field may be more fully developed.

Vertical Development Drilling – Muradkhanli and Jafarli

Additional drilling locations have been identified in the Muradkhanli and Jafarli fields, on locations adjacent to existing producing wells, which show the potential for unrecovered oil. These locations have been identified after careful consideration of recoveries to date and correlations of recovery factors with associated drainage areas of existing wells.

It is believed that the water production from existing wells, especially in the volcanic reservoirs, is a result of localised premature coning at the near well bore, which would leave undrained oil at locations between withdrawal points in the reservoir. Based on all the data examined, it was concluded that the likely effective drainage area for most wells would be 40 acres. Therefore, all the areas overlying the reservoirs outside of each existing wells’ 40�acre drainage area have been identified as a potential development drilling opportunity.

The drilling programme will be undertaken with caution, as there will be a learning curve from each new experience. Wells will be logged open hole with a carefully designed programme. Current water contacts will be detected from the well logs, which may lead to altered plans.

A detailed geological model is being developed based on digital log analysis on many of the existing wells, which will result in an enhanced understanding of the reservoirs and provide more control over future drilling locations.

Digital log analysis has already been performed on selected wells across the fields in order to establish a feel for the quality of the results that can be obtained from these older GIS logs available on most wells. One example of the benefit of the detailed log analysis was observed on well M58, where several potential hydrocarbon bearing uphole zones were identified. These zones will be examined during the future drilling operation and could result in major new uphole plays throughout these fields.

Horizontal Drilling – Muradkhanli Middle Eocene

The Middle Eocene system in the Muradkhanli Field has significant oil production from a faulted structural trap and in the Southeast Muradkahnli Field, but over a large area in a widespread stratigraphic�structural trap on the Southwest flank of the field, only scattered and poor production has been achieved.

The only available modern full log suite on the Middle Eocene is on the MOC�1 well drilled in 2000. A petrophysical analysis of this zone has been completed.

The poor performance of the scattered wells on the Southwest flank, when compared to the better wells in the fault block from the same horizon, suggests that the Middle Eocene on the flank would be an ideal candidate for a horizontal well development programme. There may be a number of explanations as to the poorer productivity, such as drilling fluid damage, but the most likely cause is low permeability in this expansive portion of the reservoir.

Horizontal well developments are conventionally applied to many different types of reservoirs, where vertical production rates are marginal or sub�commercial, resulting in significant new production and reserves all around the world, the technology is advancing rapidly, resulting in better results and lower cost as time progresses, typically wells can be expected to have productivities ranging from 3 to 5 times that of a vertical well in the same reservoir. The Company believes that implementing this horizontal programme will result in an increase in production and reserves for the REDPSA.

Conventionally, the first well in the programme would be drilled vertically to capture as much technical reservoir information as possible, including cores and a modern suite of open�hole logs. Once the reservoir rock and fluids are well understood the drilling and completion programme can be designed to minimize reservoir damage and maximize the well results.

It is typical to manage the horizontal drilling programme with the use of multi�well pads. Inter�well distance or spacing of well bores is also an issue to be considered for optimum recovery.

General

The Company intends to acquire a modern drilling rig capable of drilling to 4,500 m to carry out the fifteen�year drilling programme. It is estimated that five new wells will be drilled in 2019 and ten wells in each year until the anticipated drilling programme Is completed in 2033.

In total, 145 development wells are expected to be drilled, of these, 58 will be horizontal wells in the Mid Eocene. It is expected that additional rigs will be acquired or contracted at some periods to meet the proposed drilling schedule.

The existing gathering system and central facilities appear to be adequate to handle increased production from the workovers. An analysis of the gathering system and facilities will commence concurrently with the implementation of the rehabilitation and production programme, to expand and modernise the surface facilities in anticipation of field production reaching a rate of 1,768 STB/d by 2020 and a peak rate of about 14,845 STB/d by 2033 in the proved plus probable case. It is anticipated that upgrades to the facilities and gathering system will take place in 2018 and 2020 as rates increase.

Annual work programmes and budgets must be prepared for SOCAR’s approval.

Minimum exploration work programme

Pursuant to the terms of the REDPSA, within the four years period commencing on the Effective Date, Zenith Aran and SOA are required to carry out a minimum exploration work programme in the Contract Exploration Area including the following work:

to carry out an upper section site investigation survey to ensure a safe and environmentally sound base for drilling, and to shoot, process and interpret two�dimensional seismic or a minimum of sixty square kilometres of three�dimensional seismic (this will be decided by the Company at the relevant time), in the specified exploration area; and
to drill a well to a depth of five thousand metres from the ground surface, or to the depth of 50 metres below the top of the Upper Cretaceous formation, whichever occurs first, and evaluate the drilled well using an appropriate logging and testing programme.

The Company funds the minimum exploration work programme using its accumulated cash flows. The REDPSA does not contain any milestones in respect of the minimum exploration work programme.

The Company has no specific work programme obligations; its rehabilitation and development plans are planned and determined by operational opportunities, in accordance with cash availability, value accretive equipment upgrades, including the repair or replacement of electrical submersible pumps as well ancillary oil production infrastructure, and the performance of well workovers aimed at increasing/restoring production. An annual plan is prepared each year and presented to Socar.

The development and production period for the contract exploration area is 25 years from the date of SOCAR’s approval of the development programme.

Key Developments and Operational progress in Azerbaijan since listing on the London Stock Exchange

Field Production

The Company achived the following production levels in Azerbaijan between January 2017 and March 2018.

Average daily oil production	Average daily oil production
in Azerbaijan	(barrels per day)
11111111111
	Average daily
Month	production (barrels)
111111	1111111
January 2017	281
February 2017	280
March 2017	271
April 2017	275
May 2017	266
June 2017	269
July 2017	266
August 2017	262
September 2017	253
October 2017	267
November 2017	279
December 2017	283
January 2018	249
February 2018	258
March 2018	277

Field rehabilitation Activities

The Company has undertaken numerous workovers and other operational activities between the effective date of the REDPSA in August 2016 and in March 2017 as summarized in the following table.

January 2017 Signed a service contract with a well�established local oilfield service company to perform the workovers of wells M�195 and M�45 located in the Muradkhanli field.

February 2017 Division of the field rehabilitation activities between two teams: ‘Team A’ and ‘Team B’.

Team B was staffed by personnel from the oilfield service company contracted to perform the workovers of wells M�195 and M�45, operating the Service Company’s workover rig.
Team A was staffed by Zenith’s field personnel, operating the Company’s A�80 workover rig inherited by SOCAR.
March 2017 1. Successfully resolved obstructions in Well M�195, enabling to reach the top of the production liner section at 3,014 metres.
Modernisation work of its A�80 rig was fully completed.
Installation of a new ESP in wells M�70 and M�48 in the Muradkhanli field and well C�34 in the Jafarli field.
April 2017 1. Pump replacements in wells C�31 and C�34 in Jafarli field and wells M�67 and M�70 in the Muradkhanli field.

Well C�39 in the Jafarli field had pump repair work performed to address minor technical problems.
The field rehabilitation activities resulted in a net increase of 14 barrels of oil per day in total across the five wells.
Team A began workover operations at well M�45 in the Muradkhanli field.
The Company also commenced sidetrack operations at well M�195 with the arrival of the required larger workover rig.
May 2017 Announced the appointment of a Chief Operating Officer, Mike Palmer, to lead its operations in Azerbaijan.
June 2017 Announced the success of its sidetrack operations at well M�195. July 2017 1. The workover of M�45 was successfully completed; a production rate of 46 BOPD was achieved, but potentially higher flowrates were inhibited by partial blockages of old well material.
Restored production at well M�66 in the Muradkhanli field, achieving a flow rate of 50 BOPD.
August 2017 1. Signed a contract for the procurement of oil production materials with Kerui petroleum, a leading Chinese manufacturer of oilfield equipment, for a value of the procurement contract of US$1,705,608 (approximately £1,325,000; CAD$2,146,000), by which:
- Zenith paid the 15% of the contract value in advance as deposit.
- The materials procured include: a blowout preventer (BOP); a full set of well control equipment; drill pipes to be used as a work string; tubing to be used in the installation of new electric submersible pumps and in old wells that have been returned to production; new oilfield infrastructure; lighting equipment; and a generator system to enable a workover rig to operate without the need for nearby infrastructure across Zenith’s 642.4 km[2] field area.
Successful installation of the custom�built Schlumberger ESP in well M�45 in the Muradkhanli field. Following the installation, the well achieved a production rate of 49 BOPD.
September 2017 1. Began the installation of ESPs in a further 11 wells, employing its own A�80 workover rig, upgraded earlier in the year, and a similar sized workover rig operated by an experienced local oilfield service company.
Successful perforation of well C�26 in the Jafarli field; the well achieved a production rate of 70 BOPD; it was previously not producing.
October 2017 1. Successful perforation of a new, unexploited production zone in well C�21 in the Jafarli field, achieving a flow rate of 15 BOPD. Prior to the perforation well C�21 was non�producing.
Experienced difficulties in its workover of the Z�21 well, which initially flowed at a rate below 5 BOPD.
December 2017 1. Cleaned out well Z�28. However, during the post�workover inspection of the wellhead, Zenith’s petroleum engineers observed a leak during a pressure test from the wellhead in the 9 5/8 inches casing seal assembly, delaying further activity. To resolve this problem, the Company contracted a UK�based expert in oilfield leak�sealing technology, with an established presence in Azerbaijan.

Completed the civil works on the roads to well Z�21 and at the well location.

January 2018 Signed a purchase agreement for the order of a new workover rig with a manufacturer based in Azerbaijan. The total value of the purchase agreement contract was approximately CAD$440k (approximately £251k).

February 2018 1. Successfully cleaned out the entirety of the tubing string in well Z�21, circulating and drilling out mud and debris that had accumulated since the well was last produced in 1988. Due to the small coiled tubing bit (1.875 inches) and the restricted diameter of the tubing, the casing could not be cleaned out further. To rectify this the Company prepared its A�80 workover rig to pull the tubing string from the well. Once completed, it will run in hole with a drill bit and clean out the casing to total depth, 3,982 metres. The well will subsequently be put on production.
Successfully sealed the wellhead leaks in well Z�28 and subsequent coiled tubing intervention cleaned out the well to a depth of 3,583 meters, however it was determined it would have to mill out 63 metres of tubing inside the liner and then clean out an additional 298 metres of the liner to a total depth of 3,944 metres to complete the workover.
A�80 workover rig received further upgrades to increase its capabilities and enable it to be utilised more extensively in the Company’s workover operations. This will be supplemented by A�100 truck�mounted workover rig ordered in January 2018.
Successfully installed seven ESPs. While this resulted in an uplift in production, it has also reduced production downtime that had been observed as a recurrent problem with the previous generation ESPs.

Stable production rates have increased by about 25 STB/d since the Effective Date of the REDPSA. One workover rig is active at present. One new workover rig has been purchased and is scheduled to be operational in June 2018. Additional equipment may be purchased or contracted as required to optimize field redevelopment.

Between 2018 and 2020, The Company plans to workover a total of 38 existing wells which are currently inactive or produce at low rates to bring rates up to as much as 40STB/d per well, using improved technology, non�damaging fluids and optimised treatments. It is expected that 12 wells will be worked over in 2018, 15 wells in 2019 and 11 in 2020.

If fully successful, the workover of 12 wells in 2018 could increase production by up to 40STB/d, achieving a field production rate of up to 780STB/d by Year End 2018.

An additional increase in production up to the Company’s goal of 1,000 STB/d could be achieved from the resizing or resetting of EPS’s and purchase of additional equipment. That case has not been reflected in the economics analysis in this Document. On that basis, the field oil production rate will exceed 1.5 times the average 2015 rate in late 2018, ensuring that the Company will retain its rights under the REDPSA.

The historical performance of each well including peak rates, cumulative oil water production, and recent performance has been studied to identify wells that are likely to have successful workover. The results of previous workovers were noted. Although most wells flow to surface, the installation of electrical submersible pumps was usually very beneficial and is expected to form part of most future workovers.

In addition to the 33 recently shut in or marginal producing wells, five non�producing wells completed in the Maykop zone in the Zardab field are expected to be worked over and to be returned to production after wellbore and sand production problems have been resolved. Depending on the results of the programme, the Zardab field may be more fully developed, but new drilling in Zardab is not evaluated in this Document.

2 Group Structure

The Company acts as the holding company of the Group. The Company has the following subsidiaries:

	Place of incorporation	Proportion of
Name of Subsidiary	and registered office	ownership interest	Principal activity
Canoel Italia S.r.l.	Italy	98.64%(1)	Gas, electricity and
	Genova		condensate
	Via XXV Aprile 12°		production
	Italy
Ingenieria Petrolera del Rio	Argentina	100%	Oil services
de la Plata S.r.l.	Arenales 955,
	2º piso
	1061 C.A.B.A.
	Buenos Aires
	Argentina
Aran Oil Operating Company	British Virgin Islands	80%(2)	Oil production
Limited	Nemours Chambers
	Road Town
	Tortola
	British Virgin Islands
Zena Drilling Limited	U.A.E.	100%(3)	Oilfield service
	Ras Al Khaimah		company
	Free Trade Zone, UAE
Leonardo Energy Consulting S.r.l.	Italy	48%(4)	Service company
	Genova
	Via XXV Aprile 12°
	Italy
Altasol S.A.	Switzerland	100%	Oil trading
	Chemin de Villardin 14
	1000 Lausanne 22
	Switzerland
Zenith Aran Oil Company Limited	British Virgin Islands	100%(5)	Oil production
	PO Box 957
	Offshore Incorporations	Centre
	Road Town
	Tortola
	British Virgin Islands
Zenith Energy (O & G) Limited	England & Wales	100%	Admistrative service
	84 Eccleston Square		company
	London SW1V 1PX
	United Kingdon

Notes:

(1) The holder of the remaining 1.35% in the capital of Canoel Italia S.r.l. is Luigi Regis Milano.

(2) Aran Oil Operating Company Limited has registered a branch in Baku, Azerbaijan. The remaining 20.00% in the capital is held by SOCAR.
(3) Zena Drilling Limited (“Zena”) is incorporated in the Ras Al Khaimah Free Trade Zone (“RAKFTZ”), United Arab Emirates (“UAE”). Zena is a 100% beneficially owned subsidiary of the Company. Zena was incorporated by and the shares in Zena are currently registered in the name of Andrea Cattaneo as trustee for the Company. Due to the process of incorporation in RAKFTZ, this was the most efficient method of establishment and due to the UAE not being a signatory to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, the process of transferring legal ownership to Zenith is elongated and is not expected to be completed until later in 2018.
(4) The holders of the remaining 52.00% in the capital of Leonardo Energy Consulting S.r.l. are Giuliano Pennisi (4%), Fabrizio Tondelli (43%) and Cristiano Maiorano (5%).
(5) Zenith Aran has registered a branch in Baku, Azerbaijan.

3 Key Strengths The Directors believe that the Group has the following key strengths:

Significant assets in highly prospective regions:

Significant assets in well�known oil and gas regions.
Operator in Azerbaijan, one of the world’s most established energy producers.
Interests in reasonably stable countries with a long history of hydrocarbon extraction.
Dynamic and adaptable company structure.
Know�how and new technologies applied in old and marginal fields.
Attention to environmental and social aspects, employing local personnel in all operations.

Proven track record of operational success in exploration and appraisal activities

The Group has a strong and committed management team that has substantial relevant industry knowledge and a proven track record of operational success. The Company believes that its management team has favourably positioned the Company to successfully implement its growth strategy and productivity initiatives regarding its existing projects.

The Company focusses on maximising the value of its portfolio and has a track record of active management in order to control its balance sheet exposure, access relevant skills and to grow its interests.

Senior management have an established history of increasing production in former Soviet republics, specifically in Azerbaijan. Michael Palmer, COO, has a track record of increasing production from 5,000 BOPD to 40,000 BOPD in Kazakhstan, and from 500 BOPD to 4,000 BOPD in Azerbaijan. Four international petroleum engineers have recently been recruited who are specialists in workover and drilling operations.

In addition to its activities discussed above, the Company is actively exploring oil & gas production and development opportunities in Africa, the Middle East and Central Asia to enrich the value of its asset portfolio.

Management’s extensive international connections

The Company has the ability to capitalise on management’s extensive international connections to continue accretive growth through acquisitions in order to create value through exploration and appraisal success and operational strengths.

Diversified Portfolio

The Group has established a diversified portfolio of interests in two different regions.

“Marginal field strategy”

The Company adopts a “marginal field strategy” in Italy, which enables it to “unlock” onshore fields that have been shut�in, thereby releasing significant residual reserves. The Company focuses on commercialisation and monetisation of existing oil and gas reserves and targets countries with an extensive history of production. This strategy requires expertise in optimising residual reserves and decommissioning of aged facilities. “Marginal fields” are often available from national companies due to an allocation of capital to higher impact (and higher cost) projects. Historically, the upfront costs of such acquisitions are moderate.

Remediation and capital improvement programme

Zenith’s strategy is designed to reinvest an agreed portion of local cash flow back into remediation and capital improvements in order to enhance the Group’s operations.

4 Strategy

Current business strategy and future opportunities

Zenith’s business plan is to grow through international acquisitions and to increase the production and reserves from its international inventory of oil and gas projects. The Company’s operations are targeted at areas with advantageous access points for its exploration activities with a reasonably stable economic and business environment. The Company’s primary operations are in:

(a) Azerbaijan, where the Company has an 80% participating interest in three petroleum producing onshore fields; and
(b) Italy, where the Company owns various interests in 13 onshore exploration and production assets and two shut�in gas permits; and

The successful completion of the handover process and transfer of operatorship of the three petroleum producing fields in Azerbaijan (together one of the largest onshore oil and gas concessions in Azerbaijan by cumulative acreage) to Aran Oil Company occurred on 11 August 2016. Zenith intends to grow the current base of production in Azerbaijan through investments in technology, enhanced production techniques, significant infill development opportunities and future step out exploration. The Company considers its presence in Azerbaijan to be a key strategic asset and it is committed to developing its interest in the concession.

Strategically, the Company intends to develop a balanced portfolio of short, medium and long�term opportunities. To accomplish its objectives, the Company intends to seek innovative ways to unlock value by leveraging its assets and subsidiaries, build strong partnerships, participate in bid rounds to gain low cost exposure to favourable opportunities, execute accretive mergers and acquisitions to further strengthen its short and near�term portfolio, focus on growth in value and reserves potential, leverage its management team’s international oil and gas expertise to add accretive production and reserves, and develop and create and build on strategic alliances with national oil companies and large proven operators.

In reviewing potential drilling or acquisition opportunities, the Company will consider the following criteria:

(a) risk capital to secure or evaluate the opportunity;
(b) the potential return of the project, if successful;
(c) the likelihood of success; and
(d) the risk�related return versus cost of capital.

Become a primarily self�funding business and maintain financial flexibility

From a financial perspective, the Group’s focus is on achieving and maintaining a robust, well�funded business with the financial flexibility to fund high�impact exploration, appraisal and development programmes in order to realise the full potential of its oil and gas resources.

The Group may look to broaden its sources of funding while ensuring an appropriate capital structure.

Increase Reserves through further exploration and appraisal

In terms of exploration objectives, the Company’s focus is on unlocking oil and gas reserves still unexploited in old and marginal oil and gas fields through the use of new technology. This approach allows the Company to invest in the oil and gas sector with lower associated geological risks than in a completely new environment, and very often in a country with good facilities available. Formally defined exploration wells are often located in an already well�known structure where the presence of hydrocarbons has been tested in several other wells in the area.

5 Italian Operations

On 18 November 2010, Zenith established Canoel Italia S.r.l., a wholly�owned subsidiary of the Company, incorporated in Italy. On 5 June 2013, the Company completed the acquisition of various interests in 13 Italian producing and exploration properties. As described above, the assets comprise six operated onshore

gas production concessions, three non�operated onshore gas production concessions, an operated exploration permit, a non�operated exploration permit and two exploration permit applications.

On 1 October 2015, the Company acquired co�generation equipment and facilities from the owner of a plant that treats gas from the Masseria Vincelli 1 well in the Torrente Cigno concession in Italy. The acquisition has enabled the Company to produce electricity from the gas produced by the Masseria Vincelli 1 well which it sells it directly into the national energy grid in Italy. The natural gas extracted from the Masseria Vincelli 1 property which is not suitable for transportation in the national grid pipeline is currently produced to generate electricity with the use of gas engines.

As at 31 March 2018, the Competent Person estimated reserves at the Group’s most commercially significant concessions in Italy as follows:

Lucera

Total net proved developed producing conventional non�associated marketable gas reserves of 120 MMscf for the two producing gas wells at the concession.
Net probable additional developed producing conventional non�associated marketable gas reserves of 31 MMscf for the same two wells.

Misano Adriatico

Total net proved developed producing conventional non�associated marketable gas reserves of 123 MMscf for the one producing gas well at the concession.
Net probable additional developed producing conventional non�associated marketable gas reserves of 74 MMscf for the same well.

San Mauro

Total net proved developed producing conventional non�associated marketable gas reserves of 101 MMscf for the one producing gas well at the concession.
Net probable additional developed producing conventional non�associated marketable gas reserves of 25 MMscf have been estimated for the same well.

Torrente Cigno

Total gross proved developed producing conventional non�associated marketable gas reserves of 1.073 MMscf and 15 Mbbls of condensate for the one producing gas well at the concession (Masseria Vincelli 1).
Gross probable additional developed producing conventional non�associated marketable gas reserves of 1,439 MMscf and 25 Mbbls of condensate for the same well.
Probable undeveloped gas reserved of 13,413 MMscf and 216 Mbbls of condensate for an offset horizontal well location (Masseria Vincelli 2).

Overall, the Company’s share of estimated total proved plus probable natural gas net reserves at the Lucera, Misano Adriatico, San Mauro and Torrente Cigno concessions was assessed at 16,398 Mmscf and condensate net reserves were assessed at 257 Mbbls as at 31 March 2018.

The Company’s technical and geological team in Italy has also conducted in�depth geological, geophysical and engineering evaluations at some of the Group’s Italian properties (the Torrente Vulgano, San Teodoro, Masseria Petrilli and Masseria Grottavecchia concessions) in order to identify and plan appropriate development activities at the relevant concessions. The team’s work included a geophysical, geographical and infrastructure classification exercise and an assessment of the data relating to reserves and production capacity contained in independent studies previously conducted. Documentation held in the team’s archive (for example maps, studies and seismic data received from the previous owners of the relevant concessions) has been analysed and interpreted and information has also been drawn from studies prepared by competent independent third parties. Specific software was also used to assist the process. Once precise geological conclusions and reserve valuations were finalised, the Company was able to make a thorough assessment of the best economic and structural solutions to facilitate positive cash flow generation from the concessions.

Models developed by the Company have enabled it to analyse the investment required and calculate economic and financial return at the concessions, and this has made it possible to identify key operational priorities.

In particular, the Company has key development plans at two concessions, San Teodoro and Masseria Petrilli. In the wholly�owned San Teodoro concession (currently not in production), projects are ongoing to enable drilling for gas at the “Macchia Nuova” structure. It is also intended that improvements of facilities at San Teodoro will be completed by the tie�in of new dehydration equipment. While the field has been capable of production, a lack of regional infrastructure limited additional expansion in the past. In December 2014, Zenith reached an agreement with a successful retail marketer of natural gas within Italy to handle production from this field, which is expected to restart production in January 2019. Production from the existing wellbore to commence at 3,000 cubic meters/day (106 mcf/d or 18 boed), increasing the Company’s current daily production in Italy by 25%, to over 100 boepd. Costs of the refurbishment and commencing production at the concession are anticipated to be approximately c300,000 (GBP 256,050) and will be paid through an equipment leasing facility. The Company is also evaluating the possibility of drilling a deviated well into the crestal area of the Torrente Salsola structure at the Masseria Petrilli concession (where the Company has a 50% working interest) in order to unlock residual reserves. The plans at both concessions envisage a limited amount of capital expenditure in order to increase Zenith’s gas production in Italy and to achieve a good level of profitability. The Company has an ambitious programme to enhance the Italian daily gas production rate in the Puglia Region by 100% through a technical programme employing additional workovers.

In addition, submission of extensive environmental reports relating to the commencement of production of the Torrente Vulgano gas property has been completed and preliminary approval has been received. The Company is now looking to commence production at these wells following receipt of final approval. Production of natural gas from the Torrente Vulgano property is now expected to commence in the next three years.

Separately, the Company is planning to implement an innovative plan for the exploitation of the Traetta 1 well in the Masseria Grottavecchia concession (where the Company has a 20% working interest) through the sweetening of the produced gas so that it can be sold through the national pipeline grid. This development plan was recently submitted to the relevant ministry in Italy, for its review and approval. The Company estimates that approval should be received in December 2018.

6 Azerbaijani Operations

At present, the Azerbaijani Operations produce approximately 300 barrels of crude oil per day, although they have produced much larger quantities previously (Source: SOCAR). Gas is also produced, but in low quantities and is used at the sites. The Company, which is free to sell/export oil without restrictions, sells its oil through the Marketing and Operations Department of SOCAR (“ SOCARMO ”). A related commission of 1% of total sales is payable to SOCARMO.

Between 2018 and 2020, the Company plans to workover a total of 38 existing wells which are currently inactive or produce at low rates to bring rates up to as much as 40 STB/d per well, with an estimated average of 15 STB/d per well, using improved technology, non�damaging fluids and optimised treatments. It is estimated that 12 wells will be worked over in 2018, 15 wells in 2019 and 11 wells in 2020. The Company has undertaken 7 work overs between the effective date of the REDPSA in August 2016 and March 2018. The work over on C21 (Jafarli field) was quite successful, returning the well to production at 15 STB/d. One other work over on M66 (Muradkhanli Volcanic) was partially successful; it has restored production and achieved a flow rate of 15 STB/d, and 150 barrels of oil which had accumulated in the wellbore were also recovered during the well intervention. 2 other work overs are in progress or are waiting on equipment for fishing or milling.

The Company purchased one modern workover rig to optimise the completion and workover of the wells during the year 2017. Additional equipment may be leased or contracted as required to optimise the field redevelopment.

In addition to the marginal producing wells, five non�producing wells completed in the Maykop zone in the Zardab field in Azerbaijan are expected to be worked over in 2019 and to be returned to production after wellbore and sand production problems have been resolved.

The Company intends to acquire (for a cost of approximately US $10,000,000 (GBP £8,101,000)) a modern drilling rig capable of drilling 4,500m to carry out a fifteen�year drilling programme. It is estimated that five new wells will be drilled in 2019 and ten wells in each year thereafter until the anticipated drilling programme is completed in 2033 (with associated costs of approximately US $671,000,000 (GBP £543,577,100)).

During the first four years of the REDPSA it is estimated that US $1,500,000 (GBP £1,215,150) will be spent upgrading the gathering system and central facilities in Azerbaijan to improve safety, efficiency and handle higher production rates. During the same period, 39 active wells currently producing at marginal rates will be worked over at estimated costs ranging from US $25,000 (GBP £20,253) to US $32,000 (GBP £25,923) each.

It is anticipated that in 2019 five shut�in wells completed in the Maykop formation will be worked over to control sand production at an estimated cost of US $150,000 (GBP £121,515) each, and returned to production at a total rate of 200 STB/d.

It is envisaged that development drilling will commence in 2019 and continue until 2033. It has been estimated that each well with proved reserves will cost approximately US $4,300,000 (GBP £3,483,430). This cost will include the direct cost of materials, fuel, salaries, etc. to drill the well and an allocation for the purchase of the drilling rig, well completion and tie�in. Proved reserves are those reserves that can be estimated, by a competent professional, with a high degree of certainly to be recoverable. Each well in the proved plus probable category is expected to cost approximately US $5,000,000 (GBP £4,050,500). In addition to the costs anticipated for the wells with proved reserves, wells in the proved plus probable category have an additional allocation for periodic leasing or contracting of additional drilling rigs and expansion and modernisation of the field facilities. This category of reserves includes those additional reserves that are less certain to be recovered than proved reserves.

In total, 145 development wells are expected to be drilled, of which 58 of these are anticipated to be horizontal wells.

The total reserves of the Company’s Azerbaijani operations are estimated by the Competent Person at 31,735 MSTB as at 31 March 2018.

7 Summary of reserves and resources

The Competent Person has stated the reserves and resources of the assets held by the Group in the CPR included in Part 23 Document, which are summarised below:

Summary of Company Reserves

31 March 2018

Combined Properties – Azerbaijan and Italy Zenith Energy Ltd.

		Net to Appraised Interest Reserves	Net to Appraised Interest Reserves	Net to Appraised Interest Reserves
	1111111111111111111111111111
			Reserves
	Light and Medium		Sales Gas		NGL
	Oil MSTB		MMscf		Mbbls
	11111111		11111111		11111111
	Gross	Net	Gross	Net	Gross	Net
PROVED
Proved Developed Producing
Azerbaijan	377	377	—	—	—	—
Italy	—	—	1,196	1,196	15	15
	111	111	111	111	111	111
Total Proved Developed
Producing	377	377	1,196	1,196	15	15
Proved Developed
Non�Producing	—	—	220	220	—	—
	111	111	111	111	111	111
Total Proved Developed
Producing	—	—	220	220	—	—
Proved Undeveloped	3,511	3,511	—	—	—	—
	111	111	111	111	111	111
Total Proved Undeveloped	3,511	3,511	—	—	—	—
	111	111	111	111	111	111
Total Proved	3,887	3,887	1,416	1,416	15	15
	333	333	333	333	333	333
PROBABLE
Probable Developed Producing
Azerbaijan	139	139	—	—	—	—
Italy	—	—	1,513	1,513	25	25
	111	111	111	111	111	111
Total Probable Developed
Producing	139	139	1,513	1,513	25	25
Probable Developed
Non�Producing
Azerbaijan	1,011	1,011	—	—	—	—
Italy	—	—	56	56	—	—
	111	111	111	111	111	111
Total Probable Developed
Non�Producing	1,011	1,011	56	56	—	—
Probable Undeveloped
Azerbaijan	26,697	26,697	—	—	—	—
Italy	—	—	13,413	13,413	216	216
	111	111	111	111	111	111
Total Probable
Undeveloped	26,697	26,697	13,413	13,413	216	216
	111	111	111	111	111	111
Total Probable	27,847	27,847	14,982	14,982	242	242
PROVED PLUS PROBABLE
Azerbaijan	31,735	31,735	—	—	—	—
Italy	—	—	16,398	16,398	257	257
	111	111	111	111	111	111
Total Proved Plus
Probable	31,735	31,735	16,398	16,398	257	257
	333	333	333	333	333	333

Gross reserves are the total of the Company’s working interest share before deduction of royalties owned by others.

Net reserves are the total of the Company’s working and/or royalty interest share after deducting the amounts attributable to royalties owned by others. Columns may not add precisely due to accumulative rounding of values throughout the CPR.

8 Dividend policy

The Company is primarily seeking to achieve capital growth for its Shareholders. It is the Board’s intention during the current phase of the Company’s development to retain future distributable profits from the business, to the extent any are generated, for future operations, expansion and debt repayment, if necessary. As a holding company, the Company will be dependent on dividends paid to it by its subsidiaries.

The Company has never declared or paid any dividends on the Common Shares. At present, there is no intention to declare any dividends in the foreseeable future and a dividend may never be paid. Any decision to declare and pay dividends will be made at the discretion of the Board of Directors and will depend on, among other things, the Group’s results of operations, financial condition and solvency and distributable reserves tests imposed by corporate law and such other factors that the Board of Directors may consider relevant.

The Board can give no assurance that it will pay any dividends in the future, nor, if a dividend is paid, what the amount of such dividend will be.

9 Expansion Strategy

As part of this strategy, the Company announced on 28 March 2018 that it has entered into an exclusivity and option agreement (the “ Agreement ”) for the acquisition of various production and exploration licences in Indonesia (the “ Proposed Acquisition ”). The vendors of the Proposed Acquisition have not delivered all the required information for the Board to consider matters further at this time and the option element of the Agreement has now lapsed. The exclusivity element of the Agreement remains in place. As a consequence, the Board has decided to defer a decision on whether to proceed with the Proposed Acquisition until the second half of 2018 in order to focus on implementing actions in Azerbaijan following the Placing.

The Proposed Acquisition remains at an early stage and there can be no guarantee that the transaction will be successfully completed. Completion of the Proposed Acquisition remains conditional on, inter alia , completion of satisfactory due diligence, the entering into of binding agreements and financing of the Proposed Acquisition. Zenith is considering a number of funding options to finance the potential transaction including debt and equity, whilst seeking to avoid significant dilution to existing Shareholders. Completion of the Proposed Acquisition may be subject to regulatory approval from the TSXV, although this is considered by the Directors to be unlikely based on legal advice in Canada.

The Company has exclusive rights to complete the Proposed Acquisition for a period of 90 days from 23 March 2018

Please note that none of the funds raised in the Placing are for the purpose of the Proposed Acquisition. If the Company does decide to proceed with the Proposed Acquisition, then the capital required will be raised specificially for that purpose. If the Directors decide that some or all of the Consideration is to be financed through the issue of new Common Shares, then Shareholders, including those who participated in the Placing will be diluted. The Board considers the level of uncertainty as to whether the Proposed Acquisition may proceed, on what terms it might proceed and when it might proceed to be significant, and so do not regard the Proposed Acquisition to be material to the Company’s present value or to its future prospects.

PART 11

DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE

1. The Directors and Senior Management

The Directors believe the Board comprises a knowledgeable and experienced group of professionals with relevant experience for sourcing, evaluating, structuring and executing the business strategy of the Company. The Board will have full responsibility for its activities.

Details of the Directors, the Proposed Director and the Senior Manager are listed below.

1.1. Directors

1.1.1. Jose Ramon Lopez�Portillo ( Non�Executive Chairman, aged 64 )

Jose Lopez�Portillo has been Managing Director and then Chairman of the Board since 24 September 2007. He is an economist with a large network of business contacts worldwide, and who previously served as Mexican Permanent Representative in Rome, Italy. Mr Lopez�Portillo is a leading researcher in the energy security of Mexico and acts as Deputy Minister at Mexico’s Planning and Budget Secretariat. Mr Lopez�Portillo holds a Doctorate degree in Political Sciences and International Relations from the University of Oxford.

1.1.2. Andrea Cattaneo Della Volta Cattaneo Adorno ( President and Chief Executive Officer, aged 62 )

Andrea Cattaneo is an energy specialist with a focus on emerging countries and has 30 years’ experience in advising governments in financial, industrial and energy�related matters. Mr Cattaneo has strong expertise and experience in structuring and negotiating contracts in the international markets, particularly in the oil industry, and also in the management of oil fields. He also has significant experience in former socialist countries and in 1985 he arranged the first US$ loan to Vietnam, the then third poorest county in the world. Separately, Mr Cattaneo is a Partner of the Bolsa de Comercio de Buenos Aires (BCBA), the Buenos Aires Stock Exchange and was previously a member of the Business Advisory Council to the Great Tumen Initiative, a United Nations project for regional economic cooperation in Northeast Asia. He is a member of the Steering Committee of IADC (International Association Drilling Companies) Caspian Chapter and a non�executive Director of the Anglo�Azerbaijan Society. He has been a Director of the Company since 9 December 2008 and has served as President and CEO of the Company since 2009.

1.1.3. Luigi Regis Milano ( Executive Director, aged 80 )

Regis Milano was appointed as Director of the Company on 24 September 2008 and served as Chief Financial Officer from 28 November 2012 until 7 March 2016. He is also currently Managing Director of the Company’s Italian subsidiary, Canoel Italia Srl. He has a strong background in petroleum chemistry, having developed an extensive network of relationships within the European and global oil industry over the course of more than 60 years’ experience. He has acted as executive director for a large trading company specialising in crude oil and petroleum products, and also as executive director of a large European refinery. He is currently a director and part owner of an Italian oil refinery (and has been since 2000).

1.1.4. Dario Ezio Sodero ( Non�Executive Director, aged 76 )

Dario Sodero was appointed to the Board on 24 June 2009. As an experienced energy industry executive with almost 50 years of experience in North America, the Sub�Arctic, North Africa and the Middle East, Mr. Sodero has strong geological, exploration and technical expertise. Mr Sodero is a director of Rockbridge Resources Inc., a TSXV publicly traded oil and natural gas company, since January 2011, and has formerly acted as director and executive of several other TSX and TSXV�listed exploration and production companies. Mr Sodero holds a Doctorate degree in Geology from the University of Turin, Italy.

1.1.5. Erik Sture Larre ( Non�Executive Director, aged 55 )

Erik Larre has been a Director of the Company since 22 March 2011. Mr Larre specialises in real estate, banking and finance matters, and also has experience in the oil and gas industry. Mr Larre has strong business connections internationally and in particular within the Nordic business community. Mr Larre is a director of several real estate companies around the world and has acquired wide geographical experience in countries in Eastern and Southern Europe and the Middle East. Mr Larre holds a Master’s degree in Civil Engineering from the Polytechnic University of Milan, Italy and speaks six languages.

1.1.6. Saadallah Al�Fathi ( Non�Executive Director, aged 78 )

Saadallah Al�Fathi served as Head of the Energy Studies Department, Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria as well as OPEC Representative to the Executive Council of the World Energy Council and Member of its Studies and Developing Countries Committee. Following these high�profile institutional positions Mr Al�Fathi has served as an advisor to several government and private entities as well as establishing himself as an award� winning oil and gas industry researcher and columnist. Mr Al�Fathi has authored a number of research papers on the oil & gas sector and was recently joint winner of the 2016 scientific research award of the Organization of the Arab Petroleum Exporting Countries.

1.1.7. Sergey Borovskiy ( Non�Executive Director, aged 45 )

Sergey Borovskiy has over 25 years of experience in business management in China and Hong Kong. He has lived and worked in China since 1991 and is fluent in Russian, English and Mandarin.

He is CEO of Sanju Environmental Protection (Hong Kong) Limited, overseeing the international projects of controlling shareholder Sanju Group (sanju.cn), a company specialised in energy purification and environmental protection technologies listed on the Shenzen Stock Exchange. He is CEO and Chairman of General Transactions Inc., an oil & gas consulting, engineering, trading, seismic research and exploration services company. Sergey also serves as Chairman of the Board of Directors at Petro Chemical Solutions and South China Heavy Industries Group.

Sergey Borovkiy studied in both China and Russia and holds a degree in economics.

1.2. Senior Management

1.2.1. Luca Benedetto ( Chief Financial Officer, aged 46 )

Luca Benedetto is an Italian national, trained in Italy as a registered accountant with further education in IFRS accounting and consolidation at IPSOA Milan. He has more than twenty�five years of accounting, auditing and financial administration experience. Mr Benedetto began his professional career as an accountant and computer programmer responsible for financial software development and worked for the Italian division of IBM as an internal auditor and accountant as well as providing staff training in these aforementioned fields.

Mr Benedetto also served for seven years as a financial and administrative officer in a well� established Italian company specialising in the construction of fuel and water storage tanks. Among other tasks, his responsibilities included maintaining and developing relationships with many international and Italian oil majors such as Exxon, Shell, IP, AGIP, API, and ERG.

Mr Benedetto joined the Group in 2013 as Chief Financial Officer of the Company’s Italian subsidiary, Canoel Italia Srl., and has since progressed to also hold the position of Group Financial Controller. He was appointed Group Chief Financial Officer in April 2017.

1.2.2. Michael Palmer ( Chief Operating Officer, Azerbaijan, aged 62 )

Michael Palmer, an American national, holds a Bachelor of Science degree in Chemical Engineering from the University of Washington and is also a graduate of Columbia University’s Senior Executive Management Program. Mr Palmer has 37 years of experience in the oil industry as head of production operations, exploration and field development in Azerbaijan, Kazakhstan, Russia, Ukraine, Syria, Indonesia, Gabon, Guinea, and the US.

One of Mr Palmer’s most important achievements has been the successful management of operations at an onshore oilfield in Azerbaijan operated by an international oil production company. Under Mr Palmer’s management of this field, operations were economically successful, and production increased from approximately 1,500 barrels of oil per day to 7,500 barrels of oil per day. Following this success, the asset was sold, and Mr Palmer left his position. Mr Palmer was appointed to his current role in May 2017.

1.3. Independence of the Board

Jose Ramon Lopez�Portillo, Saadallah Al�Fathi and Dario Sodero are currently deemed “independent” members of the Board.

1.4. Directors’ fees

For the financial year ending 31 March 2017, the fees payable to the Directors were as follows:

Jose Ramon Lopez�Portillo – no fee provided
Andrea Cattaneo – £134,952 (as a consulting fee)
Luigi Regis Milano – £17,472 (for his position as managing director of Canoel Italia Srl., paid by Canoel Italia Srl.)
Dario Sodero – £9,037 (as a consulting fee)
Erik Larre – no fee provided
Francesco Salimbeni – no fee provided (ceased to be a director on 10 February 2017 on his passing)
Saadallah Al�Fathy – no fee provided.

1.5. Additional information

In addition:

For the current financial year, the Directors will be entitled to receive a fee to be determined by the Remuneration Committee.
On 17 May 2017 the Company granted Options to Mr Cattaneo over 1,000,000 Common Shares at an exercise price of CAD$0.15 (approximately £0.091 on the date of granting) per Common Share.
Mr Cattaneo has agreed to swap his full salary for new Common Shares (“Salary Sacrifice Shares”), with effect from 1 April 2017. The new Common Shares are issued on a quarterly basis at a price that is the highest of: (i) the average price at which the Common Shares traded during the period, based on the mid�market closing price on the London Stock Exchange on each trading day, plus 15 per cent, and (ii) the discounted market price on the TSXV at the time the Salary Sacrifice Shares are issued. Under TSXV rules, the Company may not issue Salary Sacrifice Shares above the value of CAD$2,500.00 each month, without independent Shareholder approval which was obtained at the annual general meeting held on 30 March 2018. For the first 3 quarters of the financial year to 31 March 2018, a total of 111,131 Common Shares have been issued under this arrangement. All the Directors are entitled to be reimbursed by the Company for travel, hotel and other expenses incurred by them in the course of their directors’ duties relating to the Company.
Further details of the Directors’ service agreements and letters of appointment (as the case may be) are set out in Part 18.

2. Strategic decisions

2.1. The Board

The Directors are responsible for carrying out the Company’s objectives, setting its business strategy and conducting its overall supervision. Acquisitions, divestment and other strategic decisions will all be considered and determined by the Board.

The Board has established the corporate governance framework of the Company and will have overall responsibility for setting the Company’s strategic aims, defining the business plan and strategy and managing the financial and operational resources of the Company. No Shareholder approval will be sought by the Company in relation to transactions following Admission unless it constitutes a reverse takeover under the Listing Rules or is otherwise acquired under applicable law or regulation.

The Board is committed to the highest standards of corporate governance. On and following Admission, the Board will continue to comply with the corporate governance requirements imposed on the Company as a result of the Company’s continued listing on the TSXV.

2.2. Frequency of meetings

The Board will schedule meetings every two months and will hold additional meetings as and when required. The expectation is that this will result in more than six meetings of the Board each year.

2.3. Corporate governance

The Company currently complies with the corporate governance regime applicable to the Company pursuant to the laws of British Columbia, the securities law in Canada and the standard segment of the Official List. Directors are considered to be independent if they have no direct or indirect material relationship with the Company. A “material relationship” is a relationship which could, in the view of the Company’s Board of Directors, be reasonably expected to interfere with the exercise of a director’s independent judgment.

Management has been delegated the responsibility for meeting defined corporate objectives, implementing approved strategic and operating plans, carrying on the Company’s business in the ordinary course, managing cash flow, evaluating new business opportunities, recruiting staff and complying with applicable regulatory requirements. The Board of Directors facilitates its independent supervision over management by reviewing and approving long�term strategic, business and capital plans, material contracts and business transactions, and all debt and equity financing transactions.

The Board has established an audit committee, a remuneration committee and a corporate governance committee with formally delegated duties and responsibilities.

2.3.1. Audit Committee

The Audit Committee comprises Jose Ramon Lopez�Portillo, Dario Sodero and Erik Larre and is chaired by Dario Sodero. The Audit Committee meets at least four times a year and otherwise as required. It has responsibility for ensuring that the financial performance of the Company is properly reported on and reviewed, and its role includes monitoring the integrity of the financial statements of the Company (including annual and interim accounts and results announcements), reviewing the effectiveness of the Company’s internal control review function and risk management systems, reviewing any changes to accounting policies, reviewing and monitoring the extent of the non�audit services undertaken by external auditors and advising on the appointment of external auditors. The Audit Committee will have unrestricted access to the Company’s external auditors. The ultimate responsibility for reviewing and approving the annual reports and accounts and the interim reports remains with the Board. The Audit Committee will give due consideration to laws and regulations and the requirements of the Listing Rules. The Company has an Audit Committee Charter.

2.3.2. Remuneration Committee

The Remuneration Committee comprises Jose Ramon Lopez�Portillo, Dario Sodero and Saadallah Al�Fathy and is chaired by Jose Ramon Lopez�Portillo. It meets not less than twice a year and at such other times as required. The Remuneration Committee has responsibility for determining the Company’s policy on the remuneration packages of the Company’s chief executive, the chairman, the executive and non�executive directors, the Company secretary

and other senior executives. The Remuneration Committee also has responsibility for (i) recommending to the Board a compensation policy for directors and executives and monitoring its implementation; (ii) approving and recommending to the Board and the Company’s Shareholders the total individual remuneration package of the chairman, each executive and non�executive director and the chief executive officer (including bonuses, incentive payments and share options or other share awards); and (iii) approving and recommending to the Board the total individual remuneration package of all other senior executives (including bonuses, incentive payments and share options or other share awards), in each case within the terms of the Company’s remuneration policy and in consultation with the chairman of the Board and/or the chief executive officer. No Director or manager may be involved in any discussions as to their own remuneration.

2.3.3. Corporate Governance Committee

The Corporate Governance Committee comprises Sergey Borovskiy, Dario Sodero and Jose Ramon Lopez�Portillo and is chaired by Sergey Borovskiy. It meets not less than once a year and at such other times as required. The Corporate Governance Committee will ensure that the Company has in place sufficient procedures, resources and controls to enable it to comply with its continuing obligations as a company admitted to the Standard Segment of the Official List. The Corporate Governance Committee will also monitor the Company’s procedures to approve (a) announcements to ensure that the information disclosed by the Company is timely, accurate, comprehensive and relevant to the business of the Company and (b) any share dealings by directors or employees or announcements made by the Company to ensure compliance with the Company’s policies, the Market Abuse Regulation, the Disclosure Guidance and Transparency Rules and the Listing Rules and such other regulations to which the Company is subject from time to time.

2.4. Anti�bribery and corruption policy

The Company has adopted an anti�bribery and corruption policy and also implemented appropriate procedures to ensure that the Board, employees and consultants comply with the UK Bribery Act 2010.

2.5. Media policy

The Company has adopted a media policy to ensure that the information disclosed by the Company is timely, accurate, comprehensive and relevant to the business of the Company. Adherence to this policy is intended to provide an effective and efficient framework to facilitate the timely dissemination of information. The media policy will apply to all employees of the Company and its subsidiaries and divisions as well as the members of its Board of Directors.

Andrea Cattaneo is designated as the Company’s principal media contact and Company spokesperson. Depending on the situation, an individual external to the Group (e.g. an external technical consultant) may be asked to be a spokesperson on a particular issue due to their knowledge, experience and technical expertise.

3. Listing

Subject to eligibility, the Directors may, in future, seek to transfer the Company from the standard segment of the Official List to either a Premium Listing or another appropriate listing venue, based on the track record of the Company or any business it acquires, subject to fulfilling the relevant eligibility criteria at the time. However, in addition to or in lieu of a Premium Listing, the Company may determine to seek a listing on another stock exchange. Following any such Premium Listing, the Company would comply with the continuing obligations contained within the Listing Rules and the Disclosure Guidance and Transparency Rules in the same manner as any other company with a Premium Listing.

The Company has a Standard Listing of the Common Shares on the Official List and a Standard Listing offers less protection to investors than would otherwise be the case with a Premium Listing on the Official List.

Further details on the consequences of a Standard Listing are set out in Part 4: “ Consequences of a Standard Listing ” of this Document.

PART 12 THE PLACING, SUBSCRIPTION AND THE PRIMARYBID OFFER

1. Description of the Placing

Under the Placing, 46,500,000 Placing Shares have been conditionally subscribed for by investors at the Placing Price of 4 pence per new Common Share, which is expected to raise gross proceeds of £1,860,000, subject to commissions and other estimated fees and expenses of approximately £311,700. The Placing Shares will be issued credited as fully paid and will, on Admission, rank pari passu in all respects with all other Common Shares including the right to receive all dividends or other distributions declared, made or paid after Admission. The Placing will result in the Existing Shares being diluted so as to constitute 22.10% of the Enlarged Common Shares in Issue. The Directors have received irrevocable undertakings from investors to subscribe for 46,500,000 Common Shares in aggregate at the Placing Price. The undertakings are conditional only on Admission. The Placing is not underwritten.

The Placing Shares have been made available primarily to investors in the UK. In accordance with Listing Rule 14.3, at Admission, at least 25% of the Common Shares will be in public hands (as defined in the Listing Rules).

Completion of the Placing will be announced via a regulatory information service on Admission, which is expected to take place at 8.00 a.m. on 26 June 2018.

2. Allocation

Allocations under the Placing have been determined by the Company following receipt of indications of interest from prospective investors. A number of factors were considered in deciding the basis of allocation under the Placing, including the level and nature of the demand for the Placing Shares and the objective of establishing an investor profile consistent with the long�term objective of the Company. The Company has notified investors of their allocations.

All Placing Shares issued pursuant to the Placing will be issued, payable in full, at the Placing Price.

The Common Shares issued pursuant to the Placing will be issued in registered form. It is expected that the Common Shares will be issued pursuant to the Placing on 26 June 2018.

3. Description of the Subscription

Under the Subscription, 4,000,000 Subscription Shares at the Subscription Price of 4 pence per Common Share (the same as the Placing Price) have been conditionally subscribed for by investors. This will raise gross proceeds of £160,000, subject to commissions and other estimated fees and expenses of approximately £0.

The Subscription Shares have been subscribed by investors in the European Economic Area (including the UK) and Switzerland (each a “ Subscriber ”). In accordance with Listing Rule 14.3, at Admission, at least 25% of the Common Shares of the listed class will be in public hands (as defined in the Listing Rules).

The Subscription Shares will be issued in registered form. It is expected that the Subscription Shares will be issued on 26 June 2018. The Subscription Shares will be issued credited as fully paid and will, on Admission, rank pari passu in all respects with all other Common Shares including the right to receive all dividends or other distributions declared, made or paid after Admission.

Each Subscriber has been sent a subscription letter by the Company pursuant to which the Company has offered the Subscription Shares, subject to the terms and conditions set out in the subscription letter, the form of confirmation and the articles of association of the Company. In the form of confirmation from each Subscriber, the Subscriber specifies the number of Subscription Shares it wishes to subscribe for.

The Subscription is conditional on Admission having become effective by 30 June 2018 or such later date as may be agreed between the Company and the Subscribers. Each Subscriber must be an entity authorised by the FCA or an equivalent regulator within the European Economic Area or Switzerland.

Each Subscriber gives certain customary representations and warranties in the form of confirmation including that they will not resell the Common Shares in Canada for a period ending four months and one day from

the distribution date and that the Subscriber is an entity authorised by the FCA or an equivalent regulator within the European Economic Area or Switzerland.

4. Description of the PrimaryBid Offer

An offer for subscription for up to 20,000,000 Offer Shares at the Offer Price of 4 pence per Common Share (the same as the Placing Price) will be undertaken by PrimaryBid, open on 20 June 2018 (www.primarybid.com). This will raise gross proceeds of up to £800,000. The PrimaryBid Offer is not underwritten. Further details can be found in paragraph 24.19 of Part 18.

The Offer Shares will be offered primarily to investors in the UK. In accordance with Listing Rule 14.3, at Admission, at least 25% of the Common Shares of the listed class will be in public hands (as defined in the Listing Rules).

Completion of the PrimaryBid Offer will be announced via a regulatory information service on Admission, which is expected to take place at 8.00 a.m. on 26 June 2018.

The Offer Shares will be issued in registered form. It is expected that the Common Shares will be issued pursuant to the PrimaryBid Offer on 26 June 2018. The Offer Shares will be issued credited as fully paid and will, on Admission, rank pari passu in all respects with all other Common Shares including the right to receive all dividends or other distributions declared, made or paid after Admission.

5. Dealing arrangements

Application has been made to the UK Listing Authority for the Placing Shares, Subscription Shares, Offer Shares and Admission Shares to be listed on the standard segment of the Official List and an application has been made to the London Stock Exchange for the Placing Shares, Subscription Shares, Offer Shares and Admission Shares to be admitted to trading on the London Stock Exchange’s Main Market for listed securities. An application will also be made to list the Placing Shares, Subscription Shares and Offer Shares on the TSXV, however the Placing Shares, Subscription Shares and Offer Shares may not be resold in Canada or to a resident of Canada for a period of four months and one day following their issue.

It is expected that Admission will take place and unconditional dealings in the Placing Shares, Subscription Shares, Offer Shares and Admission Shares will commence on the London Stock Exchange at 8.00 a.m. on 26 June 2018. This date and time may change.

It is intended that settlement of Placing Shares, Subscription Shares and Offer Shares allocated to investors will take place by means of crediting Depositary Interests to relevant CREST stock accounts on Admission. When admitted to trading, the Placing Shares, Subscription Shares and Offer Shares will be registered with ISIN number CA98936C1068, SEDOL number BYNXNZ9 and TIDM code ZEN.

6. CREST

CREST is the system for paperless settlement of trades in listed securities operated by Euroclear. CREST allows securities to be transferred from one person’s CREST account to another’s without the need to use share certificates or written instruments of transfer.

The Depositary Interests are admitted to CREST. Accordingly, settlement of transactions in the Depositary Interests may take place within the CREST System if any Shareholder (as applicable) so wishes. CREST is a voluntary system and holders of Shares who wish to receive and retain share certificates will be able to do so. An investor applying for Placing Shares, Subscription Shares or Offer Shares may elect to receive them in uncertificated form in the form of Depositary Interests if the investor is a system member (as defined in the CREST Regulations) in relation to CREST.

7. Use of Proceeds

The estimated Net Proceeds of the Placing and Subscription are approximately £1,708,300. The total expenses incurred (or to be incurred) by the Company in connection with Admission, Subscription and the Placing are approximately £311,700.

The Company’s intention is to use the Net Proceeds as follows (in order of priority):

Use	Amount (£)
Deposit for the leasing of a new drilling rig	£1,500,000
Working capital	£208,300
	1111
Total	£1,708,300
	3333

Any proceeds received under the PrimaryBid Offer will be applied for general working capital purposes.

PART 13 SELECTED FINANCIAL INFORMATION

The selected financial information relating to the Group set out below has been extracted, without material adjustment, from the audited financial statements that have been incorporated by reference. The selected financial information below should be read in conjunction with the whole of this Document.

PART A SELECTED FINANCIAL INFORMATION

Administrative Expenses

General and administrative expenses for the three years ended 31 March are composed of the following:

		Year ended 31	March
	111111111111111
	2015	2016	2017
	CAD$’000	CAD$’000	CAD$’000
Professional fees	940	1,070	1,884
External Audit Remuneration fees	183	114	84
Legal fees	182	161	311
Accountancy fee	87	103	147
Consultancy	202	452	814
Other fees	286	240	528
Office	152	394	291
Office rental	55	113	116
Other expenses	97	281	175
*Administrative*	457	470	319
Administrative services	258	262	125
Taxes	49	—	5
Other expenses	150	208	189
Salaries and benefits	1,046	341	864
Consulting fees	235	198	173
Salaries	564	143	324
Other expenses	247	—	367
Travel	100	413	945
Other expenses	—	10	3
Foreign exchange	254	59	(151)
	1111	1111	1111
TOTAL	2,949	2,757	4,155
	3333	3333	3333

Business combinations/disposal of subsidiary

1) Electricity generation plant in Italy

On 1 October 2015, the Company acquired a co�generation plant and assumed certain liabilities for a plant employee from a third party for total consideration of EUR 449k (CAD$666k), of which EUR 401k (CAD$550k) was financed in the form of a loan payable to the seller (Note 15) and EUR 48k (CAD$71k) was offset against trade and other receivables due from the seller. The loan payable is secured by the co� generation plant and bears interest at 3.5% per annum and is repayable in 30 monthly payments of principal and interest until 31 March 2018.

The acquisition of the co�generation plant was accounted for as a business combination using the acquisition method of accounting:

The acquisition of the co�generation plant was accounted for as a method of accounting:	business combination using the acquisition
Fair value of net assets acquired	CAD$’000
Co�generation plant (D&P assets)	708
Decommissioning obligation	(11)
Trade and other payables	(31)
	1111
	666
	3333
Consideration:
Euro loan payable (Note 15)	595
Trade and other receivables	71
	1111
	666
	3333

2) Azerbaijan

The fair values of the assets acquired, the liabilities and contingent liabilities assumed are based on the Net Present Value (“NPV”) of future cash flows included in the Competent Persons Report prepared on behalf of the Group by Chapman Petroleum Engineering Ltd. (“Chapman”) as of August 31, 2016.

There was an effective CAD$nil acquisition price applied to the calculation of the gain on bargain purchase. The acquisition has been accounted for as a business combination using the acquisition method of accounting and resulted in a bargain purchase as follows:

accounting and resulted in a bargain purchase as follows:
Fair value of net assets acquired	CAD$’000
Development and production assets	1,065,346
Compensatory Oil*	(5,963)
Capital Costs*	(478,598)
Decommissioning Obligations*	(1,790)
	1111
Gain on business combination	578,995
Taxation	—
	1111
NPV of the assets	578,995
	3333

Amounts required to be paid under the terms of the REDPSA and therefore in accordance with FRS3 (“Business Combinations”) form part of the acquisition amount.

The activity of the newly�acquired Azerbaijan subsidiaries are included within note 27 ‘Operating segments’. No deferred income tax liability has been reflected in the business combination transaction as a result of the Group being exempt from paying income tax under the terms of the REDPSA.

Development and production (D&P) assets

The estimated value of the D&P assets acquired was determined using both estimates and an independent reserve evaluation based on oil and gas reserves discounted at 10%.

Decommissioning provisions

The fair value of decommissioning obligations assumed was determined using the timing and estimated costs associated with the abandonment, restoration, and reclamation of the wells and facilities acquired, discounted at a credit adjusted rate.

On 12 August 2016, the day immediately following the acquisition date, the decommissioning obligation assumed was remeasured using a long�term risk free rate based on the expected timing of cash flows, in accordance with IAS 37 (“Provisions, Contingent Liabilities and Contingent Assets”). The result was a CAD$1,790k increase in the decommissioning obligation associated with the acquired assets and the net result of the acquisition and recognition of decommissioning liability recognition being a gain of CAD$578,995k measurement for the year ended 31 March 2017.

Compensatory oil

The Group have an obligation from the Effective Date, under the terms of the contract, to:

within one year following the Effective Date, deliver at no charge to SOCAR 5% of the total production of petroleum produced from the contract rehabilitation area in each calendar quarter; and
commencing on the first anniversary of the Effective Date, start delivering, at no charge to SOCAR, 15% of the total production of petroleum produced from the contract rehabilitation area in each calendar quarter, until the amount delivered is the equivalent of approximately 315,000 barrels of “compensatory” crude oil to SOCAR.

The amount, stated as a liability, reflects this production obligation that has to be delivered to SOCAR, valued at the estimated production price of US$20 per barrel.

Zenith Aran and SOA have an obligation to:

within one year following the Effective Date, deliver at no charge to SOCAR 5% of the total production of petroleum produced from the REDPSA area in each calendar quarter; and
commencing on the first anniversary of the Effective Date, start delivering, at no charge to SOCAR, 15% of the total production of petroleum produced from the REDPSA area in each calendar quarter,

until the amount delivered is the equivalent of approximately 315,000 barrels of “compensatory” crude oil to SOCAR (“ Compensatory Petroleum ”). The amount, stated as a liability, reflects the production quota due to SOCAR, calculated with an estimated production cost of US$20 per barrel.

Capital Costs

Between 2018 and 2020, the Group plans to workover a total of 26 existing wells in Azerbaijan which are currently inactive or produce at low rates (< 5 STB/d) to bring rates up to 10 to 15 STB/d per well using improved technology, non�damaging fluids and optimized treatments.

This program has commenced using the existing workover rig in the field and the Group intends to purchase an additional modern workover rig to optimize the workover of the wells, within the next four years.

In addition to the marginal producing wells, five non�producing wells in the Maykop zone in the Zardab field in Azerbaijan are expected to be worked over in 2019 and to be returned to production once the existing wellbore and sand production issues have been resolved.

The Group intends to lease one modern drilling rig capable of drilling 6,000m to carry out a fifteen�year drilling program. It is anticipated that five new wells will be drilled in 2019 and ten wells in each year thereafter until the anticipated drilling program is completed in 2033.

During the first four years of the REDPSA it is estimated that US$1,500k will be spent upgrading the gathering system and central facilities in Azerbaijan to improve safety, efficiency and handle higher production rates. During the same period, 39 active wells currently producing at marginal rates will be worked over at an estimated cost ranging from $25k to $32k per well, using the existing workover rig.

It is anticipated that in 2019 five shut�in wells completed in the Maykop formation will be worked over to control sand production, at an estimated cost of US$150k per well, and returning to an increase of production at a total of 200STBl/d.

On 24 January 2017 the Group announced the signing of a well workover contract and engagement of highly experienced local drilling company to initiate and execute the workover of first two wells in the program (M�195 and M�45).

Proved reserves are those reserves that can be estimated by the competent person with a high degree of certainty to be recoverable. The estimate of the reserves are related to a given date, based on analysis of drilling, geological, geophysical and engineering data; the use of established technology, and; specified economic conditions, which are generally accepted and being reasonable, and shall be disclosed.

In addition to the costs anticipated for the wells with proved reserve, wells in the proved plus probable category have an additional allocation for the purchase and maintenance of a second drilling rig and expansion and modernization of the field facilities.

In all 145 wells are expected to be drilled over 16 years, of which 58 of these are anticipated to be horizontal wells.

DEFERRED CONSIDERATION PAYABLE

DEFERRED CONSIDERATION PAYABLE
	31 March	31 March
	2017	2016
	CAD$’000	CAD$’000
Compensatory Oil
Current portion	138	—
Non�Current portion	5,739	—
Capital costs
Current portion	302	—
Non�Current portion	478,295	—
	1111	1111
As of 31 March	484,474	—
	1111	1111
Deferred Consideration payable current	440	—
Deferred Consideration payable non�current	484,034	—
	1111	1111
Total	484,474	—
	3333	3333

The deferred consideration liability has been measured at the present value of contracted future cash flows. The value and timing of contracted future cash flows has been included in note 25 (b).

3) Switzerland

On 30 March 2017 Zenith acquired a Swiss company, Altasol SA, paying an amount of CHF 100 (CAD$134).

The acquired entity is a non�operating company, which was purchased with the prospective of developing an oil trading subsidiary of Zenith Energy Ltd.

The below table shows the assets and liabilities acquired at the date of purchase.

Financial Statements as of 30 March 2017

	CAD ‘000
ASSETS
Current Assets
Cash and cash equivalents	2,343
	1111
TOTAL ASSETS	2,343
	3333
LIABILITIES
Short Term Loans	66
Long Term Loans	2,277
	1111
TOTAL LIABILITIES	2,343
Equity	—
	1111
TOTAL LIABILITIES AND EQUITY	2,343
	3333

4) Disposal of properties in Argentina

General description

On 20 February 2017 the Group announced the sale of its operations in Argentina to a group of local energy investors.

Due to a series of circumstances beyond the Group’s control, caused by the collapse of a major storage tank owned by the Argentina’s national oil company production, Zenith’s Argentine operations were suspended and its oil production could no longer be transported through YPF pipelines.

To date, the issues affecting the transportation of oil have not been fully resolved and a persisting uncertainty on the recommencement of operations led the Group to reconsider its operational involvement in Argentina.

The sale of the Group’s Argentinian subsidiary was fixed at a nominal sum in recognition of the costs the new owner is expected to incur to return these fields to production. In addition, the Group will no longer be liable for any environmental responsibilities or future well abandonment obligations for the Don Alberto and Don Ernesto fields.

Termination of activities in Argentina will enable Zenith’s management to more effectively direct its focus on its Italian operations and especially towards Azerbaijan, where the Group’s most important assets are located, and where a systematic program of field rehabilitation has begun. This re�alignment reflects the Board’s aversion to operational overstretch and the Group’s preference for a strong, concentrated focus towards the achievement of its production objectives in Azerbaijan.

(i) Results of discontinued operations

(i) Results of discontinued operations
	2017	2016
	CAD$’000	CAD$’000
Revenue net of royalties	71	1,168
Operating expenses	(583)	(941)
Transportation expenses	(2)	(57)
General and administrative expenses	(264)	(400)
Depreciation and impairment expenses	(13)	(61)
Impairment of inventory	—	(228)
Gain on sale of marketable securities	—	20
Foreign exchange	107	776
Finance expense	(106)	(246)
Loss on disposal of discontinued operations	(3,573)	—
	1111	1111
(Loss)/profit for the year	(4,363)	31
	3333	3333
Earnings per share from discontinued operations
	2017	2016
Basic and diluted profit/(loss) per share	$(0.01)	$0.00
	3333	3333
Statement of cash flows
	2017	2016
	$’000	$’000
Operating activities	(390)	(386)
Investing activities	—	(11)
Financing activities	331	198
	1111	1111
Net cash from discontinued operations	(59)	(199)
	3333	3333

(ii) Loss on disposal of subsidiaries

The post�tax loss on disposal of discontinued operations was determined as follows:

	2017
	$’000
Cash consideration received	1
	1111
Total consideration received	1
Overdraft disposed of	3
	1111
Net inflow received on disposal of discontinued operations	4
	1111
Net assets disposed of (other than cash)	—
Investment in subsidiaries	(1,864)
Loans to subsidiaries net of impairment	(402)
Other assets and liabilities	(1,307)
	1111
Pre�tax loss on disposal of discontinued operations	(3,573)
Related tax expense	—
	1111
Loss on disposal of discontinued operations	(3,573)
	3333
Property and equipment
	D&P Assets
	CAD$’000
Carrying amount at 31 March 2014	19,253
	1111
Additions	1,171
Acquired in business combination	—
Disposals	—
Depreciation	(668)
Impairment	—
Decommissioning obligation	(1,487)
Exchange difference on translation of a foreign operation	(1,576)
	1111
Carrying amount at 31 March 2015	16,693
	1111
Additions	313
Acquired in business combination	709
Disposals	—
Depreciation	(270)
Impairment	(5,025)
Decommissioning obligation	2,069
Foreign exchange differences	109
	1111
Carrying amount at 31 March 2016	14,598
	1111
Additions	413
Acquired in business combination (note 6)	1,065,346
Disposals	(3,542)
Depreciation	(1,299)
Impairment	(2,985)
Decommissioning obligation	617
Compensatory oil delivered	(87)
Foreign exchange differences	(128)
	1111
Carrying amount at 31 March 2017	1,072,933
	3333

Share Capital

Zenith is authorised to issue an unlimited number of Common Shares, of which 115,577,230 were issued as at 31 March 2017 (2016 – 43,594,406 and 2015: 29,292,081). Zenith is authorised to issue an unlimited number of preferred shares, issuable in series, of which none have been issued as of the date of this Document.

The Group’s ordinary shares are fully paid with nil par value.

Issued

Issued
	Number of	Amount
	common shares	CAD$’000
Balance – 31 March 2014	11,252,039	7,152
Non�brokered unit private placement (i)	15,529,984	2,329
Fair value of warrants (i)	—	(1,090)
Conversion of convertible notes (ii)	2,510,058	540
Share issue costs	—	(181)
Fair value of warrants (ii)	—	(63)
	11111	11111
Balance – 31 March 2015	29,292,081	8,687
	11111	11111
Conversion of convertible notes (iii)	882,640	110
Non�brokered unit private placement (iv)	2,700,000	270
Fair value of warrants (iv)	—	(46)
Non�brokered unit private placement (v)	4,214,125	337
Fair value of warrants (v)	—	(107)
Non�brokered unit private placement (vi)	5,780,688	463
Fair value of warrants (vi)	—	(181)
Settlement of debt (vii)	724,872	67
Share issue costs (vii)	—	(22)
	11111	11111
Balance – 31 March 2016	43,594,406	9,578
	11111	11111
Non�brokered unit private placement (viii)	6,674,775	534
Finder’s fee	—	(27)
Non�brokered unit private placement (ix)	3,892,875	311
Finder’s fee	—	(15)
Conversion of convertible notes (x)	2,730,000	300
Settlement of debt (x)	312,500	31
Non�brokered unit private placement (xi)	1,519,250	122
Finder’s fee	—	(6)
Non�brokered unit private placement (xii)	1,906,050	191
Finder’s fee	—	(10)
Settlement of debt (xiii)	1,049,235	88
Non�brokered unit private placement (xiv)	2,745,062	329
Finder’s fee	—	(4)
Settlement of debt (xv)	150,000	12
Admission LSE placement (xvi)	33,322,143	3,783
Fair value of warrants issued		(77)
Finder’s fee		(200)
Settlement of debt (xvii)	668,571	78
Non�brokered unit private placement (xviii)	9,000,000	1,399
Finder’s fee	—	(70)
Conversion of convertible notes (xix)	3,700,000	407
Settlement of debt (xx)	505,263	72
Conversion of convertible notes (xxi)	1,637,100	164
Conversion of convertible notes (xxii)	2,170,000	239
	11111	11111
Balance – 31 March 2017	115,577,230	17,229
	33333	33333

Warrants and Options

Warrants and Options
			Weighted
			average
	Number of	Number of	exercise	Amount
	options	warrants	price	CAD$’000
Balance – 31 March 2015	—	2,628,367	0.85	487
	11111	11111	11111	11111
Unit private placements		750,000	0.25	1,091
	11111	11111	11111	11111
Finder’s fees		75,000	0.25	62
	11111	11111	11111	11111
Expired		(2,152,503)	(1.03)	(394)
	11111	11111	11111	11111
Balance – 31 March 2015	—	17,228,852	0.25	1,246
	11111	11111	11111	11111
Bond Units	—	1,740,000	0.25	20
Bond Units Finder’s fee	—	67,500	0.25	2
Unit private placements	—	5,564,125	0.25	152
Unit private placements	—	5,780,688	0.15	181
Finder’s fees	—	82,733	0.15	2
Expired	—	(825,000)	(0.25)	(93)
	11111	11111	11111	11111
Balance – 31 March 2016	—	29,638,898	0.23	1,510
	11111	11111	11111	11111
Unit private placements	—	12,591,612	0.15	—
Unit private placements	—	4,651,112	0.20	—
Unit private placements	—	1,114,286	0.11	77
Unit private placements	—	9,000,000	0.24	—
Options issued	6,000,000	—	0.10	290
Options exercised	(1,000,000)	—	0.10	—
	11111	11111	11111	11111
Balance – 31 March 2017	5,000,000	56,995,908	0.21	1,877
	33333	33333	33333	33333
Loans and Notes payable
		2015	2016	2017
Loans and Notes payable		CAD$’000	CAD$’000	CAD$’000
Notes payable – current		200	—	—
Loan payable – current		2,167	3,210	973
Loan payable – non�current		433	674	4,527
		11111	11111	11111
Total		2,800	3,884	5,500
		33333	33333	33333
(a) Notes payable
		2015	2016	2016
Notes payable		CAD$’000	CAD$’000	CAD$’000
As at 1 April		374	200	—
Loan receipt		—	—	365
Change adjustment		37	—	(205)
Interest		64	75	8
Repayment		(275)	(275)	(168)
		11111	11111	11111
As at 31 March		200	—	—
		33333	33333	33333

(b) Borrowings

(b) Borrowings
	2015	2016	2017
Loans – non�current	CAD$’000	CAD$’000	CAD$’000
As at 1 April	378	433	674
Loan receipt	55	674	2,277
Change adjustment	—	(433)	1,576
Interest	—	—	—
Repayment	—	—	—
	11111	11111	11111
As at 31 March	433	674	4,527
	33333	33333	33333
	2015	2016	2017
Loans – current	CAD$’000	CAD$’000	CAD$’000
As at 1 April	1,888	2,167	3,210
Loan receipt	(55)	539	1,106
Change adjustment	184	433	(1,576)
Interest	235	175	—
Repayment	(85)	(164)	(1,829)
Foreign exchange	—	60	62
	11111	11111	11111
As at 31 March	2,167	3,210	973
	33333	33333	33333

USD loan payable

On 20 January 2011, the Company obtained a loan of US $2million from a private lender. The loan was due to mature in January 2013, when it was extended. The loan was extended for an additional six months to July 2013. The loan is unsecured and initially bore interest at the fixed US prime rate of 3.25% plus 6.75%. The parties have entered into a number of subsequent agreements to amend and restate the loan (principally in order to amend the repayment schedule of the loan).

In January 2017 the Group repaid the USD 700k (CAD$943k) of the USD loan, utilising part of the proceeds from the fundraising aligned with the listing on the London Stock Exchange of 11 January 2017. The President, CEO and Director of the Group, has provided a personal guarantee to the lender in respect of the repayment of the USD Loan by the Group. The final payment of approximately USD$1,485k is repayable on 31 July 2019, as per the agreement between the parties dated 10 January 2018.

Euro bank debt

On 6 August 2015, the Group obtained a €220k loan (CAD$316k) from the GBM Banca of Rome. The loan is unsecured, bears fixed interest at 7% per annum and is repayable in 60 monthly payments of principal and interest until 6 August 2020.

As at 31 March 2017 the principal balance of the loan was €155k (CAD$220k) of which $61k is classified as a current liability and $160k is classified as non�current.

Euro bank debt

On 17 December 2015, the Group obtained a €200k loan (CAD$302k) from Credito Valtellinese Bank of Tortona. The loan is unsecured, bears fixed interest at 4.5% per annum and is repayable in 42 monthly payments of principal and interest until 17 July 2019.

As at 31 March 2017 the principal balance of the loan was €137k (CAD$195k) of which $81k is classified as a current liability and $114k is classified as non�current.

Euro loan payable

On 1 October 2015, the Group acquired a co�generation plant from a third party of which €401k (CAD$595k) of the purchase price was in the form of a loan from the seller. The loan is secured by the co� generation plant and bears interest at 3.5% and is repayable in 30 monthly payments of principal and interest until 31 March 2018.

As at 31 March 2017, the principal balance of the loan was €178k (CAD$233k) of which $233k is classified as a current liability.

USD $320,000 General Line of Credit Agreement

On 9 August 2016, the Group’s wholly�owned subsidiary, Zenith Aran, entered into a general line of credit agreement with Rabitabank Open Joint Stock Company (“Rabitabank”) (the “First Credit Agreement”) up to an amount of USD $320k, for industrial and production purposes. The loan could be drawn down in tranches and as at 30 September 2016 it was fully drawn down. Rabitabank can postpone or suspend the facility if there is a decline in oil production under the REDPSA of more than 30% from production levels as at the date of first drawdown or if the REDPSA is terminated.

This Credit Agreement bears interest at a rate of 12% per annum. The loan is guaranteed by the Group. In November 2016 the Group repaid the first tranche of the loan for the amount of USD160k.

On 22 February 2017 the terms of the repayment of this Credit Agreement were amended. During March 2017 the Group used additional USD$160k (CAD$213k) from the credit line.

As of 31 March 2017, the amount of USD $320k (CAD$399k) plus accrued interest was still outstanding, it is classified as a current liability, and was repaid on 16 April 2017.

USD $200,000 General Line of Credit Agreement

On 30 September 2016, Zenith Aran entered into a general line of credit agreement with Rabitabank (the “Second Credit Agreement”) up to an amount of USD $200k. The Second Credit Agreement bears interest at a rate of 12% per annum. The loan is repayable in two tranches; USD $100k (plus accrued interest) (CAD$133k) was paid in February 2017 and the remaining USD $100k (plus accrued interest) (CAD$133k) is payable on April 2017. The loan is guaranteed by the Group.

As of 31 March 2017, the amount of USD $100k (CAD$133k) plus accrued interest was still outstanding, it is classified as a current liability, and was repaid on 16 April 2017.

Swiss loan CHF 837,500

On 30 March 2017 the Group acquired the Swiss based company Altasol SA, and assumed a loan subscribed for the former owner on 21 December 2015 for the initial amount of CHF838k (CAD$1,120k). The loan bears interest at a rate of 2.32% per annum. The loan is repayable in anticipated quarterly tranches of CHF13k (plus accrued interest) (CAD$17k).

As at 31 March 2017 the principal balance of the loan was CHF762k (CAD$1,013k) of which CAD$66k is classified as a current liability and CAD$947k is classified as non�current.

Swiss loan CHF 1,000,000

On 30 March 2017 the Group acquired the Swiss based company Altasol SA, and assumed a loan subscribed by the former owner on 21 December 2015 for the initial amount of CHF1,000k (CAD$1,336k). The loan bears interest at a rate of 2.2% per annum. The loan is repayable on 2 July 2019 (plus accrued interest). As at 31 March 2017 the principal balance of the loan was CHF1,000k (CAD$1,330k) and is classified as a non� current liability.

Convertible loans
BONDS	(CAD$’000)
Balance – 31 March 2015	—
	1111
Unit private placement proceeds	539
Warrant portion	(20)
Finder’s fees and warrants	(23)
Interest	65
Accretion	4
Foreign currency translation	(2)
	1111
Balance – 31 March 2016	563
	1111
Interest	54
Accretion	24
Conversion	(121)
Repayments	(65)
Foreign currency translation	(70)
	1111
Balance – 31 March 2017	385
	3333

The bonds are secured by 99% of the oil and gas assets owned by the Group’s subsidiary, Canoel Italia SRL. The bonds bear interest at 12% per annum, payable quarterly, until the maturity date (1 May 2018), 36 months from the date of issuance (1 May 2015), at which time the principal amount of bonds is repayable in full.

On November 2016 the bond was partially repaid for CAD$121k (with related accrued interest).

As of 31 March 2017, the outstanding accrued bond interest CAD$10k.

	Debt	Derivative
	component	liability	Face value
Convertible Notes	CAD$’000	CAD$’000	CAD$’000
Balance – 31 March 2014	1,266	1	1,350
	11111	11111	11111
Modifications	(775)	774	—
Conversion	(332)	(102)	(540)
Change in fair value	—	(514)	—
Accretion	419	—	—
Foreign exchange	4	—	1
	11111	11111	11111
Balance – 31 March 2015	582	159	811
	11111	11111	11111
Modifications	—	221	—
Conversion	(101)	(23)	(111)
Change in fair value	—	—	—
Accretion	187	—	—
Foreign exchange	28	—	31
	11111	11111	11111
Balance – 31 March 2016	697	357	731
	11111	11111	11111
New subscriptions	91	76	167
Conversion	(798)	(669)	(906)
Change in fair value	—	236	—
Accretion	39	—	—
Foreign exchange	(29)	—	8
	11111	11111	11111
Balance – 31 March 2017	—	—	—
	33333	33333	33333

Decommissioning obligation

The following table presents the reconciliation of the carrying amount of the obligation associated with the reclamation and abandonment of the Company’s oil and gas properties (CAD$):

	2015	2016	2017
	CAD$’000	CAD$’000	CAD$’000
Balance – beginning of year	7,277	5,779	7,897
Business combination (Note 6)	—	11	1,790
Measurement adjustment (Note 6)	—	—	630
Writeback on disposal of subsidiaries			(2,215)
Change in estimate	(1,487)	2,163	—
Accretion	557	288	98
Foreign currency translation	(568)	(344)	(220)
	11111	11111	11111
Balance – end of year	5,779	7,897	7,980
	33333	33333	33333
Financial risk management
	2015	2016	2017
	CAD$’000	CAD$’000	CAD$’000
Financial Assets
Trade and other receivables	960	1,648	787
Financial instruments at fair value through profit or loss	237	—	8
	11111	11111	11111
Total financial assets	1,197	1,648	795
	33333	33333	33333

a) Credit risk

Credit risk is the risk of an unexpected loss if a customer or counter party to a financial instrument fails to meet its commercial obligations. The Group’s maximum credit risk exposure is limited to the carrying amount cash of CAD$3,924k (2016 – CAD$138k and 2015 – CAD$936k) and trade and other receivables of CAD$1,648k (2016 – CAD$1,173k and 2015 – CAD$960k).

Deposit and other market instruments are, as a general rule, placed with banks and financial institutions that have credit rating of not less than AA or equivalent which are verified before placing the deposits.

The composition of trade and other receivables is summarised in the following table:

	2015	2016	2017
	CAD$’000	CAD$’000	CAD$’000
Oil and natural gas sales	383	475	1,544
Stamp tax and other tax withholdings	234	217	8
Goods and services tax	17	12	19
Other	326	469	129
	11111	11111	11111
	960	1,173	1,700
	33333	33333	33333

The receivables related to the sale of oil and natural gas are due from large companies who participate in the oil and natural gas industry in Argentina and Italy. Oil and natural gas sales receivables are typically collected in the month following the sales month.

b) Liquidity risk

Liquidity risk is the risk that the Group will incur difficulties meeting its financial obligations as they are due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and distressed conditions without incurring unacceptable losses or risking harm to the Group’s reputation.

The Directors have considered the recoverability of the outstanding debts of the Group and do not consider there to be any impairment necessary.

As of 31 March 2017, the contractual cash flows, including estimated future interest, of current and non� current financial liabilities mature as follows:

			Due on	Due on
			or before	or before	Due after
	Carrying	Contractual	31 March	31 March	31 March
	Amount	cash flow	2018	2019	2019
	CAD$’000	CAD$’000	CAD$’000	CAD$’000	CAD$’000
Trade and other payables	2,913	2,913	2,913	—	—
Loan payable	5,500	6,621	998	3,109	2,514
Bonds payable	385	423	45	378	—
Deferred consideration	484,474	1,191,428	1,544	10,076	1,179,808
	1111	1111	1111	1111	1111
	493,272	1,201,385	5,500	13,563	1,182,322
	3333	3333	3333	3333	3333

c) Currency risk

Foreign currency exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates.

d) Commodity price risk

Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in commodity prices.

As at 31 March 2017, a 5% change in the price of natural gas produced in Italy would represent a change in net income for the year ended 31 March 2017 of approximately CAD$4k (2016 – CAD$23k and 2015 – CAD$54k) and a 5% change in the price of electricity produced in Italy would represent a change in net loss for the year ended 31 March 2017 of approximately CAD$29k (2016 – CAD$13k and 2015 – CAD$nil).

As at 31 March 2017, a 5% change in the price of crude oil produced in Azerbaijan would represent a change in net profit (loss) for the year ended 31 March 2017 of approximately $189k (2016 and 2015 – not applicable).

e) Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company has fixed interest on notes payable, loans payable and convertible notes and therefore is not currently exposed to interest rate risk.

Capital management

The Group’s objective when managing capital is to safeguard the entity’s ability to continue as a going concern, so that it can continue to explore and develop its projects to provide returns for shareholders and benefits for other stakeholders.

benefits for other stakeholders.
	2015	2016	2017
	CAD$’000	CAD$’000	CAD$’000
Working capital (deficiency)	3,407	(6,709)	1,437
Long�term debt	1,016	1,595	4,912
Shareholders’ equity	4,289	(2,278)	575,447

Cash flow from the Company’s operations will be needed in the near term to finance the operations and repay vendor loans.

The Company’s principal sources of funds will remain profit on hydrocarbon sales supplemented by debt and equity issuances.

The Company is not subject to any externally imposed capital requirements.

PART B SELECTED KEY PRO FORMA FINANCIAL INFORMATION

UNAUDITED PRO FORMA STATEMENT OF NET ASSETS

Set out below is an unaudited pro forma statement of net assets of the Company as at 31 December 2017 (the “Pro Forma Financial Information”).

The Pro Forma Financial Information has been prepared on the basis set out in the notes below to illustrate the effect on the net assets of the Company had the new Placing of the Company on the London Stock Exchange occurred on 20 June 2018. It has been prepared for illustrative purposes only.

Because of its nature, the Pro Forma Financial Information addresses a hypothetical situation and, therefore, does not represent the Company’s actual financial position. It is based on the unaudited interim balance sheet of the Company as at 31 December 2017, which was announced on 16th February 2018.

Users should read the whole of this Document and not rely solely on the summarised financial information contained in this Part 13 (B): “ Unaudited Pro Forma Statement of Net Assets ”.

The report on the Pro Forma Financial Information is set out in Part 13 (B): “ Report on the unaudited Pro Forma Statement of Net Assets ” of this Document.

Unaudited pro�forma statement of net assets

	Company net				Unaudited
	assets as of				pro�forma
	31 December 17	Adjustment	Adjustment	Adjustment	net assets of
	Note 1	Note 2	Note 3	Note 4	the Company
	CAD$000’s	CAD$000’s	CAD$000’s	CAD$000’s	CAD$000’s
ASSETS
Non�current assets
Property and equipment	1,075,743	1,142	—	—	1,076,885
Capitalised expenses	2,378	—	—	—	2,378
Other receivables	430	—	—	—	430
	1111	1111	1111	1111	1111
	1,078,551	1,142	—	—	1,079,693
Current Assets
Inventory	296	—	—	—	296
Trade and other recivables	1,912	—	—	—	1,912
Financial Instruments	—	—	—	—	—
Cash and cash equivalents	2,358	170	—	2,991	5,519
	1111	1111	1111	1111	1111
	4,566	170	—	2,991	7,727
	1111	1111	1111	1111	1111
TOTAL ASSETS	1,083,117	1,312	—	2,991	1,087,420
	3333	3333	3333	3333	3333
LIABILITIES
Non�current liabilities
Borrowings	2,339	—	—	—	2,339
Convertible loans	—	—	—	—	—
Decommissioning provision	7,980	—	—	—	7,980
Deferred Consideration payable	484,034	—	—	—	484,034
Deferred taxation (STET)	2,398	—	—	—	2,398
	1111	1111	1111	1111	1111
Total non�current liabilities	496,751	—	—	—	496,751
	1111	1111	1111	1111	1111
Current liabilities
Trade and other payables	3.857	(283)	546	(546)	3.574
Borrowings	2,771	—	—	—	2,771
Deferred Consideration payable	440	—	—	—	440
Convertible Loans	381	—	—	—	381
	1111	1111	1111	1111	1111
Total current liabilities	7,449	(283)	546	(546)	7,166
	1111	1111	1111	1111	1111
NET ASSETS	578,917	1,595	(546)	3,537	583,683
	3333	3333	3333	3333	3333

Notes:

The financial information relating to the Company has been extracted without adjustment from the unaudited interim financial information set out in Part 16 (Historical Financial Information) of this Document.
The CAD$1,595k (approximately £938k) adjustment represents the placement of no. 4,000,000 shares at cad$ 0.125 (approximately £0.0742) per share, and no. 9,000,000 shares at cad$ 0.1287 (approximately £0.0742) per share subsequent to the placing closed by the Company in January 2018. This fund raising will result in a cash increase of CAD$1,595k (£938k), net of cost incurred in connection with placement of total CAD$63k (£37k). The cash was used to finance its continued investment in its Azerbaijan field operations and for general working capital.
The CAD$546k (£312k) adjustment represents the costs related the IPO, that will be paid using the IPO cash increase or shares.
The CAD$3,537k (£2.020k) adjustment represents the placement of 50,500,000 shares at £0.04 per share, that will be take place concurrently with the admission to the London Stock Exchange. This fund raising will result in a cash increase of CAD$ 2,991k (£1,708k), net of cost incurred in connection with placement of total CAD$546k (£312k).
The Pro Forma Financial Information excludes an unaudited pro forma statement of results on the basis that the adjustment above has no effect on the results for the period ended 31 December 2017.
The Pro Forma Financial Information does not reflect any changes in the trading position of the Company or any other changes arising from other transactions, since 31 December 2017. There are no other significant changes to the issuer’s financial condition and operating results, other than those disclosed.

REPORT ON THE UNAUDITED PRO FORMA STATEMENT OF NET ASSETS

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The Directors ZENITH ENERGY LTD. Suite 150, 15th Floor Bankers Court, 850�2nd St. SW Calgary AB, T2P 0RB

20 June 2018

Dear Sirs

Introduction

We report on the unaudited pro forma statement of net assets as at 31 December 2017 (the “Pro Forma Financial Information”) set out in Part 13, Part B: “ Selected key pro forma financial information – Unaudited Pro Forma Statement of Net Assets ” of the Zenith Energy Ltd. (the “Company”) prospectus (the “Document”) dated 20 June 2018, which has been prepared on the basis described within notes 1 to 7 above, for illustrative purposes only, to provide information about how the Placing and Admission might affect the net assets presented on the basis of the accounting policies adopted by the Company in preparing the financial information for the nine months period ended 31 December 2017. This report is required by Annex I, item 20.2 of Commission Regulation (EC) N 809/2004 and is given for the purpose of complying with that requirement and for no other purpose.

Responsibilities

It is the responsibility of the directors of the Company (the “Directors”) to prepare the Pro�Forma Financial Information in accordance with Annex I, item 20.2 and Annex II, items 1 to 6 of Commission Regulation (EC) N 809/2004.

It is our responsibility to form an opinion, in accordance with Annex I, item 20.2 of Commission Regulation (EC) N 809/2004, as to the proper compilation of the Pro�Forma Financial Information and to report that opinion to you in accordance with Annex II, item 7 of Commission Regulation (EC) N 09/2004.

Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Annex I item 23.1 of the Prospectus Directive Regulation, consenting to its inclusion in the Prospectus.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro�Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports, or opinions were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with Standards of Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro�Forma Financial Information with the Directors.

We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with reasonable assurance that the Pro�Forma Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom, including the United States of America, and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion

In our opinion:

(a) the Pro�Forma Financial Information has been properly complied on the basis stated; and
(b) such basis is consistent with the accounting policies of the Company.

Declaration

For the purpose of Prospectus Rule 5.5.3R, we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Document in compliance with Annex I, item 1.2 of Commission Regulation (EC) N 809/2004.

Yours faithfully

PKF Littlejohn LLP

Reporting Accountants

PART 14

OPERATING AND FINANCIAL REVIEW

ZENITH ENERGY LTD.

Historical Operating and Financial Review

This Part 14 summarises the significant factors and events affecting the results of operations and financial condition of the Group for the nine months ended 31 December 2017, and the comparative period ended 31 December 2016, and the years ended 31 March 2015, 2016 and 2017.

This Part 14 should be read in conjunction with Part 3: “ Presentation of Financial and Other Information”, Part 10: “Information on the Group ”, the Company’s previously announced and published financial information and the other financial information contained elsewhere in this Document.

Prospective investors should read the entire Document and not just rely on the summary information set out below. The financial information considered in this Part 14 is extracted from the previously announced and published financial information.

The following discussion of the Group’s results of operations and financial condition contains forward�looking statements that reflect the current view of the Group’s management. The Group’s actual results could differ materially from those anticipated in any forward�looking statements as a result of the factors discussed below and elsewhere in this Prospectus, particularly under Part 2: “ Risk Factors ” and under paragraph 8 of Part 3: “ Presentation of Financial and Other Information – Forward�looking statements ”. Investors should carefully consider the following information, together with the other information contained in this Prospectus.

This operating and financial review includes information extracted from:

the audited financial information in respect of the years ended 31 March 2015, 2016 and 2017 prepared under IFRS as adopted by the European Union and presented in Canadian; and
the unaudioted financial information in respect of the nine months ended 31 December 2016 and 31 December 2017, prepared under IFRS as adopted by the European Union and presented in Canadian dollars.

Principal Activity and Overview

Zenith Energy Ltd. (“Zenith” or “the Company”) is an upstream international oil and gas company whose assets are held by its subsidiaries principally in Azerbaijan and Italy. The Company is expanding its asset base through the acquisition of interests in Azerbaijan which completed in August 2016. Its portfolio includes a blend of production, development, appraisal and exploration assets. Zenith’s goal is to evaluate and exploit its asset base with a view of creating significant value for its shareholders on a per share basis.

1. Statement of Other Comprehensive Income Operating results

(Canadian Dollars in thousands except otherwise indicated and except per share amounts)

		9 months ended	9 months ended			Financial year	Financial year
		31 December				ended 31 March
		1111111111		1111111111111111
		2016	2017		2015		2016	2017
Daily volumes
Oil (bbls/day)		83	256		137		47	184
Condensate (bbls/day)		3	3		3		2	2
Gas (mcf/day)		87	48		388		252	69
Electricity (mcf/day)		198	182		n.a.		81	178
		1111	1111	1111		1111		1111
Total (boe/day)		117	297		204		105	227
		1111	1111	1111		1111		1111
Total volumes
Oil (bbls)		40,192	70,270	49,896			17,279	68,866
Condensate (bbls)		599	782		1,013		906	692
Gas (mcf)		20,337	13,199	141,772			92,345	25,124
Electricity (mcf/day)		54,434	49,969		n.a.		29,695	65,152
		1111	1111	1111		1111		1111
Total (boe)		53,973	81,580	74,538			38,525	82,604
		1111	1111	1111		1111		1111
Average Oil and gas	revenue,
net of royalties – per boe ($)
Oil Argentina($/bbl)		63.08	n.a.		67.37		67.63	63.08
Oil Azerbaijan($/bbl)		57.29	61.37		n.a.		n.a.	57.41
Condensate ($/bbl)		65.48	103.58		86.81		69.55	67.94
Gas ($/mcf)		5.4	8.79		6.98		5.05	5.79
Electricity ($/mcf)		13.24	8.58		n.a.		8.82	8.82
Revenue $		2.977	4,402		4,439		1,960	4,424
Cost of Sales $		(2,327)	(2,935)		(2,481)		(2,365)	(4,332)
		1111	1111	1111		1111		1111
Gross (Loss)/Profit $		650	1,467		1,958		(405)	92
		1111	1111	1111		1111		1111
Administrative expenses $		767,492	(962)		(2,949)		(7,474)	(4,155)
		1111	1111	1111		1111		1111
Operating (Loss)/Profit $		768,142	505		(991)		(7,879)	(4,063)
		3333	3333	3333		3333		3333
Sales
			31 December			Year	ended 31 March
			1111111		111111111111
Country	Product	Measure	2016	2017		2015	2016	2017
Argentina	OIL	Bbls	1,161	n.a.	49,896		17,279	n.a.
Azerbaijan	OIL	Bbls	39,031 70,270			—	—	66,866
Italy	GAS	Mcf	20.337 13,199		141,772		92,345	25,124
Italy Condensate		Bbls	599	782	1,013		906	692
Italy	Electricity	MWh	8,112	7,185		—	4,393	9,636

Oil production

Oil production in Argentina was consistent in 2015, but production volumes decreased in 2016 and 2017 due to the collapse of storage tanks in August 2015 at a nearby government facility. The collapse of the tank created an environmental disaster. In order to clean�up the oil spill and mitigate consequences, the state operator was forced to order the shutdown of transmission pipelines and suspended production and waterflood operations.

As a consequence, the Company’s production was severely curtailed by this emergency situation as production was suspended and the Company was unable to transport all the produced oil, which had filled the tanks to capacity, to the port terminal. Oil production began to increase substantially from the Effective Date, with the acquisition of the Azerbaijani assets.

On 20 February 2017, Zenith announced the sale of its operations in Argentina to a group of local energy investors; this included the two historically producing fields, Alberto and Don Ernesto located in the Patagonia region of Southern Argentina, in the San Jorge basin, where production was suspended at the time of their disposal.

Italy Gas Production

Volumes decreased between 2015 and 2017 because of the variation in the use of gas produced in Torrente Cigno concession, that is now used to produce electricity. Prior to 1 October 2015, the Company sold its gas volumes from the Torrente Cigno area in Italy for approximately $1.44/mcf to the previous owner of the co� generation plant who then converted the gas to electricity and as a result earned a much higher rate. The Company acquired this plant on 1 October 2015 to improve revenue generation and margins. Although the Company continues to supply its Torrente Cigno gas volumes to the co�generation plant, as plant owner, the Company now earns higher electricity rates on those gas volumes. As a result, information relating to electricity is only shown for FY 2016 and 2017.

The increase in gas revenues in the 9 months ended 31 December 2017 and 2016 is due to increase of the gas selling prices in the period.

Italy Condensate Production

The decrease in condensate sales volumes between 2015 and 2017 was due to the stoppages in October and November 2015 and the temporary interruption of production for required maintenance during April 2016 at the Torrente Cigno concession.

The increase in condensate revenues in the 9 months ended 31 December 2017 and 2016 is due to increase of the condensate selling prices in the period.

Italian Electricity

Italian electricity sales began following the acquisition of the co�generation plant in October 2015. The increase in electricity revenues in the 9 months ended 31 December 2017 and 2016 is due to an increase of the electricity selling prices in the period.

Revenues (net of royalties)

9 months ended 31 December 1111111111 2016 2017 CAD$’000 CAD$’000 Revenues ($) Oil (Argentina) net of royalties 71 n.a. Oil (Azerbaijan) 2,277 3,785 Gas (Italy) 110 116 Condensate (Italy) 39 45 Electricity (Italy) 480 429 Other n.a. 27 1111 1111 TOTAL 2,977 4,402 3333 3333	Financial year ended 31 March 1111111111111111 2015 2016 2017 CAD$’000 CAD$’000 CAD$’000 3,362 1,169 65 n.a. n.a. 3,722 989 466 31 88 63 47 n.a. 262 574 1111 1111 1111 4,439 1,960 4,489 3333 3333 3333

Cost of sales

Cost of sales
	9 months ended
	31 December		Year ended 31 March
	1111111111		1111111111111111
	2016	2017	2015	2016	2017
	CAD$000’s	CAD$000’s	CAD$000	CAD$000	CAD$000
Production Costs
Argentina	(547)	—	(1,438)	(1,341)	(583)
Azerbaijan	(894)	(1,684)	—	—	(2,699)
Italy	(363)	(275)	(375)	(692)	(334)
Total	(1,804)	(1,959)	(1,813)	(2,033)	(3,616)
Depletion and depreciation	(523)	(976)	(668)	(332)	(1,309)
Decomissioning charge	—	—	—	—	—
	1111	1111	1111	1111	1111
TOTAL	(2,327)	(2,935)	(2,481)	(2,365)	(4,925)
	3333	3333	3333	3333	3333
	9 months ended			Financial year
	31 December			ended 31 March
	1111111111		1111111111111111
	2016	2017	2015	2016	2017
Cost of sales CAD$000’s	(2,327)	(2,935)	(2,481)	(2,365)	(4,925)
	1111	1111	1111	1111	1111
Total boe	53,973	81,580	74,538	38,525	82,604
	1111	1111	1111	1111	1111
Cost of sales per boe CAD$	$43.11	$35.98	$33.29	$61.39	$59.62
	3333	3333	3333	3333	3333

Production costs in Argentina have seen a decrease in 2017 from previous years as a result of the suspension of production and subsequent sale of these assets.

Production costs in Italy have increased in 2016 from 2015 as a result of the necessary maintenance in the Torrente Cigno, Lucera, Masseria Petrilli and Sant’Andrea gas concessions.

Production costs in Italy have declined significantly (52%) in 2017 from 2016. This is a result of operational efficiencies and experience gained since the properties acquisition.

Depletion and depreciation costs have decreased in 2015 from 2014 as a result of an increase in expected asset lifespan, and in 2016 from 2015 due to the problems in production in Argentina and Italy as described above.

Depletion and depreciation costs have increased in 2017 from 2016 as a result of the acquisition of the assets in Azerbaijan.

Gross Profit

9 months ended 31 December 1111111111 2016 2017 CAD$’000 CAD$’000 Gross Profit 650 1,467 3333 3333 Gross Profit % 21.83% 33.33% 3333 3333	Financial year ended 31 March 1111111111111111 2015 2016 2017 CAD$’000 CAD$’000 CAD$’000 1,958 (405) 567,378 3333 3333 3333 44.1% (20.66)% 12,825% 3333 3333 3333

The decrease in margins in FY 2016 as compared to FY 2015 is attributable to the lack of production in Argentina.

The increase in margins in FY 2017 as compares to previous years is attributable to the acquisition of the productive assets in Azerbaijan.

Operating expenses

9 months ended
31 December
1111111111
2016
2017
CAD$’000
CAD$’000
Administrative expenses
Professional Fees
(1,663)
(1,139)
Office costs
(237)
(337)
Administrative
(279)
(412)
Salaries and benefits
(730)
(1,213)
Travel
(799)
(585)
Foreign exchange
—
—
Other
—
—
1111
1111
Total
(3,697)
(3,686)
Gain (Impairment) on
business combination
771,189
—
Capitalised expenses
—
2,724
1111
1111
TOTAL
767,492
962
3333
3333

Financial year
ended 31 March
1111111111111111
2015
2016
2017
CAD$’000
CAD$’000
CAD$’000
(940)
(1,070)
(1,884)
(716)
(394)
(291)
(457)
(470)
(319)
(482)
(341)
(864)
(100)
(413)
(945)
(254)
(59)
151
—
(10)
(3)
1111
1111
1111
(2,949)
(2,757)
(4,155)
—
(5,025)
576,010
—
—
—
1111
1111
1111
(2,949)
(7,782)
571,855
3333
3333
3333

Administrative expenses, net of foreign exchange, increased in 2017 than previous years as a result of the expenses for the Azerbaijan acquisition, the costs in relation to the listing on the London Stock Exchange and an increase in fundraising activities.

These costs were capitalised by the Company in the 9 months ended 31 December 2017.

The gain on business combination in 2017 arose as a result of the assets acquired in Azerbaijan.

In the year to 31 March 2016 an impairment test of the value of the Italian assets was done. The estimated recoverable amount of the Italian assets at 31 March 2016 was lower than the 31 March 2016 carrying amount resulting in the recognition of an impairment of CAD$5,025,000.

Following the 6 months ended 30 September 2016 the Company has recognized a bargain purchase of CAD$618 million in respect of its acquisition of assets in Azerbaijan. This acquisition has been accounted for as a business combination under IFRS 3. As a result of this a decommissioning provision charge of CAD$1.9 million has been recognized.

Profit attributable to equity shareholders

9 months ended
31 December
1111111111
2016
2017
CAD$000’s
CAD$000’s
Operating Profit/(Loss)
768,142
505
Fair value movements
(40)
—
Gain on sale of
marketable securities
4
—
Foreign exchange
221
—
Gain – on business combination
—
—
Impairment
—
—
Finance Costs
(570)
64
1111
1111
Profit/(loss) before taxation
767,757
569
Taxation
(153,044)
—
(Loss)/Profit from
discontinued operations
—
—
1111
1111
Profit/(loss)
614,713
569
Earnings per share
Basic
10.59
0.01
Diluted
5.90
0.01
3333
3333

Financial year
ended 31 March
1111111111111111
2015
2016
2017
CAD$000’s
CAD$000’s
CAD$000’s
(991)
(7,879)
(4,063)
135
(216)
427
—
—
—
—
—
—
—
—
578,995
—
—
(2,985)
(1,420)
(1,094)
(633)
1111
1111
1111
(2,276)
(9,189)
571,471
(99)
1,514
—
—
—
(4,363)
1111
1111
1111
(2,375)
(7,675)
567,378
(0.11)
(0.23)
8.15
(0.11)
(0.23)
4.54
3333
3333
3333

Fair value movements have arisen as a result of marketable securities and convertible loan notes held. Finance costs relate to loan interest and accretion of the decommissioning obligation and the convertible loans held. Loan interest has remained broadly consistent with the latter two amounts increasing due to the acquisition of the Italian assets and re�negotiating of the convertible loan notes. The tax credit are non�cash amounts and relate to deferred tax arising as a result of the Italian acquisition and the impairment of the assets.

Summary Statements of Cash Flows

9 months ended
31 December
1111111111
2016
2017
CAD$000’s
CAD$000’s
Net cash generated from
Operating Activities
Before non�cash working changes
(2,194)
2,229
Non�Cash working capital changes
285
546
Taxation paid
—
—
1111
1111
(1,909)
2,775
Investments
(103)
(3,418)
Change in non�cash working capital
11
—
Other investing activities
11
(3,996)
Net proceeds from issue
of share capital
1,325
3,623
Loan and bond financing
551
—
Repayment of notes payable
—
—
Repayment of loans
—
(550)
Foreign exchange effect on
cash held in foreign currencies
(5)
—
Net cashflow from
discontinued operations
—
—
1111
1111
Change in Cash and
Cash equivalent
(119)
(1,566)
Cash and Cash equivalents
– Beginning of period
138
3,924
1111
1111
Cash and Cash equivalents
– End of period
19
2,358
3333
3333

Year ended 31 March
1111111111111111
2015
2016
2017
CAD$000
CAD$000
CAD$000
(681)
(3,372)
(592)
47
898
(867)
—
—
—
1111
1111
1111
(634)
(2,474)
(1,459)
(1,170)
(415)
(413)
329
193
—
(146)
226
12
2,148
1,050
6,438
—
972
699
(275)
(204)
(105)
—
—
(1,322)
(27)
(146)
(5)
—
—
(59)
1111
1111
1111
225
(798)
3,786
711
936
138
1111
1111
1111
936
138
3,924
3333
3333
3333

Cash flow from operating activities

Cash inflows for 2017 increased due to the proceeds of the IPO.

Operating cash outflows increased in 2016 due to the problems in Argentina and Italy that have impacted margins. Changes in non�cash working capital principally reflect increases and decreases in trade and other receivables and trade and other payables associated with the timing of work programmes and oil and gas sales.

Capital Expenditure

The Group has continued to invest in capital expenditure as it concentrates on developing its asset based and maximising efficiencies.

9 months ended 31 December 1111111111 2016 2017 CAD$000’s CAD$000’s Capital Expenditure Argentina — — Azerbaijan 20 3,347 Italy 84 71 Other — — 1111 1111 TOTAL 104 3,418 3333 3333	Financial year ended 31 March 1111111111111111 2015 2016 2017 CAD$000’s CAD$000’s CAD$000’s 930 237 n.a. n.a. n.a. 212 241 178 195 — — 6 1111 1111 1111 1,171 415 413 3333 3333 3333

The capex in the year ended 31 March 2015 for CAD$1,171k was primarily due to the workover program in Argentina. These assets were disposed in February 2017.

Capital expenditure in Italy to development plans in the following concessions:

Masseria Petrilli (during year 2013 and 2014). Production from this well commenced in September 2014;
Masseria Grottavecchia (during all the periods). Production from this well is expected to start in late 2018;
San Teodoro (during all the periods). The production from this well is expected to start in year 2018; and
Torrente Cigno, Masseria Vincelli 1 in 2015. Expenses relate to the acquisition of a cogeneration plant and changes and upgrades to the production gas plant.

For the nine months ended 31 December 2017, there was a CAD$876k capital expenditure in Azerbaijan, due to the local workover development program.

Debt Financing

i) USD loan payable

As at 31 March 2017, the Group was indebted to a third�party lender for a USD$1,485k (CAD$1,848k) loan payable, bearing fixed interest at 10% per annum.

The President, CEO and Director of the Group, has provided a personal guarantee to the lender in respect of the repayment of the USD Loan by the Group and the final payment of approximately USD$1,485k is repayable on 31 July 2019, as per the agreement between the parties dated 10 January 2018.

As at 31 December 2017, CAD$1,860k (31 December 2016 – CAD$2,000k) of principal was classified as a current liability and CAD$488k (31 December 2016 – CAD$315k) of accrued interest was included in trades and other payables.

ii) Euro bank debt

On 6 August 2015, the Group obtained a €220k loan (CAD$316k) from the GBM Banca of Rome. The loan is unsecured, guaranteed by Mediocredito Centrale and bears fixed interest at 7% per annum and is repayable in 60 monthly payments of principal and interest until 6 August 2020.

As at 31 December 2017 the principal balance of the loan was €138k (CAD$206k) of which $68k was classified as a current liability and $138k was classified as non�current.

iii) Euro bank debt

On 17 December 2015, the Group obtained a €200k loan (CAD$302k) from Credito Valtellinese Banca of Tortona. The loan is unsecured, guaranteed by Mediocredito Centrale and bears fixed interest at 4.5% per annum and is repayable in 42 monthly payments of principal and interest until 17 July 2019.

As at 31 December 2017 the principal balance of the loan was €94k (CAD$140k) of which $92k was classified as a current liability and $48k was classified as non�current.

iv) Euro loan payable

On 1 October 2015, the Group acquired a cogeneration plant from a third party of which €401k (CAD$595k) of the purchase price was in the form of a loan from the seller. The loan is secured by the co�generation plant and bears interest at 3.5% and is repayable in 30 monthly payments of principal and interest until 31 March 2018.

As at 31 December 2017, the principal balance of the loan was €56k (CAD$84k) of which $84k was classified as a current liability.

v) USD $320,000 General Line of Credit Agreement

On 5 April 2017, the Group’s wholly�owned subsidiary, Zenith Aran, entered into a general line of credit agreement with Rabitabank Open Joint Stock Company (“Rabitabank”) up to an amount of USD $320k (CAD$416), for industrial and production purposes. The loan drawn down in one tranche and as at 06 April 2017 it was fully drawn down. Rabitabank can postpone or suspend the facility if there is a decline in oil production under the REDPSA of more than 30% from production levels as at the date of first drawdown, or if the REDPSA is terminated.

This Credit Agreement bears interest at a rate of 11% per annum. The loan is guaranteed by the Group. The loan granted for one�year period. The 25% of the principal amount should be paid on quarterly basis. The amount of interest to be paid on monthly basis.

On 6 July 2017 the terms of the repayment of the USD$320k (CAD$416) Credit Agreement were amended and first repayment of principal of USD$80k has been moved to the end of July.

On 6 July 2017, the terms of the repayment of the USD$320k (CAD$416k) Credit Agreement were amended and the first repayment of the principal of USD$80k was postponed to the end of July.

On 31 July 2017 USD$20k (CAD$21k) was repaid and the balance of USD$60k (CAD$63k) was agreed to be repaid on 1 September 2017. A subsequent credit committee decision taken in September 2017 amended the payment terms of the loan. The Company will pay interest on monthly basis and the principal total amount of USD$20k will be repaid on 6 December 2017. The balance of the principal amount (USD$280k) will be repaid at a new maturity date of 6 April 2018.

As of 31 December 2017, the outstanding principal amount of US$280k (CAD$350k) was classified as a current liability.

vi) USD $200,000 General Line of Credit Agreement

On 12 April 2017, Zenith Aran entered into a general line of credit agreement with Rabitabank up to USD$200k (CAD$260). This Credit Agreement bears interest at a rate of 10% per annum. The loan granted for one�year period and the principal amount of the loan will be paid at the end of the period. The amount of interest is paid monthly. The loan is guaranteed by the Group.

As of 31 December 2017, the amount of US$200k (CAD$250) plus accrued interest was still outstanding. It was classified as a current liability.

vii) Swiss loan CHF 837,500

On 30 March 2017 the Group acquired the Swiss based company Altasol SA, and assumed a loan subscribed by the former owner on 21 December 2015 for the initial amount of CHF838k (CAD$1,120k). The loan bears interest at a rate of 2.32% per annum. The loan is repayable in anticipated quarterly tranches of CHF13k (plus accrued interest) (CAD$17k) and the maturity date is 7 July 2022.

As at 31 December 2017 the principal balance of the loan was CHF734k (CAD$941k) of which CAD$67k is classified as a current liability and CAD$874k was classified as non�current.

viii) Swiss loan CHF 1,000,000

On 30 March 2017 the Group acquired the Swiss based company Altasol SA, and assumed a loan subscribed by the former owner on 21 December 2015 for the initial amount of CHF1,000k (CAD$1,280k). The loan bears interest at a rate of 2.2% per annum. The loan is repayable on 2 July 2019 (plus accrued interest).

As at 31 December 2017 the principal balance of the loan was CHF1,000k (CAD$1,279k) and was classified as a non�current liability.

Equity financing

The Company has sought to secure funds through equity financing and placings have taken place in all periods as follows;

In FY 2017, the Company issued a total of 43,221,468 Common Shares for net proceeds of CAD$5,557k at an average price of CAD$0.13 per share;
In FY 2016, the Company issued a total of 71,982,824 Common Shares for net proceeds of CAD$7,651k at an average price of CAD$0.11 per share;
In FY 2015, the Company issued a total of 15,529,984 Common Shares for net proceeds of CAD$2,148k at an average price of CAD$0.15 per share; and

In all of these placings Warrants were issued to subscribers alongside the Common Shares.

Repayment of loans

Finance costs principally include the cost of interest payable on the C$5 million, and facilities Euro 97k, that were taken out prior to the reporting periods for working capital purposes.

Cash position

As a result of its equity placings, the Company has been able to maintain sufficient cash resources to fund its ongoing capital expenditures and work programmes. Total cash increased from CAD$936k at the end of 2015 to CAD$3,924k to the end of the year 2017, representing an increase of 419% over the period. The increase was primarily due to the proceeds of the IPO.

In the year 2016 total cash decreased to CAD$126k, due to the falling oil & gas prices and the problems in Argentina and Italy productions as described above.

Summary Statements of Financial Position

9 months ended 31 December 1111111111 2016 2017 CAD$000’s CAD$000’s Non�current assets 1,066,559 1,078,551 Current Assets 2,593 4,566 1111 1111 TOTAL ASSETS 1,069,152 1,083,117 1111 1111 Current liabilities 8,618 7,449 Non�current liabilities 454,360 496,751 1111 1111 NET ASSETS 606,174 578,917 3333 3333	Year ended 31 March 1111111111111111 2015 2016 2017 CAD$000’s CAD$000’s CAD$000’s 17,049 14,805 1,073,334 2,199 1,492 5,762 1111 1111 1111 19,248 16,298 1,079,096 1111 1111 1111 (5,607) (8,200) (4,325) (9,352) (10,375) (575,447) 1111 1111 1111 4,289 (2,278) 499,324 3333 3333 3333

The most important change in the 3 years period, is the recognition of the fair value of the Azeri assets, acquired during the period.

On 26 January 2016 the Group registered a branch of Zenith Aran, a wholly owned subsidiary of the Company, in Baku, Azerbaijan, to have an operating entity in Azerbaijan for the management of its Azerbaijan oil production assets.

Zenith Aran was incorporated in the British Virgin Islands under the BVI Business Companies Act, 2004, on the 27 November 2015.

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Liquidity and Capital Resources

Zenith has been funding its cash requirements from equity and debt sources as well as seeking value from deals undertaken which will allow for improved cash generation through quick, effective solutions. Zenith has raised circa CAD$10.85 million from investors in 2015, 2016 and 2016. Successful management of debt (e.g. renegotiation of loans) and finance funding has allowed Zenith to fund its activities despite being in a net current liability position for each of the three years presented.

Continuing operations are dependent on the ability to obtain adequate new funding to finance existing operations, attain commercial production from its oil and gas properties, find an industry partner to participate in exploration activities and attain future profitable operations. Additional financing is subject to the global financial markets and economic conditions.

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PART 15 CAPITALISATION AND INDEBTEDNESS

The following table shows the capitalisation and indebtedness of the Company as at 31 December 2017, extracted without material adjustment from the Company’s unaudited management accounts as at 31 December 2017. All the amounts are expressed in thousand Canadian Dollars (CAD$’000).

	CAD$’000	CAD$’000
Total Current debt		8,267
Guaranteed	—
Secured	3,592
Unguaranteed/Unsecured	4,675
	1111
Total Non�Current debt		496,571
Guaranteed	—
Secured	486,373
Unguaranteed/Unsecured	10,198
	1111
Shareholder’s equity:		578,917
Share capital	20,867
Legal Reserve	—
Other Reserves	558,050
	1111
Total		1,083,755
		1111
Cash	2,358
Cash equivalent (Detail)	—
Trading securities	—
	1111
Liquidity		2,358
		1111
Current Financial Receivable		1,590
		1111
Current Bank debt	2,771
Current portion of non�current debt	—
Other current financial debt	3,857
	1111
Current Financial Debt		6,628
		1111
Net Current Financial Indebtedness		2,680
		1111
Non�current Bank loans	2,339
Bonds Issued	381
Other non�current loans	—
	1111
Non�current Financial Indebtedness		2,720
		1111
Net Financial Indebtedness		5,400
		3333

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PART 16 HISTORICAL FINANCIAL INFORMATION

The Company’s historical financial information for the years ended 31 March 2015, 2016 and 2017, and the audited interim financial statements for the nine months to 31 December 2017 respectively, are all incorporated by reference and are available on the Company’s website.

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PART 17 TAXATION

1 United Kingdom taxation

The following statements are intended only as a general guide to current UK tax legislation and to the current practice of HMRC and may not apply to certain shareholders in the Company, such as dealers in securities, insurance companies and collective investment schemes. They relate (except where stated otherwise) to persons who are resident and domiciled in the UK for UK tax purposes, who are beneficial owners of Common Shares (and any dividends paid on them) and who hold their Common Shares as an investment (and not as employment�related securities and other than via an individual savings account). They are based on current UK legislation and what is understood to be the current practice of HMRC as at the date of this Document, both of which may change, possibly with retroactive effect. The tax position of certain categories of shareholders who are subject to special rules (such as persons acquiring their Common Shares in connection with employment, dealers in securities, insurance companies and collective investment schemes or those who, either alone or together with connected parties, hold 5% or more of the Common Shares) is not considered.

Any person who is in any doubt as to his or her tax position, or who is subject to taxation in any jurisdiction other than that of the UK, should consult his or her own professional advisers immediately.

2 Taxation of dividends

Under UK tax legislation, the Company is not required to withhold tax at source from dividend payments it makes.

For the current tax year, the rate of income tax applied to dividends received by an individual Shareholder liable to income tax at the higher rate will be 32.5%. In the case of a dividend received by an individual Shareholder liable to income tax at the additional rate, the rate of income tax will be 38.1%. With effect from 6 April 2016, the UK dividend tax credit (formerly 1/9th of the dividend received) no longer applies but individual shareholders may be entitled to a tax�free dividend allowance of £5,000 per tax year.

Dividends paid to a UK resident corporate Shareholder will be taxable income of the UK corporate Shareholder unless the dividends fall within an exempt class and certain other conditions are met. It is, however, expected that dividends paid by the Company to a UK resident corporate Shareholder would generally be exempt, provided certain anti�avoidance provisions are not triggered.

To the extent that dividends are not exempt, UK resident corporate Shareholders may be able to obtain credit for any withholding tax and any underlying tax paid by the Company, subject to certain conditions. The UK has complex double tax relief rules where UK resident companies receive dividends from non�UK resident companies and therefore UK resident corporate Shareholders should seek further advice on these issues.

Trustees who are liable to income tax at the rate applicable to trusts (currently 45.0%) will pay tax on the gross dividend at the dividend trust rate of 38.1% for the current tax year.

United Kingdom pension funds and charities are generally exempt from tax on dividends which they receive.

Other Shareholders who are not resident in the UK for tax purposes should consult their own advisers concerning their tax liabilities on dividends received.

3 Chargeable gains

Shareholders who are resident in the UK for tax purposes and who dispose of their Common Shares at a gain will ordinarily be liable to UK taxation on chargeable gains, subject to any available exemptions or reliefs. The gain will be calculated as the difference between the sale proceeds and any allowable costs and expenses, including the original acquisition cost of the Common Shares.

Shareholders who are not resident in the UK for tax purposes but who carry on a trade, profession or vocation in the UK through a branch, agency or fixed place of business in the UK may be liable to UK taxation on

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chargeable gains on any gain on a disposal of their Common Shares, if those shares are or have been held, used or acquired for the purposes of that trade, profession or vocation or for the purposes of that branch, agency or fixed place of business.

If an individual Shareholder ceases to be resident in the UK and subsequently disposes of Common Shares, in certain circumstances any gain on that disposal may be liable to UK capital gains tax upon that Shareholder becoming once again resident in the UK.

4 Stamp duty and Stamp Duty Reserve Tax (“SDRT”)

The statements below are intended as a general guide to the current position under UK tax law. They do not apply to certain intermediaries who may be eligible for relief from stamp duty or SDRT, or to persons connected with depository arrangements or clearance services (or, in either case, their nominees or agents), who may be liable to stamp duty or SDRT at a higher rate.

Admission of the Common Shares to the standard segment of the Official List will not give rise to a liability to stamp duty or SDRT on the basis that the Admission does not involve a change in title to the Common Shares for consideration. (The definition of consideration for stamp duty purposes is restricted to consideration in the form of cash, shares or debt. However, the definition for SDRT purposes is broader and will include anything in money or money’s worth.)

The central management and control of the Company currently takes place outside the UK and the shareholders’ register is currently maintained outside the UK. As such, upon the admission of the Common Shares to the Official List and to trading on the London Stock Exchange’s Main Market for listed securities, any transfer of Depositary Interests should no longer attract SDRT.

Provided that the shareholders’ register continues to be maintained outside the UK, there will be no SDRT on any agreement to transfer the Common Shares themselves. However, any document transferring title to the Common Shares will attract stamp duty at the rate of 0.5% (rounded to the nearest £5 if necessary) if it is executed in the UK or relates (wheresoever executed) to any matter or thing done or to be done in the UK.

Where a document transfers title to non�UK shares, but the transfer has such a UK nexus, it may not be relied upon as evidence in civil proceedings within the UK unless it is exempt or has been duly stamped by the UK tax authorities.

5 Inheritance Tax

If any individual Shareholder is regarded as domiciled in the UK for inheritance tax purposes, inheritance tax may be payable in respect of the Common Shares on the death of the Shareholder or on certain gifts of the Common Shares during their lifetime, subject to any allowances, exemptions or reliefs. This is the case regardless of their residence status. In the case of an individual Shareholder who is not regarded as domiciled in the UK for inheritance tax purposes at the date of death, their liability is limited to assets situated in the UK.

A transfer of Common Shares at less than market value may be treated for inheritance tax purposes as a gift of the Common Shares. Special rules may apply to close companies and to trustees of certain settlements who hold Common Shares, which may bring them into the charge to inheritance tax.

Non�UK domiciled individual Shareholders may be regarded as deemed domiciled for inheritance tax purposes only following a long period of residence in the UK.

Situs of shares for inheritance tax purposes is a complex matter and is governed by case law. To the extent the Common Shares are not already treated as UK assets for inheritance tax purposes, then admittance of the Common Shares to the standard segment of the Official List may result in the Common Shares being treated as UK assets for UK inheritance tax purposes. Admission of the Common Shares to the Official List will not constitute a disposal of the Common Shares held by existing Shareholders. However, if the Common Shares are considered UK situs, this could have an adverse impact on the reliefs available from inheritance tax to individual Shareholders.

UK inheritance tax is a complex area and individuals should obtain their own advice in respect of this.

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6 Certain Canadian Federal Income Tax Considerations

The following summary describes, as of the date hereof, the principal Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations promulgated thereunder (the “ Tax Act ”) generally applicable to an investor who acquires, as beneficial owner, Common Shares pursuant to the Placing who, at all relevant times and for purposes of the Tax Act is not, and is not deemed to be, resident in Canada, holds the Common Shares as capital property, does not, and will not be deemed to use or hold the Common Shares in the course of carrying on a business in Canada, and deals at arm’s length with, and is not affiliated with, the Company or Optiva Securities Limited (a “ Holder ”).

Common Shares will generally be considered to be capital property to a Holder unless the Holder acquires or holds such Common Shares in the course of carrying on a business or in one or more transactions considered to be an adventure or concern in the nature of trade. Special rules, which are not discussed below, may apply to a Holder that is an insurer that carries on business in Canada and elsewhere. Such Holders should consult their own tax advisers.

This summary is based on the provisions of the Tax Act in force on the date hereof and the current administrative policies and assessing practices of the Canada Revenue Agency (the “ CRA ”) published in writing and publicly available prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act which have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “ Proposed Amendments ”) and assumes that all such Proposed Amendments will be enacted in the form proposed. However, no assurance can be given that the Proposed Amendments will be enacted in the form proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law, whether by judicial, governmental or legislative decision or action or changes in the administrative policies and assessing practices of the CRA, nor does it take into account the laws of any province or territory of Canada or of any jurisdiction outside of Canada, which may differ from those discussed in this summary.

This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. Holders should consult their own tax advisors having regard to their own particular circumstances.

6.1 Currency Conversion

Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Shares must be determined in Canadian dollars. Any such amount that is expressed or denominated in a currency other than Canadian dollars must be converted into Canadian dollars using the relevant exchange rate quoted by the Bank of Canada on the relevant day or such other rate of exchange acceptable to the Minister of National Revenue (Canada).

6.2 Dividends

A dividend paid or credited (or deemed under the Tax Act to be paid or credited) on the Common Shares to a Holder will generally be subject to Canadian withholding tax under the Tax Act at a rate of 25%, subject to any reduction in the rate of such withholding under the provisions of an applicable income tax treaty or convention.

6.3 Disposition of Shares

A Holder will generally not be subject to tax under the Tax Act in respect of any capital gain realized on a disposition or deemed disposition of Common Shares unless the Common Shares constitute “taxable Canadian property” (as defined in the Tax Act) to the Holder at the time of the disposition and the Holder is not entitled to relief under an applicable income tax treaty or convention.

Provided the Common Shares are listed on a designated stock exchange for purposes of the Tax Act at the time of disposition, which currently includes the TSXV and the London Stock Exchange, the Common Shares will generally not constitute taxable Canadian property to a Holder at that time, unless at any time during the 60�month period immediately preceding the disposition of the Common Shares: (a) one or any combination of (i) the Non�Resident Holder, (ii) persons with whom the Holder does not deal at arm’s length, (iii) partnerships in which the Holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, has owned 25% or

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more of the issued shares of any class of the Company, and (b) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of: (i) real or immovable property situated in Canada; (ii) Canadian resource properties; (iii) timber resource properties; and (iv) options in respect of, or interests in or for civil law rights in, property in any of the foregoing whether or not the property exists. Common Shares may also be deemed to be taxable Canadian property to a Holder in certain circumstances.

A Holder whose Common Shares may constitute taxable Canadian property to such Holder should consult its own tax advisers.

This summary is for general information only and it is not intended to be, nor should it be construed to be, legal advice to any Shareholder or prospective investor.

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PART 18 ADDITIONAL INFORMATION

1 Responsibility

1.1 The Directors, whose names appear on page 41, and the Company accept responsibility for the information contained in this Document. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this Document is in accordance with the facts and contains no omission likely to affect its import.
1.2 Chapman Petroleum, in its capacity as Competent Person, accepts responsibility for the information contained in its Competent Person’s Report as set out in Part 23 this Document. To the best of the knowledge of Chapman Petroleum (which has taken all reasonable care to ensure that such is the case), the information contained in the Competent Person’s Report is in accordance with the facts and does not omit anything likely to affect the import of such information.

2 The Company

2.1 The Company was incorporated and registered in British Columbia on 20 September 2007 under the Business Corporations Act (British Columbia) as a corporation with the name Canoel International Energy Ltd. and with registered corporation number BC0803216. Pursuant to a shareholders’ resolution dated 30 September 2014, the Company’s name was changed to Zenith Energy Limited. Its Common Shares were admitted to trading on the TSXV on 10 April 2008.
2.2 The Company is domiciled in British Columbia, Canada. The Company’s head office is located in Calgary, Alberta, Canada. The head office of the Company and business address for all the Directors and the Senior Manager, as at the date of this Document, is at 15th Floor, Bankers Court, 850 – 2nd Street S.W. Calgary, Alberta, T2P 0R8, Canada. The principal legislation under which the Company operates is the Business Corporations Act (British Columbia). The liability of the Shareholders of the Company is limited.
2.3 The Company is regulated by the Alberta Securities Commission as its principal regulator, but it is not regulated by the FCA or any financial services regulator. With effect from Admission, the Company will be subject to the Listing Rules and the Disclosure Guidance and Transparency Rules (and the resulting jurisdiction of the UK Listing Authority), to the extent such rules apply to companies with a Standard Listing.

3 Share capital

3.1 As at 19 June 2018, (being the latest practicable date before publication of this Document) the Company is authorised to issue an unlimited number of Common Shares and Preferred Shares (issued in a series) and 159,921,766 common shares are issued, outstanding, all fully paid, and admitted to trading on the Toronto Stock Exchange Venture Exchange, of which 153,200,119 fully paid common shares are issued, outstanding, all fully paid, and admitted to trading on the Main Market of the London Stock Exchange.
3.2 The Placing Shares, Subscription Shares, Offer Shares and the Admission Shares (whose ISIN is CA98936C1068) will be listed on the Official List and will be traded on the main market of the London Stock Exchange. An application will be made to list the Placing Shares, Subscription Shares and Offer Shares on the TSXV. Save for the forgoing, the Common Shares are not listed or traded on, and no application has been or is being made for the admission of the Common Shares to listing or trading on any other stock exchange or securities market.
3.3 During the period of the historical financial information, there have been the following changes in the issued and authorised share capital of the Company:
(a) On 6 September 2013, the Company’s shareholders approved a 10 for 1 share consolidation of the Company’s equity instruments comprised of common shares, warrants and stock options.

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(b) On 20 September 2013, the Company completed a private placement of 750,000 Common Shares at CAD$0.20 per Common Share for gross proceeds of CAD$150,000.
(c) On 10 February 2014, the Company completed a private placement of 400,000 Common Shares at CAD$0.25 per Common Share for gross proceeds of CAD$1,000,000.
(d) On 19 February 2014, the Company issued 313,610 Common Shares to Somerley Capital Limited as payment for advisory services valued at CAD$59,586 based on the CAD$0.19 market price of the Company’s Common Shares on the date of issuance.
(e) On 7 March 2014, the Company issued 1,600,000 Common Shares to Global Resources Investment Trust plc (“ GRIT ”), an unrelated party, in exchange for 222,000 GRIT shares. The share exchange was recognised at the £1.00 quoted market price of the GRIT shares on the date of issuance, being £222,000. The GRIT shares have been listed for trading on the London Stock Exchange.
(f) On 12 September 2014, the Company announced the completion of a replacement and conversion agreement (the “ Replacement and Conversion Agreement ”) which was entered into between the Company and each of the holders of the Company’s outstanding 9% unsecured convertible notes (principal amount $1,080,000 Swiss Francs) dated 11 January 2012 (the “ Notes ”). Pursuant to the terms of the Replacement and Conversion Agreement, the holders of the Notes agreed to cancel their Notes in exchange for the issuance by Zenith of replacement notes, which are convertible into Common Shares at a deemed price of CAD$0.215 per Common Share (the “ Replacement Notes ”). In accordance with the terms of the Replacement and Conversion Agreement, the holders of approximately 42% (principal amount $460,000 Swiss Francs) of the Replacement Notes converted the principal amount of such Replacement Notes into Common Shares of the Company, resulting in the issuance of an aggregate of 2,510,058 Common Shares of the Company. As at 31 March 2015, the Company held $620,000 Swiss Francs of unsecured convertible notes bearing interest at 9% per annum, payable in arrears in equal quarterly instalments and maturing on 11 January 2017. At any time prior to maturity and at the option of the note holder, the principal and any unpaid interest of a note may be converted into Common Shares of the Company at a price of CAD$0.215 per share. In July 2015, the Company entered into an agreement to amend the terms of the $620,000 Swiss Francs of unsecured convertible notes. Pursuant to the terms of the agreement, the conversion price was reduced to CAD$0.125 per share and the rate of interest was reduced to 5%. The amended conversion price is based on the closing market price of the Company’s shares on 7 July 2015. On 30 November 2016, the Company announced that it had entered into an agreement to amend the terms of the remaining Replacement Notes. Pursuant to the terms of the agreement, the conversion price was reduced to CAD$0.11 per share and the rate of interest was reduced to 1%. In addition, the maturity date of the Replacement Notes was amended to 11 January 2019. The remaining principal amount of Replacement Notes as of 30 November 2016 was $314,953.69 Swiss Francs.
(g) During the year ended 31 March 2015, the Company issued a total of 15,529,984 shares at CAD$0.15 per unit for gross proceeds of CAD$2,329,498. Each unit is comprised of one Common Share and one share warrant exercisable at CAD$0.25 per Common Share for a period of 36 months from the date of issuance. In connection with the private placement, the Company incurred in expenses of CAD$45,850, finder’s fees of CAD$135,940 and issued a total of 873,868 finder’s share warrants exercisable at CAD$0.25 for a period of 36 months from the date of issuance. Officers and directors of the Company subscribed for an aggregate of 1,716,665 shares for gross proceeds of CAD$257,500.
(h) On 7 May 2015, the Company completed a non�brokered private placement of 225,000 Common Shares at a price of GBP 1.00 per unit (approximately CAD$1.84 per unit) for gross proceeds of GBP 225,000 (approximately CAD$414,000). Each unit consists of one GBP 1.00 secured bond and six common share purchase warrants. The bonds are secured by 99% of the oil and gas properties owned by the Company’s subsidiary, Canoel Italia S.r.l. The bonds bear interest at 12% per annum, payable quarterly, until the maturity date 36 months from the date of issuance at which time the principal amount of bonds is repayable in full (the expiry date is 7 May 2018). Each common share purchase warrant entitles the holder thereof to purchase, subject to adjustment, one additional Common Share at an exercise price of CAD$0.25 per

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Common Share for a period of 36 months from the date of issuance. In connection with the private placement, the Company paid finder’s fees of GBP 11,250 and granted 67,500 finder’s share warrants, exercisable at CAD$0.25 for a period of 36 months from the date of issuance (this right will expire on 7 May 2018).

(i) On 10 August 2015, the Company completed its second tranche of its non�brokered private placement of 65,000 shares at a price of GBP 1.00 per unit (or approximately CAD$2,035 per unit), for gross proceeds of GBP 65,000 (or approximately CAD$132,280 for gross proceeds).

Each unit consists of one GBP 1.00 secured bond and six common share purchase warrants. Each common share purchase warrant entitles the holder thereof to purchase, subject to adjustment, one additional Common Share at an exercise price of CAD$0.25 per Common Share at any time on or before the date that is 36 months from the date of issuance of the common share purchase warrant. No finder’s fees were paid in connection with the second tranche.

In addition to any resale restrictions under applicable securities legislation, all securities issued under the private placement will be subject to a four�month hold period from the date of issuance.

(j) On 18 September 2015, the Company completed the private placement of 2,700,000 shares at CAD$0.10 per unit for gross proceeds of CAD$270,000. Each unit is comprised of one Common Share and one�half common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one Common Share at CAD$0.25 per Common Share for a period of 36 months from the date of issuance.
(k) On 27 November 2015, the Company completed the private placement of 4,214,125 shares at CAD$0.08 per unit for gross proceeds of CAD$337,000. Each unit is comprised of one Common Share and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one Common Share at CAD$0.25 per share for a period of 36 months from the date of issuance.
(l) On 29 January 2016, the Company completed a private placement of 2,655,688 shares at CAD$0.08 per unit for gross proceeds of CAD$212,455.04. Each unit is comprised of one Common Share and one Common Share purchase warrant. Each Common Share purchase warrant entitles the holder to acquire one Common Share at an exercise price of CAD$0.15 per Common Share for a period of 24 months from the date of issuance. The Company also paid aggregate finders’ fees of CAD$3,368 and issued 42,108 warrants to an arm’s�length party in the connection with this private placement.
(m) On 2 March 2016, the Company issued 526,705 Common Shares to Darwin Capital Limited as payment for services valued at £25,000 (CAD$51,854) based on a price of CAD$0.09845 per Common Share as agreed to by the parties and in accordance with the terms of a debt settlement agreement dated 22 December 2015 entered into between the Company and Darwin Capital Limited.
(n) On 2 March 2016, the Company issued 198,167 Common Shares to Dowgate Capital Stockbrokers Limited as payment for services valued at CAD$14,862.50 based on a price of CAD$0.075 per Common Share as agreed to by the parties and in accordance with the terms of a debt settlement agreement dated 22 December 2015 entered into between the Company and Dowgate Capital Stockbrokers Limited, such shares being issued at the market price of the Company’s Common Shares.
(o) On 7 March 2016, the Company completed a private placement of 625,000 shares at CAD$0.08 per unit for gross proceeds of CAD$50,000. Each unit is comprised of one Common Share and one Common Share purchase warrant. Each Common Share purchase warrant entitles the holder to acquire one Common Share at an exercise price of CAD$0.15 per Common Share for a period of 24 months from the date of issuance. The Company also paid aggregate finders’ fees of CAD$3,250 and issued 40,625 warrants to an arm’s length party in connection with this private placement.

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(p) On 30 March 2016, the Company completed the private placement of 2,500,000 Common Shares at CAD$0.08 per unit for gross proceeds of CAD$200,000. Each unit is comprised of one Common Share and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one Common Share at CAD$0.15 per common share for a period of 24 months from the date of issuance. The Company also paid aggregate finders’ fees of CAD$13,000.
(q) On 11 April 2016, the Company completed the private placement of 6,674,775 Common Shares at CAD$0.08 per unit for gross proceeds of CAD$534,000. Of the 6,674,775 Common Shares, 5,000,000 Common Shares were issued forming part of a unit comprising one Common Share and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one Common Share at CAD$0.15 per Common Share for a period of 24 months from the date of issuance. The remaining 1,674,775 Common Shares were not issued with accompanying warrants. The Company also paid aggregate finders’ fees of CAD$26,000 and issued 325,000 warrants to certain arms’ length parties in connection with the private placement.
(r) On 21 April 2016, the Company completed the private placement of 3,892,875 Common Shares at CAD$0.08 per unit for gross proceeds of CAD$311,430. Each unit is comprised of one Common Share and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one Common Share at CAD$0.15 per Common Share for a period of 24 months from the date of issuance. The Company also paid aggregate finders’ fees of CAD$14,376.95 and issued 179,712 warrants to certain arm’s�length parties in the connection with the private placement.
(s) On 09 June 2016, the Company issued 2,730,000 Common Shares at a deemed price of CAD$0.11 per Common Share, 312,500 Common Shares at a price of $0.10 per Common Share and 160,000 Common Shares at a price of $0.087 per Common Share to certain debtholders and creditors of the Company to settle debts owing by the Company, representing in aggregate of CAD$345,473. On 17 June 2016, the 160,000 Common Shares that had been issued at a price of $0.087 per Common Share were cancelled.
(t) On 16 June 2016, the Company closed a non�brokered private placement of 1,519,250 Common Shares at a price of CAD$0.08 per unit for aggregate gross proceeds of CAD$121,540. Each unit is comprised of one Common Share and one common share purchase warrant. Each common share purchase warrant will be exercisable for one Common Share at a price of CAD$0.15 per share for a period of 24 months from the date of closing of the offering.
(u) On 28 June 2016, the Company closed a non�brokered private placement of 312,500 shares of Company at a price of CAD$0.10 per share to a creditor of the Company to settle a debt owing by the Company, representing in aggregate CAD$31,250.
(v) On 10 October 2016 the Company closed a non�brokered private placement of 1,906,050 Common Shares at a price of CAD$0.10 per unit for aggregate gross proceeds of CAD$190,605. Each unit is comprised of one Common Share and one common share purchase warrant. Each common share purchase warrant will be exercisable for one Common Share at a price of CAD$0.20 per share for a period of 24 months from the date of closing of the offering.
(w) On 19 October 2016, the Company issued 724,235 Common Shares at a deemed price of CAD$0.085 per Common Share to certain debtholders and creditors of the Company to settle debts owing by the Company, representing an aggregate of CAD$61,585.48.
(x) On 7 November 2016, the Company closed a non�brokered private placement of 2,745,062 Common Shares at a price of CAD$0.12 per unit for aggregate gross proceeds of CAD$329,407.44. Insiders of the Company subscribed for an aggregate of 2,195,475 units for aggregate subscription proceeds of CAD$263,457. Each common share purchase warrant will be exercisable for one Common Share at a price of CAD$0.20 per share for a period of 24 months from the date of closing of the offering.

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(y) On 18 November 2016 the Company granted Options to certain of its Directors and employees to acquire a total of 6,000,000 Common Shares pursuant to its Stock Option Plan. Each Option granted entitles the relevant holder to acquire one Common Share for an exercise price of CAD$0.10 per Common Share. The expiry date of the Options is the date falling five years from the date of grant, being 18 November 2021.
(z) On 22 November 2016, Gunsynd Plc (“ Gunsynd ”), a company listed on the London Stock Exchange’s AIM market for listed securities, invested GBP £100,000 by way of subscription for convertible unsecured loan notes bearing interest of 3% per annum (the “ GBP Convertible Notes ”). The GBP Convertible Notes are payable in arrears in quarterly instalments. At the option of Gunsynd, the principal of the GBP Convertible Notes may be converted into Common Shares of the Company at any time prior to the expiry of 36 months from issuance at a price equal to CAD$0.10 per Common Share (or the initial listing price of the Common Shares if the Company is listed on another senior stock exchange at the time of such conversion). Subject to the GBP Convertible Notes not having been converted, the GBP Convertible Notes mature 36 months from the date of issuance. Unless permitted under Canadian securities legislation, the GBP Convertible Notes cannot be traded before the date that is four months and a day after the date of issuance.
(aa) On 30 November 2016, the Company issued 150,000 Common Shares to Align Research Limited (“ Align ”) (based on a price of CAD$0.08 per share Common Share) in settlement of a debt of GBP £7,000 (inclusive of accrued interest) owed by the Company to Align in respect of services provided by Align.
(bb) On 5 January 2017, the Group announced that the IPO Prospectus had been approved by the UK Listing Authority. The IPO Prospectus related to admission of the Common Shares to the standard listing segment of the Official List and to trading on the London Stock Exchange’s Main Market which together with commencement of dealings in the Group’s Common Shares occurred on 11 January 2017.
(cc) In connection with IPO, the Group successfully placed 33,322,143 Common Shares. Following its book�building process, in which Common Shares were placed at £0.07 (CAD$0.11) per Common Share, on completion of the IPO the gross proceeds available to the Group were approximately £2,333k (CAD$3,783k) and the net proceeds were approximately £2,016k (CAD$3,305k). The Group paid finder’s fees of GBP 114k ($200k) and issued warrants over 1,114,286 Common Shares exercisable for 24 months from closing at a price of GBP 0.07 per Common Share to certain arm’s�length parties.
(dd) On 11 January 2017 the Group issued 668,571 shares, at a deemed price of £0.07 per Common Share, for the settlement of a debt for services of a senior manager of the Company, for an amount of £47k (CAD$78k).
(ee) On 30 January 2017 the Group entered into an agreement to proceed with a brokered private placement (the “2017 Private Placement”) to raise gross proceeds of GBP 855k (approximately CAD$1,399k) through the issue of nine million (9,000,000) new common shares of the Group at a price of GBP 0.095 (approximately CAD$0.1565) per share. In addition to the new Common Shares, under the 2017 Private Placement each subscriber received one warrant for every new Common Share purchased. Each Warrant entitles the Warrant holder to subscribe for new Common Shares at a price of GBP 0.15 per Common Share (approximately CAD$0.247), exercisable at any time until 1 February 2019. The Company also paid aggregate finders’ fees of CAD$70k in connection with the 2017 Private Placement.
(ff) On 30 January 2017 £247k of Convertible Notes denominated in CHF (Swiss Franc), were converted into 3,700,000 Common Shares with an aggregate value of CDN$ 407k (approximately £247k). The terms of this conversion were comprehensively outlined in the IPO Prospectus.
(gg) On 14 March 2017 the Group issued 505,263 Common Shares at $0.1425 per Common Share, to settle certain debts, which have been fully paid, with the balance being settled in cash.

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(hh) On 21 March 2017 Gunsynd PLC elected to convert the GBP £100k principal amount unsecured convertible note held by it into Common Shares at the conversion price of CAD$0.10, into 1,637,100 Common Shares. This fully extinguished Zenith’s GBP convertible debt.
(ii) On 21 March 2017 the Group completed a further conversion of Convertible Notes denominated in CHF (Swiss Franc), issuing an amount of 2,170,000 Common Shares with an aggregate value of CDN$ 239k (approximately £143k). The terms of this conversion were comprehensively outlined in the IPO Prospectus, stating that the conversion mechanism requires a conversion price of CDN$ 0.11 (£0.06588).
3.4 During the period from 1 April 2017 to the date of this Document, there have been the following changes in the issued and authorised share capital of the Company:
a) On 25 May 2017, Regis Milano exercised an option to acquire 1,000,000 new Common Shares.
b) On 29 June 2017, an investor in the Company exercised Warrants to acquire 1,019,250 new Common Shares. The exercise price of the Warrants CAD$0.15 per share, and the total consideration received was CAD$153k (approximately £91k).
c) On 14 July 2017, the Group closed a non�brokered private placement of 3,533,333 Common Shares at a price of CAD$0.123956 per Common Share for aggregate gross proceeds of CAD$438k (approximately £265k). The Company also paid aggregate finders’ fees of CAD$22k (approximately £13k).
d) On 2 August 2017, the Group closed a non�brokered private placement of 2,666,667 Common Shares at a price of CAD$0.1230606 per Common Share for aggregate gross proceeds of CAD$328k (approximately £200k). The Company also paid aggregate finders’ fees of CAD$16k (approximately £10k).
e) On 2 August 2017, the Group closed a non�brokered private placement of 666,666 Common Shares at a price of CAD$0.1230606 per Common Share for aggregate gross proceeds of CAD$82k (approximately £50k). The Company also paid aggregate finders’ fees of CAD$4k (approximately £2.5k).
f) On 11 September 2017, the Group closed a non�brokered private placement of 3,600,000 Common Shares at a price of CAD$0.11 per Common Share for aggregate gross proceeds of CAD$404k (approximately £252k). The Company also paid aggregate finders’ fees of CAD$20k (approximately £13k).
g) On 27 September 2017 the Company announced that a Director of the Company has exercised options to purchase 1,000,000 Common Shares at a price of CAD$0.10 per Common Share and a total cost of CAD$100,000 (approximately £60k).
h) On 28 September 2017 Andrea Cattaneo, agreed to exchange part of his salary for the first two quarters of 2018 for the equivalent of CAD$2.5k per month and a total of CAD$15k (approximately £9k) for 111,131 Common Shares at an average price of approximately CAD$0.14 per share for the period 1 April 2017 until 30 September 2017.
i) On 12 October 2017 an investor in the Company exercised warrants to acquire 2,049,775 new Common Shares. The exercise price of the warrant was CAD$0.15 per share, and the total consideration received was CAD$307k (approximately £186k).
j) On 16 October 2017 Andrea Cattaneo purchased 500,000 Common Shares at an average price of CAD$0.15591 per Common Share (approximately £0.09415), and at a total cost of CAD$78k (approximately £47k)
k) On 19 October 2017 warrants to acquire 1,257,875 Common Shares were exercised by an investor of an exercise price of CAD$0.15 per Commons Share, and the total consideration received was CAD$189k (approximately £114k).
l) On 23 October 2017 warrants to acquire 1,306,050 Common Shares were exercised by an investor at an exercise price of CAD$0.20 per share, and the total consideration received was CAD$261k (approximately £160k).

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m) On 2 November 2017 warrants to acquire 500,000 new Common Shares were exercised by an investor of an exercise price of CAD$0.15 per Commons Share, and the total consideration received was CAD$75k (approximately £44k).
n) On 8 November 2017 warrants to acquire 1,612,142 Common Shares were exercised by an investor of an exercise price of CAD$0.20 per Common Share, and the total consideration received was CAD$322k (approximately £195k).
o) On 21 November 2017 warrants to acquire 3,150,000 Common Shares were exercised by an investor of an exercise price of CAD$0.15 per Common Share, and the total consideration received CAD$473k (approximately £284k).
p) On 23 November 2017 Andrea Cattaneo, exercised options to acquire 2,000,000 Common Shares at an exercise price of CAD$0.10 (approximately £0.059) per Common Share and at a total cost of CAD$200,000 (approximately £118,000).
q) On 8 December 2017 warrants to acquire 400,000 Common Shares were exercised by an investor of an exercise price of CAD$0.20 per Common Share, and the total consideration received CAD$80k (approximately £47k).
r) On 15 December 2017 a Director of the Company exercised stock options to acquire 1,000,000 new Common Shares. The exercise price of the options was CAD$0.15 per share, and the total consideration received CAD$150k (approximately £87k).
s) On 18 December 2017 a Director and a component of the main management of the Company exercised stock options to acquire 1,650,000 new Common Shares. The exercise price for 900,000 options was CAD$0.10 and for 750,000 options was CAD$0.15 per share, and the total consideration received CAD$203k (approximately £122k). On 18 December 2017 an investor in the Company exercised warrants to acquire 100,000 new Common Shares. The exercise price of the warrants was CAD$0.20 per share, and the total consideration received CAD$20k (approximately £12k).
t) On 10 January 2018 the Company closed a private placement to raise gross proceeds of CAD$500k (approximately £297k) through the issue of 4,000,000 new Common Shares at a price of CAD$0.125 (approximately £0.0742) per new Common Share (the “Canadian Placing Shares”).
u) On 24 January 2018 the Company completed a placing in the UK (the “January Placing”) to raise gross proceeds of £678k (approximately CAD$1,158k) by issuing 9,000,000 new Common Shares at a price of £0.0742 (approximately CAD$0.1287) per new Common Share. The Company also paid finder’s fee for £34k (approximately CAD$58k) and under the terms of the Placing, the broker was issued 180,000 warrants in the Company, priced at £0.0925, with an expiry date of two years.
v) On 24 January 2018 the Company agreed to issue 1,598,579 common shares (the “Settlement Shares”) at a deemed price of CAD$0.14 to settle a debt of US$180,000 owed by the Company (the “Share Settlement”). The Settlement Shares, issued pursuant to the Share Settlement, will be subject to a contractual hold period of one year, inclusive of a four�month hold period under the rules and regulations of the TSXV and applicable Canadian securities laws and subject to final approval by the TSXV.
w) On 4 May 2018 Mr Cattaneo fully exchanged his salary for the financial year to 31 March 2018 for Common Shares. As a result, the Company issued Mr Andrea Cattaneo 1,123,068 Common Shares at an average price of CAD$0.165 (approximately £0.094) for the period from 1 April 2017 to 31 March 2018 (the “ Salary Sacrifice Shares ”). The amount of the Salary Sacrifice Shares was calculated based on Mr Cattaneo’s salary as at 1 April 2017.

The Company is making an application for listing on the Official List and admission to trading on the Main Market of the London Stock Exchange for the Admission Shares (totalling 5,598,579 Common Shares, comprising the Settlement Shares and the Canadian Placing Shares) alongside the Placing Shares. Accordingly, at the date of this Document, the Company has 159,921,766 Common Shares in issue and admitted to trading on the TSXV and 153,200,119 Common Shares in issue and admitted to trading on the Main Market of the London Stock Exchange.

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4 Outstanding Warrants

As at 1 June 2018 (being the latest practicable date before publication of this Document) the Company had 17,804,706 Warrants outstanding relating to 17,804,706 Common Shares and exercisable at a weighted average exercise price of $0.23 per Common Share.

		Number of
Type	Grant Date	Warrants	Price per warrant	Expiry Date
Warrants	June�16	250,000	0.15	June�18
Warrants	August�15	390,000	0.25	August�18
Warrants	September�15	1,350,000	0.25	September�18
Warrants	November�15	4,187,500	0.25	November�18
Warrants	October�16	600,000	0.20	September�18
Warrants	November�16	732,920	0.20	November�18
Warrants	January�17	1,114,286	0.11	January�19
Warrants	January�17	9,000,000	0.24	January�19
Warrants	January�18	180,000	0.16	January�20
		11111
	TOTAL WARRANTS	17,804,706
		33333

5 Loans

5.1 USD $2,050,000 Loan from Jiu Feng Investment Hong Kong Limited

On 20 January 2011, the Company entered into a loan agreement with Jiu Feng Investment Hong Kong Limited (“ Jiu Feng ”), pursuant to which Jiu Feng agreed to lend the Company USD $2,000,000 (the “ USD Loan ”) to finance the acquisition of Argentinian properties and for working capital. All amounts advanced to the Company under the USD Loan and any interest accrued on such amounts were, save in certain specific circumstances, repayable on 20 January 2013. Interest was at the rate of USD $ Prime plus 6.75% on the outstanding balance of the principle sum owing and any overdue interest.

The parties have entered into a number of subsequent agreements to amend, principally, the repayment schedule of the USD Loan. By a letter dated 22 November 2012, from Jiu Feng to the Company, the maturity date of the USD loan was extended to 21 July 2013. On 1 June 2013, the parties entered into an amended and restated loan agreement which confirmed the principal amount of the USD Loan as being USD $2,050,000. Under the amended and restated agreement, interest is payable at a rate of 10% per annum. The term of the USD Loan was 24 months. The Company is entitled to repay (in whole or in part) the principal and interest without penalty. Under the amended and restated agreement, the Company granted a pledge over the shares in its subsidiary, Ingenieria Petrolera Patagonia Ltd. The Company also agreed to use its best efforts to cause its subsidiary Petrolera Patagonia Corporation Inc. to grant a security interest over the Group’s Argentine operations as security for the USD Loan. In addition, the amended and restated agreement provides that (i) the Company will use its best efforts to obtain all regulatory approvals necessary to convert the USD Loan into bonds registered to Jiu Feng (or its nominee) and (ii) subject to approval from the TSXV and all other regulatory approvals, to issue common share purchase warrants to Jiu Feng to purchase up to 5,000,000 common shares in the capital of the Company at an exercise price of USD $0.10 per common share (such warrants expiring on the maturity date of the loan).

On 30 July 2014, the parties entered into an amendment agreement, pursuant to which the term of the USD Loan under the amended and restated loan agreement dated 1 June 2013 was extended to 36 months.

On 22 May 2015, the parties entered into a further amendment agreement to amend the repayment schedule and extend the maturity date of the USD Loan to 30 August 2016. Pursuant to the agreement, the Company agreed to make repayments of principal and interest in the amount of US $17,200 per month from 1 June 2015 to 30 August 2016, a US $700,000 payment on 30 November 2015, a US $1,000,000 payment on 15 April 2016 and a final payment of approximately US $485,336.78 on 30 August 2016. The Company made and applied the monthly US $17,200 payments from June to 31 December 2015 against accrued interest. The US $700,000 payment due on 30 November 2015 was not made.

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On 21 December 2015, the parties entered into a further amendment agreement to amend the USD Loan repayment schedule and extend the maturity date from 30 August 2016 to 31 March 2018. Pursuant to the amended agreement, the Company agreed to make repayments of US $20,000 per month from 5 April 2016, a US $700,000 payment on 28 February 2016 and a final payment of approximately US $1,485,337 on 31 March 2018. Failure to perform the repayment schedule under this amendment entitled Jiu Feng to accelerate the principle outstanding and claim for all overdue interest at a rate of 20% per annum. The terms of this amendment agreement also provide Jiu Feng with a “Debt to Equity Option” whereby Jiu Feng has the option to convert debt to “Debt�to�Equity Swap” in the Company or its subsidiaries (up to a maximum of 29.9%) in the event that the Company breaches the agreement and “plan to list its subsidiaries on a public market”. The loan agreement was also amended to add CAD$135k of accrued and unpaid interest to the principal amount of the loan increasing the principal to US $2,185k (CAD$2,835k). The US $700,000 payment due on 28 February 2016 was not made.

In August 2016, the Company entered into a further agreement with Jiu Feng to amend the existing arrangements between the parties in respect of the USD Loan. This agreement provides that as at August 2016, the total principal amount owed by the Company to Jiu Feng is US$2,135,336.70. The Company was required to make a US $700,000 payment on 15 October 2016.

A final payment of approximately US $1,485,336.70 was to be paid on 31 March 2018. In November 2016, the parties amended the terms of the USD Loan so that the initial repayment of USD$ 700,000 was required on 20 December 2016. In December 2016, the parties amended the terms of the USD Loan so that the initial repayment of USD$ 700,000 was required on 10 January 2017. In January 2017, the parties amended the terms of the USD Loan so that the initial repayment of USD$ 700,000 was required on 15 January 2017.

In January 2017 the Group repaid the USD 700k (CAD$943k) of the USD loan, utilizing part of the proceeds from the fundraising aligned with the listing on the London Stock Exchange of 11 January 2017. The President, CEO and Director of the Group, has provided a personal guarantee to the lender in respect of the repayment of the USD Loan by the Group. The final payment of approximately USD$1,485k is repayable on 30 April 2018.

The President, CEO and Director of the Group, has provided a personal guarantee to the lender in respect of the repayment of the USD Loan by the Group and the final payment of approximately USD$1,485k is repayable on 31 July 2019, pursuant to an agreement between the parties dated 10 January 2018.

5.2 EUR 401,148.10 Loan from Eneco Trade S.r.l. (relating to the acquisition of a co�generation plant in Italy)

On 29 September 2015, Canoel Italia S.r.l. (“ Canoel ”) entered into an agreement with Eneco Trade S.r.l. (“Eneco”) for the acquisition of a co�generation plant which treats gas from the Masseria Vincelli 1 well in the Torrente Cigno concession in Italy for a total consideration of EUR 470,000. EUR 401,148.10 of the purchase price was in the form of a loan payable to Eneco. The loan is secured against the co�generation plant, bears interest at 3.5% per year and is repayable in 30 monthly instalments of principal and interest until 31 March 2018.

As at 31 December 2017, the principal balance of the loan was €56k (CAD$84k) of which $84k was classified as a current liability.

5.3 EUR 220,000 Loan from GBM Banca S.p.A

On 6 August 2015, Canoel entered into a loan agreement with GBM Banka S.p.A (“ GBM ”), pursuant to which GBM lent EUR 220,000 to Canoel. Canoel is required to repay the amount due over five years by paying 60 monthly instalments, each such instalment comprising part of the principal sum borrowed and part of the relevant accrued interest. Each instalment must be paid on the 30th day of each month, with the first instalment payable on 31 August 2015. GBM is entitled to debit the

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instalments directly from Canoel’s account. The loan is unsecured and interest payable on the loan is fixed at 7% per year.

As at 31 December 2017 the principal balance of the loan was €138k (CAD$206k) of which $68k was classified as a current liability and $138k is classified as non�current.

5.4 EUR 200,000 Loan from Banca Credito Valtellinese S.C.

On 17 December 2015, Canoel entered into a loan agreement with Banca Credito Valtellinese S.C. (Filiale di Tortona (AL)) (“BCV”), pursuant to which BCV lent EUR 200,000 to Canoel. Canoel is required to repay the amount due by paying 42 monthly instalments, each instalment comprising part of the principal sum borrowed and part of the relevant accrued interest. Each instalment must be paid on the 5th day of each month with the first instalment payable on 5 February 2016. BCV is entitled to debit the instalments directly from Canoel’s account. The loan is unsecured and interest payable on the loan is fixed at 4.5% per year.

As at 31 December 2017 the principal balance of the loan was €94k (CAD$140k) of which $92k was classified as a current liability and $48k is classified as non�current.

5.5 USD $320,000 General Line of Credit Agreement

On 5 April 2017, the Group’s wholly�owned subsidiary, Zenith Aran, entered into a general line of credit agreement with Rabitabank Open Joint Stock Company (“ Rabitabank ”) up to an amount of USD $320k (CAD$416,000), for industrial and production purposes. The loan drawn down in one tranche and as at 06 April 2017 it was fully drawn down. Rabitabank can postpone or suspend the facility if there is a decline in oil production under the REDPSA of more than 30% from production levels as at the date of first drawdown, or if the REDPSA is terminated.

This Credit Agreement bears interest at a rate of 11% per annum. The loan is guaranteed by the Group. The loan was granted for a one�year term. The principal is repayable in 4 quarterly equal tranches. The amount of interest to be paid on a monthly basis.

On 6 July 2017 the terms of repayment of the loan were amended and the first repayment of principal of USD$80k was delayed to the end of July 2017.

On 31 July 2017 USD$20k (CAD$21k) was repaid and the balance of USD$60k (CAD$63k) was agreed to be repaid on 1 September 2017. A subsequent credit committee decision taken in September 2017 amended the payment terms of the loan and the balance of the principal amount (USD$280k) was required to be repaid on 6 April 2018.

In March 2018, the repayment of the principal amount (USD$280k) was extended by one year until 6 April 2019.

As of 31 December 2017, the outstanding principal amount of US$280k (CAD$350k) was classified as a current liability. As of 31 March 2018, the outstanding principal amount is USD$280k (CAD$357k) is classified as a non�current liability.

5.6 USD $200,000 General Line of Credit Agreement

On 12 April 2017, Zenith Aran entered into a general line of credit agreement with Rabitabank up to USD$200k (CAD$260,000). This Credit Agreement bears interest at a rate of 10% per annum. The loan was granted for one�year period and the principal amount of the loan will be paid at the end of the period. The amount of interest is repayable monthly. The loan is guaranteed by the Group.

In March 2018, the repayment of the principal amount (USD$200k) was extended by 15 months until 12 July 2019. The interest is payable on a monthly basis and the principal amount will be paid in five quarterly installments of 40 000 USD.

As of 31 March 2018, the amount of USD$200k (CAD$255) was classified as a current liability for USD$160k (CAD$206), and as a non�current liability for USD$40k (CAD$49).

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5.7 Swiss loan CHF 837,500

As at 31 December 2017 the principal balance of the loan was CHF734k (CAD$941k) of which CAD$67k was classified as a current liability and CAD$874k was classified as non�current.

5.8 Swiss loan CHF 1,000,000

On 30 March 2017 the Group acquired the Swiss based company Altasol SA, and assumed a loan subscribed by the former owner on 21 December 2015 for the initial amount of CHF1,000k (CAD$1,280k). The loan bears interest at a rate of 2.2% per annum. The loan is repayable on 2 July 2019 (plus accrued interest).

As at 31 December 2017 the principal balance of the loan was CHF1,000k (CAD$1,279k) and was classified as a non�current liability.

5.9 Credit Agreement with Rabitabank dated 5 April 2017

Pursuant to a credit agreement dated 5 April 2017 between the company and Rabitabank, Rabitabank agreed to provide the Company with a loan for $320,000 (US dollars). The loan is granted for a period of 12 months with 25% of the principal amount of the loan paid at the end of 3 months and the amount of interest paid monthly, with the annual interest rate of the loan being 11%. The loan was granted for use for payments purposes. All costs in relation to the loan are to be paid at the expense of the Company. The agreement contains customary obligations and undertakings given by the Company to Rabitabank.

5.10 Credit Agreement with Rabitabank dated 12 April 2017

Pursuant to a credit agreement dated 12 April 2017 between the Company and Rabitabank, Rabitabank agreed to provide the Company with a loan for $200,000 (US dollars). The loan is granted for a period of 12 months with the principal amount of the loan paid at the end of the period and the amount of interest paid monthly, with the annual interest rate of the loan being 10%. The loan was granted for use for payments purposes. All costs in relation to the loan are to be paid at the expense of the Company. The agreement contains customary obligations and undertakings given by the Company to Rabitabank.

5.11 Short�term Non�Convertible loan agreement dated 5 April 2018

On 3 April 2018, the Company entered into a five�month non�convertible loan agreement for the total amount of £230,000. The loan has a repayment schedule of five instalments commencing on 6 May 2018 with an interest rate of 7.5 percent and can be settled at any time without penalty.

Mr Andrea Cattaneo has agreed to act as a third�party guarantor in support of the Company by pledging a total of 3,571,428 common shares in the Company, in which he has a direct beneficial interest, as collateral to the lender.

5.12 Short�term Non�Convertible loan agreement dated 25 May 2018

On 24 May 2018, the Company entered into a two�year non�convertible loan facility, (the “ Facility ”), for a total amount of up to US$2,000,000.

The Facility will be used to provide additional funding for the Company’s operations when required. It will be drawn down in tranches, with each tranche being payable four months from the drawdown date. It can be settled at any time without penalty and has no warrants attached.

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5.13 Summary of the Notice of Articles and Articles of the Company

The following summarizes certain provisions in respect of the amended and restated articles of the Company (together with the Notice of Articles of the Company, the “ Articles ”). This summary of the Articles does not purport to be complete and is subject to and is qualified in its entirety by the Articles.

5.14 Restrictions on objects/business

The Articles contain no restrictions on the Company’s principal objects or the type of business that may be carried out by the Company.

5.15 Shares

The Company is authorized to issue an unlimited number of common shares and preferred shares (issuable in series), having attached thereto the rights, privileges, restrictions hereinafter set forth.

The authorized share structure of the Company consists of shares of the class and series, if any, described in the Notice of Articles of the Company.

Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act (British Columbia).

5.16 Articles

The rights attaching to the Common Shares, as set out in the Articles, contain, amongst others, the following provisions:

(a) Rights of Shareholders

(i) The holders of Common Shares shall be entitled to receive notice of, and to vote at every meeting of the shareholders of the Company and shall have one (1) vote thereat for each such Common Share so held.
(ii) Subject to the rights, privileges, restrictions and conditions attached to any preferred shares of the Company, the holders of Common Shares shall be entitled to receive such dividends as the Directors may from time to time, by resolution declare.
(iii) Subject to the rights, privileges, restrictions and conditions attached to any preferred shares of the Company, in the event of liquidation, dissolution or winding up of the Company or upon any distribution of the assets of the Company among shareholders being made (other than by way of dividend out of the monies properly applicable to the payment of dividends) the holders of Common Shares shall be entitled to share pro rata .

(b) Variation of rights

Subject to the Business Corporation Act, the Company may by special resolution:

(i) create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or
(ii) vary or delete any special rights or restriction attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.

(c) Transfers of Common Shares

A transfer of a Common Share of the Company must not be registered unless:

(i) a duly signed instrument of transfer in respect of the share has been received by the Company;
(ii) if a share certificate has been issued by the Company in respect of the share to be transferred, that share certificate has been surrendered to the Company; and

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(iii) if a non�transferable written acknowledgment of the shareholder’s right to obtain a share certificate has been issued by the Company in respect of the share to be transferred, that acknowledgment has been surrendered to the Company.

Other than described above, there are no provisions in the Company’s Articles limiting the transfer of the Common Shares.

(d) Payment of dividends

Subject to the Business Corporations Act (British Columbia), the Directors may from time to time declare and authorize payment of such dividends as they may deem advisable.

The Directors may set a date as the record date for the purpose of determining shareholder entitled to receive payment of a dividend. The record date must not precede the date on which the dividend is to be paid by more than two months. If no record date is set, the record date is 5 p.m. on the date on which the Directors pass the resolution declaring the dividend.

All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

No dividends bears interest against the Company.

Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom is sent, and mailed to the address of the shareholder.

(e) Borrowing powers

The Company, if authorized by the Directors, may:

(i) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;
(ii) issue bonds, debentures and other debt obligations either outright or as security for any liability of obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate;
(iii) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
(iv) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

(f)

Directors

(i) Directors shall be elected by an ordinary resolution of Shareholders or approved by a resolution of the Directors.
(ii) The minimum number of Directors is three and there is no maximum number of Directors.
(iii) Each Director ceases to hold office prior to the election of Directors at an annual general meeting.
(iv) The Directors may, at any time, appoint a person to be a Director either to fill a vacancy or as an addition to the existing Directors. Where a person is appointed to fill a vacancy, or as an additional Director (provided that the number of additional Directors must not exceed one third of the number of Directors elected at the last annual general meeting), the term shall not exceed the term that remained when the person who has ceased to be a Director ceased to hold office.
(v) A Director may be removed from office:

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(A) with or without cause, by a special resolution of Shareholders passed at a meeting of Shareholders called for the purposes of removing the Director or for purposes including the removal of the Director; or
(B) if a Director is no longer qualified to act.
(vi) No shareholding qualification is required by a Director.
(vii) The Directors may by resolution of the Directors appoint officers of the Company at such times as may be considered necessary or expedient.

(g) Meetings of Shareholders

The Directors may call meetings of the Shareholders at such times and in such manner and at such places as they consider necessary or desirable, subject to the provisions of the Articles and the Business Corporations Act (British Columbia). In addition, the Directors will convene a meeting of Shareholders upon the written requisition of Shareholders entitled to exercise 5% or more of the issued shares that carry the right to vote at the meeting.

An annual general meeting of the Shareholders shall be called by at least 21 days’ notice.

The accidental omission to give notice of a meeting to a Shareholder or another Director, or the fact that a Shareholder or another Director has not received notice, does not invalidate the meeting. A Shareholder may be represented at a meeting of Shareholders by a proxy who may speak and vote on behalf of the Shareholder. The instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice of the meeting may specify an alternative or additional place or time at or by which the proxy shall be presented.

(h) Pre�emption rights of Shareholders

There are no provisions in the Articles that require new Common Shares to be issued on a pre� emptive basis to existing Shareholders.

6 Stock Option Plan

6.1 Background

The purpose of the Stock Option Plan is to provide an incentive to the directors, officers, employees, consultants and other personnel of the Company or any of its subsidiaries to achieve the longer�term objectives of the Company, to give suitable recognition to the ability and industry of such persons who contribute materially to the success of the Company and to attract and retain persons of experience and ability by providing them with the opportunity to acquire an increased proprietary interest in the Company.

6.2 Administration

The Directors are responsible for administering the Stock Option Plan and have full and final discretion to interpret its provisions and to prescribe, amend, rescind and waive the rules and regulations governing its administration and operation.

6.3 Eligibility

The Directors can designate those directors, officers, employees, consultants or other personnel of the Company or its subsidiaries who are granted Options (“ Optionholders ”) pursuant to the Stock Option Plan. Subject to the policies (the “ Exchange Policies ”) of the TSXV or any other stock exchange on which the Common Shares are listed (the “ Exchange ”) and certain other limitations, the Directors are authorized to provide for the grant and exercise of Options on such terms (which may vary as between Options) as they shall determine. No Option may be granted to any person except upon recommendation of the Board.

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6.4 Participation

Participation in the Stock Option Plan is entirely voluntary and any decision not to participate shall not affect an individual’s relationship or employment with the Company. The granting of an Option pursuant to the Stock Option Plan shall in no way be construed as conferring on any Optionholder any right with respect to continuance as a director, officer, employee or consultant of the Company or any of its subsidiaries. Options are not affected by any change of employment of the Optionholder or by the Optionholder ceasing to be a director, officer or a consultant of the Company or any of its subsidiaries where the Optionholder at the same time becomes or continues to be a director, officer, full�time employee or consultant of the Company or any of its subsidiaries.

6.5 Shares subject to Options

The number of authorized but unissued Common Shares that may be issued upon the exercise of Options granted under the Stock Option Plan at any time plus the number of Common Shares reserved for issuance under outstanding incentive stock options otherwise granted by the Company shall not exceed 10% of the issued and outstanding Common Shares as at the closing of the initial public offering of the Common Shares on the TSXV.

In addition, unless the Company receives the permission of the stock exchange or exchanges on which the Common Shares are listed to exceed such threshold, the Options granted under the Stock Option Plan together with all of the Company’s other previously established stock option plans or grants, must not result at any time in:

(a) the number of Common Shares reserved for issuance pursuant to Options granted to insiders (as defined in the Exchange Policies) exceeding 10% of the issued and outstanding Common Shares;
(b) the grant to insiders (as defined in the Exchange Policies) within a 12�month period, of a number of Options exceeding 10% of the outstanding Common Shares; or
(c) the grant to any one Optionholder within a 12�month period, of a number of Options exceeding 5% of the issued and outstanding Common Shares.

6.6 Option price and exercise price

Subject to prior termination under the Stock Option Plan, each Option and all rights thereunder expire on the date set out in the stock option agreement entered into between the Company and each Optionholder, which shall be the date of expiry of the period determined by the Board of Directors during which the Optionholder may exercise the Option (the “ Option Period ”). The Option Period cannot exceed a period of 5 years from the date the relevant Option is granted unless the Company receives the permission of the stock exchange or exchanges on which the Common Shares are then listed, and, in any event, no Option can be exercisable for a period exceeding 10 years from the date it is granted.

Subject to Exchange Policies and any limitations imposed by any relevant regulatory authority, the exercise price of an Option granted under the Stock Option Plan shall be as determined by the Board of Directors when such Option is granted and shall be an amount at least equal to the last per share closing price for the Common Shares on the Exchange before the date of grant of the Option (less any applicable discount under the Exchange Policies).

6.7 Exercise of Options

Subject to Exchange Policies, the Board of Directors may, in its sole discretion, determine the time during which an Option shall vest and the method of vesting, or that no vesting restriction shall exist.

Subject to any vesting limitations which may be imposed by the Directors at the time of grant of an Option, an Optionholder is generally entitled to exercise an Option granted to him at any time prior to the expiry of the Option Period. If an Optionholder ceases to be a director, officer, employee or consultant of the Company or its subsidiaries for any reason other than death, the Optionholder may within 90 days or prior to the expiry of the Option Period, whichever is earlier, exercise any Option held. If an Optionholder dies, the Option previously granted to him is exercisable within one year

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following the date of the death or prior to the expiry of the Option Period, whichever is earlier, by the person or persons to whom the Optionholder’s rights under the Option pass.

6.8 Anti�dilution

On certain variations to the share capital of the Company, the number of Common Shares comprised in existing Options may be adjusted so as to avoid the dilution of such Options.

6.9 Transferability of Options

No right or interest of any Optionholder under the Stock Option Plan is assignable or transferable.

6.10 Options granted to the Directors and Senior Managers

As at 19 June (being the latest practicable date prior to publication of this Document) the outstanding Options that have been granted to the Directors and Senior Managers or any member of their immediate families (“ Connected Persons ”), are as follows:

		Number of	Exercise
		options over	price
Name	Date of grant	Common shares	CAD$	Expiry date
Cattaneo Andrea	5 April 2018	5,221,429	0.12	5 April 2023
Regis Milano Luigi	5 April 2018	407,143	0.12	5 April 2023
Sodero Dario	18 November 2016	500,000	0.10	18 November 2021
	5 April 2018	203,571	0.12	5 April 2023
Lopez�Portillo Jose Ramon	18 November 2016	600,000	0.10	18 November 2021
	5 April 2018	244,286	0.12	5 April 2023
Larre Sture Erik	5 April 2018	703,571	0.12	5 April 2023
Saadallah Al�Fathy	5 April 2018	703,571	0.12	5 April 2023
Borovskiy Sergey	5 April 2018	703,571	0.12	5 April 2023
Benedetto Luca	5 April 2018	1,312,858	0.12	5 April 2023
Michael Palmer	18 May 2017	1,000,000	0.15	18 May 2022
		11111
	TOTAL	11,600,000
		33333

7 Financial assistance to purchase Common Shares of the Company or its holding company

The Company may give financial assistance to any person in connection with the acquisition of its own Common Shares, subject to applicable law.

8 Purchase of Common Shares

A company may, subject to applicable law and its articles, purchase, redeem or otherwise acquire and hold its own shares in the manner provided for under its articles.

Subject to any limitations in the memorandum or articles, shares that a company purchases, redeems or otherwise acquires may be cancelled or retained.

A company is not prohibited from purchasing and may purchase its own warrants subject to applicable laws and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under British Columbia law that a company’s articles contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its articles.

9 Protection of minorities

The Business Corporations Act (British Columbia) provides certain statutory remedies to Shareholders including derivative actions, personal actions and representative actions. The courts may consider claims by shareholders alleging that a company has acted in a manner aggressive or unfairly prejudicial to a shareholder.

The Business Corporations Act (British Columbia) further provides that any shareholder of a company is entitled to payment of the fair value of his shares upon dissenting from any of the following:

(a) certain amendments to the articles of the company;

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(b) a merger, if the company is a constituent company, unless the company is the surviving company and the shareholder continues to hold the same or similar class of shares;
(c) an amalgamation, other than in the case of certain wholly�owned companies;
(d) any sale, transfer, lease or other disposition of all or substantially all of the company’s undertaking other than in the orderly course of business;
(e) a continuation to a jurisdiction other than British Columbia; or
(f) an arrangement, if permitted by the court.

Generally, any other claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the British Columbia.

Amalgamations and arrangements generally require the approval of two thirds of the votes entitled to vote and voted at a meeting to approve the transaction.

Any sale, transfer, lease or other disposition of all or substantially all of the undertaking of the company other than in the ordinary course of business, requires the approval of two thirds of the votes entitled to vote and voted at a meeting to approve the transaction.

Shareholders dissenting from the proposal to dispose of 50% or more of the assets or from any arrangement (which may cover other types of reorganization or reconstruction of a company) are entitled to require the company to pay the fair value of their shares, in accordance with the procedures and conditions laid down by the Business Corporations Act (British Columbia).

In addition, the Company is subject to Multilateral Instrument 61�101 Protection of Minority Security Holders in Special Transactions, that regulates transactions such as “insider bids”, “issuer bids,” “business combinations” and “related party transactions” in order to ensure equal treatment of shareholders. Pursuant to the rule, certain transactions may be subject to valuation and shareholder voting requirements that are in addition to those imposed by the Business Corporations Act (British Columbia) and the rules of the TSXV.

10 Management

The Company is managed by its Directors, consisting of not less than three directors. Directors are required under the Business Corporations Act (British Columbia) to act honestly and in good faith with a view to the best interests of the company, and to exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances. As outlined above, certain actions require prior approval of the Shareholders, as a matter of statute. While the Company may provide certain indemnity for its Directors, the Business Corporations Act (British Columbia) precludes the Directors from taking advantage of such indemnities unless they act honestly and in good faith and in what they believed to be in the best interests of the Company, and in the case of criminal proceedings, where the Director had no reasonable cause to believe that his conduct was unlawful.

11 Inspection of corporate records

Shareholders are entitled to inspect the Articles, the register of directors and other documents listed in the Business Corporation Act at the records office.

12 Winding up

The Business Corporations Act (British Columbia) makes provision for both voluntary and compulsory winding up of a company. The shareholders may resolve to appoint a voluntary liquidator.

13 Takeovers

The Business Corporations Act (British Columbia) and Canadian securities legislation govern takeover bids for Canadian companies incorporated in the Province of British Columbia. A takeover bid is generally defined as an offer to acquire outstanding voting or equity securities of a class, made to any holder in the local jurisdiction of the securities, if such securities, together with the securities held by the offeror and any person acting jointly or in concert with the offeror would constitute 20% or more of the outstanding securities of that class, in the aggregate, at the date of the offer. A takeover bid must be made to all holders of securities of the class subject to the bid who are in the local jurisdiction (with limited exceptions) and must allow those

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holders at least 105 days to deposit securities pursuant to the bid. Notwithstanding the foregoing, the Canadian Securities Administrators have adopted a policy permitting them to issue a cease trade order in the event the takeover offer is not made to all Canadian security holders.

The availability of a takeover bid to shareholders residing outside Canada will be dependent on whether such takeover bid may be made to such non�Canadian shareholders pursuant to applicable legislation of the jurisdiction in which the non�Canadian shareholders resides and the actions of the offeror.

A takeover bid circular will be delivered to the security holders by the offeror detailing the terms of the bid. The directors of the reporting issuer (in this case, the Company) would then be required to deliver a directors’ circular within 15 days of the date of the bid. The directors’ circular would set out the Board’s recommendation to accept or reject the bid, including reasons therefor or a statement that the Board is unable to comment and providing reasons in support of that position.

The Business Corporations Act (British Columbia) permits an acquiror who has been successful in acquiring 90% of the shares of a company (excluding those shares already held by the acquiror), to, within four months of making the offer to acquire such shares, send written notice to any shareholder who did not accept the offer, compelling them to sell their shares on the same terms as contained in the original offer. The tendering obligation is subject to the right of the shareholder to make application to the court, which may set the terms of the transaction and make any other consequential orders it deems fit. There is no reciprocal mechanism under Canadian law permitting a shareholder who refuses the original offer to compel the acquiror to acquire its shares on the terms of the original offer.

Significant amendments to the takeover bid regime in Canada came into force on 9 May 2016. Among other things the amendments:

(a) have a mandatory tender condition that a minimum of more than 50% of all outstanding securities of the class subject to the bid be tendered and not withdrawn before the bidder can take up any securities under the bid (the “ New Mandatory Minimum Tender Condition ”);
(b) the bid must be extended by the bidder for at least 10 days once the New Mandatory Minimum Tender Condition has been satisfied and all other terms and conditions of the bid have been complied with or waived; and
(c) the bid must remain open for a minimum deposit period of 105 days. A target company will be allowed to reduce the deposit period to not less than 35 days in certain circumstances and subject to certain conditions.

14 Disclosure of Interests in Common Shares

The Company is a reporting issuer in Canada and is subject to Canadian securities laws. Pursuant to such laws, when a person (an “ Acquiror ”) acquires beneficial ownership of, or the power to exercise control or direction over, or securities convertible into, voting or equity securities of any class of a reporting issuer (such as the Company) that, together with such Acquiror’s securities would constitute 10% or more of the outstanding securities of that class, the Acquiror must immediately issue and file a press release announcing the acquisition and file a report of the acquisition with the applicable securities regulatory authority within two business days thereafter. Certain institutional investors may elect an alternate reporting system. The Acquiror has a continuing obligation to disclose each further acquisition or disposition of a beneficial ownership of, the power to exercise direction or control over, or securities convertible into an additional 2% or more of the outstanding securities of the applicable class.

The Company is required by Form 51�102F5 of National Instrument 51�102 – Continuous Disclosure Obligations, to disclose in its information circulars whether, to the knowledge of the Company’s Directors or executive officers, any person or company beneficially owns, or controls or directs, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to any class of voting securities of the Company.

15 Directorships and partnerships

In addition to their respective roles and directorships at the Company and its subsidiaries, the Directors have been, members of the administrative, management or supervisory bodies (the “ directorships ”) or partners of the following companies or partnerships, at any time in the five years prior to the date of this Document.

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Name Current directorships/partnerships Previous directorships/partnerships Jose Ramon Hybridair Ltd — — Lopez�Portillo World SkyCat Ltd Luigi Regis Milano DP Lubrificanti S.r.l — Andrea Cattaneo — Belpeso Ltd. Dario E. Sodero Planaval Resources Ltd. Cygam Energy Inc. Rockbridge Resources Inc. — Sergey Borovskiy Sanju Hong Kong General Transaction Inc. PetroChemical Solution South China Heavy Industries Group Erik Larre Black Sea Property Larre Eiendom AS EME Int. Ltd Rom Real Ltd German Property AS Sparebank 1 Nord – Norge Bank TF Italia S.r.l Tonsenhagen Forrenthingssentrum AS Tonsenhagen Forrenthingssentrum 2 Saadallah Al�Fathi — —

16 Directors’ confirmations

16.1 Save as set out beloew and as at the date of this Document, none of the Directors has, at any time within the last five years:
(a) had any convictions in relation to fraudulent offences;
(b) been associated with any bankruptcy, receivership or liquidation while acting in the capacity of a member of the administrative, management or supervisory body or senior management of any company or other entity;
(c) been subject to any official public incrimination and/or sanctions by any statutory or regulatory authorities (including any designated professional bodies); or
(d) ever been disqualified by a court from acting as a director of a company or from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer.

Andrea Cattaneo was appointed as a director of PEX Plc on 20 December 1995, a company listed on the main market of the London Stock Exchange, manufacturing socks, holder of the brands Pex and Bridgedale. Following a severe deterioration of the market in which PEX Plc operated, on 5 November 1999 PEX Plc was placed into administration ultimately resulting in its insolvent liquidation.

16.2 Certain Directors of the Company are also directors of other oil and gas companies and as such may, in certain circumstances, have a conflict of interest requiring them to abstain from certain decisions. Conflicts, if any, will be subject to the procedures and remedies set out in the Articles and the Business Corporations Act (British Columbia). Save as set out below, as at the date of this Document there are no potential conflicts of interest between any duties owed by the Directors, the Proposed Director or the Senior Manager of the Company and their private interests or other duties:
(a) Luigi Regis Milano is a director do DPL Raffineria S.r.l., a company which operates in the oil and gas sector; and
(b) Dario Sodero is the is the President and sole director of Planaval Resources Ltd, and a director of RockBridge Resources Inc., two oil and gas companies.

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17 Directors’ and other interests

17.1 In addition to the Options and Warrants referred to in paragraphs 17.2 and 17.3 below, respectively, the interests (beneficial or non�beneficial) in the shares of the Company or any of its subsidiaries held by the Directors and their respective Connected Persons as at the date of this Document, as well as the anticipated interests of such persons immediately following Admission, are as follows:

	As at the date of	As at the date of	Immediately following the	Immediately following the
	this Document		Placing and Admission
	1111111111		1111111111
				Percentage of
		Percentage		Enlarged
		of issued	Number of	Common
	Number of	Common	Common	Shares in
Name	Shares	Shares (%)	Shares	Issue (%)
Jose Ramon Lopez�Portillo	48,000	0.03	48,000	—
Luigi Regis Milano(1)(2)	4,495,740	3.19	4,495,740	—
Andrea Cattaneo	4,595,116	2.89	4,595,116	—
Dario E. Sodero(3)	77,500	0.05	77,500	—
Erik Larre(4)	4,334,068	3.07	4,334,068	—
Saadallah Al�Fathy	—	—	—	—
Sergey Borowskiy	—	—	—	—

Notes:

(1) Luigi Regis Milano also holds a minority interest of 1.35% in Company’s subsidiary, Canoel Italia S.r.l.
(2) The 4,495,740 Common Shares stated for Luigi Regis Milano are held: (i) 3,495,740 shares by Pole Position SRL, a company controlled by members of Regis Milano’s immediate family; and (ii) 1,000,000 shares directly by Regis Milano. The relevant members of Mr. Regis Milano’s immediate family own 100% of the share capital of Pole Position SRL. Mr. Regis Milano is also the sole director of Pole Position SRL.
(3) The 77,500 Common Shares in which Dario Sodero has a beneficial interest are held by Planaval Resources Ltd., a company controlled by Mr Sodero. Mr Sodero owns 100% of the share capital of Planaval Resources Ltd.
(4) The 4,334,068 Common Shares in which Erik Larre has a beneficial interest are held by Tonsenhagen Forretningssentrum, a company controlled by Mr. Larre. Mr. Larre owns 100% of the share capital of Tonsenhagen Forretningssentrum.
17.2 As at 19 June 2018 (being the latest practicable date prior to publication of this Document) the Warrants held by the Directors and their respective Connected Persons, are as follows:

		Number
		of shares	Exercise
		covered by	Price	Expiry
	Grant date	the warrants	(CAD$)	Date
Andrea Cattaneo	7 November 2016	583,333	0.20 7 November 2018
Luigi Regis Milano	—	—	—	—
Dario Sodero	—	—	—	—
Erik Larre	—	—	—	—
Jose Ramon Lopez�Portillo	—	—	—	—
Saadallah Al Fathy	—	—	—	—
Sergey Borowskiy	—	—	—	—

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17.3 As at the date of this Document, the Options set out in paragraph 6.10 above have been granted to the Directors pursuant to the Stock Option Plan.

		Number of	Exercise
		options over	price
Name	Date of grant	Common shares	CAD$	Expiry date
Cattaneo Andrea	5 April 2018	5,221,429	0.12	5 April 2023
Regis Milano Luigi	5 April 2018	407,143	0.12	5 April 2023
Sodero Dario	18 November 2016	500,000	0.10	18 November 2021
	5 April 2018	203,571	0.12	5 April 2023
Lopez�Portillo Jose Ramon	18 November 2016	600,000	0.10	18 November 2021
	5 April 2018	244,286	0.12	5 April 2023
Larre Sture Erik	5 April 2018	703,571	0.12	5 April 2023
Saadallah Al�Fathy	5 April 2018	703,571	0.12	5 April 2023
Borovskiy Sergey	5 April 2018	703,571	0.12	5 April 2023
		11111
	TOTAL	9,287,142
		33333

17.4 Save as disclosed in paragraphs 17.1, 17.2 and 17.3 above, no Director or their respective Connected Persons has, nor will they have immediately following Admission, any interest (whether beneficial or non�beneficial) in the share or loan capital of the Company or any of its subsidiary undertakings.
17.5 Under Canadian law, any person or company that has beneficial ownership of, or control or direction over, whether direct or indirect, or a combination of beneficial ownership of, and control or direction over, whether direct or indirect, securities of an issuer carrying more than 10% of the voting rights attached to all the issuer’s outstanding voting securities, including securities (issued and unissued) that the person or company is the beneficial owner of, which are convertible into voting securities within 60 days following that date, or has a right or obligation permitting or requiring the person or company, whether or not on conditions, to acquire beneficial ownership of the security within 60 days, by a single transaction or a series of linked transactions, is required to notify their holdings publicly. As at 30 December 2016 (being the latest practicable date before publication of this Document), in addition to the interests of the Directors, the Proposed Director and the Senior Manager and their respective Connected Persons disclosed in paragraphs 17.1, 17.2 and 17.3 above, the Company is not aware of any Shareholders that have a notifiable interest under Canadian law (“ Major Shareholders ”).
17.6 The Company is not aware of any Major Shareholders that intend to participate in the Placing and the Directors and the Senior Managers have not made any applications in respect of the offer of Placing Shares.
17.7 Immediately following Admission, as a result of the Placing, the Directors expect that a number of persons will have an interest, directly or indirectly, in at least 3% of the voting rights attached to the Company’s issued Common Shares. Such persons will be required to notify such interests to the Company in accordance with the provisions of Chapter 5 of the Disclosure Guidance and Transparency Rules sourcebook, and such interests will be notified by the Company to the public.
17.8 As at 19 June 2018 (being the latest practicable date prior to the publication of this Document), the Company was not aware of any person or persons who, directly or indirectly, jointly or severally, exercise or could exercise control over the Company nor is it aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company.
17.9 Those interested, directly or indirectly, in 3% or more of the issued Common Shares of the Company do not now and, following the Placing and Admission, will not have, different voting rights from other holders of Common Shares.

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18 Directors’ terms of employment

The Directors and their functions are set out in Part 11: “ Directors, Senior Management and Corporate Governance ”. The Directors are appointed at each annual general meeting of the Shareholders (each an “ AGM ”) and may also be appointed at a special meeting of shareholders if one of the purposes for which the meeting was called was the election of directors. Directors will hold office until the close of the next AGM or until a successor is duly elected or appointed or his or her office is earlier vacated in accordance with the Business Corporations Act (British Columbia) and the Articles of the Company.

The Directors’ may receive an annual retainer, meeting fees plus options (which options are set within the guidelines prescribed by the TSXV) and expense reimbursements. The Remuneration Committee is responsible for reviewing and recommending to the Board the retainer and fees to be paid to members of the Board.

A Director’s term of office is terminable in accordance with the provisions of the Business Corporations Act (British Columbia). Pursuant to the Business Corporations Act (British Columbia), a director will cease to hold office by reason of: (i) death or resignation; (ii) expiration of his or her term of office; or

(i) removal or disqualification in accordance with the provisions of the Business Corporations Act (British Columbia). A director may be removed from office if the shareholders of a corporation so vote by special resolution or otherwise as provided for in the Articles. A director may become disqualified if:
(ii) he is less than 18 years of age; (ii) is found by a court to be of unsound mind; (iii) is an undischarged bankrupt; or (iv) is convicted of an offense involving fraud. Further details of the terms of employment of each Director are set out below.

The Company has a Board that it believes has the expertise to identify, select and complete successful acquisitions and to manage the Group.

For the current financial year, the Directors will be entitled to receive a fee to be determined by the Remuneration Committee following Admission.

The Directors are subject to the Canadian common law fiduciary duty in respect of the Company which obliges them not to disclose the confidential information of the Company and to act honestly and in good faith, with a view to the best interests of the Company. Mr Lopez�Portillo, Mr Sodero, Mr Salimbeni and Mr Larre do not have a service contracts with the Company or any other member of the Group. Details of the Directors are set out at paragraph 2.1 of Part 11 of the Prospectus.

19 Personnel

19.1 As at 19 June 2018 (being the latest practicable date prior to publication of this Document) the Company and its subsidiaries had 208 full time employees based in its offices in London in the UK, Baku in Azerbaijan and Genoa in Italy.
19.2 The daily operations and maintenance of producing fields in Italy are managed, on behalf of Canoel Italia S.r.l., by a leading service company that employs more than 12 work units for the management of the wells. These numbers are not included in the roster of the Company’s employees.

20 Working Capital

The Company is of the opinion that, taking into account the Net Proceeds receivable by the Company, the working capital available to the Group is sufficient for its present requirements, that is for at least the next 12 months from the date of this Document.

21 Significant change

Save for the following changes, there has been no significant change in the trading or financial position of the Company since 31 December 2017, being the end of the last financial period for which the interim financial information to have been published:

(a) On 10 January 2018 the Company closed the placement of the Canadian Placing Shares. The proceeds of this placement will be used to purchase equipment for the development of the Company’s oil production operations in Azerbaijan. The Company paid finder’s fee of £3k (approximately CAD$5k) in connection with this placement.

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(b) On 24 January 2018 the Company completed the January Placing. The Company paid finder’s fees of £34k (approximately CAD$58k) in connection with the January Placing.
(c) The Company incurred CAD$2,487k of capital expenditure in the three months ended 31 December 2017, primarily resulting from the workover field development programme underway in Azerbaijan.

22 Litigation

There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) since the Company’s incorporation which may have, or have had in the recent past, significant effects on the financial position or profitability of the Company.

23 City Code

The City Code does not apply to the Company. There are no Canadian laws relating to the Common Shares and squeeze�out and/or sell�out rules, save as provided by the Business Corporations Act (British Columbia) and Canadian securities laws (as to which see the paragraph 14 of this Part 18).

24 Material contracts

The following are all of the contracts (not being contracts entered into in the ordinary course of business) that have been entered into by the Group which (i) are, or may be, material to the Group; or (ii) contain obligations or entitlements which are, or may be, material to the Group as at the date of this Document.

24.1 Placing Agreement

A conditional Placing Agreement dated 20 June 2018 between the Company, the Directors, Allenby Capital Limited, Daniel Stewart & Company Plc and Optiva Securities Limited under which Daniel Stewart & Company Plc and Optiva Securities Limited have agreed to use their reasonable endeavours as joint agents for the Company to seek subscribers at the Placing Price for the Placing Shares.

In consideration for its services to be provided under the Placing Agreement Daniel Stewart & Company Plc and Optiva Securities Limited will each receive (i) a broking commission of: 5%: (five per cent) for Optiva Securities Limited; and 6% (six per cent) for Daniel Stewart & Company Plc; of the aggregate value of the Placing Price (together with any VAT payable thereon) of the Placing Shares in respect of which they have procured placees to subscribe for such Placing Shares.

In consideration for its services to be provided under the Placing Agreement, Allenby Capital Limited will be paid by the Company a fee of £52,500 (together with any VAT payable thereon). In consideration for their services to be provided under the Placing Agreement, Daniel Stewart & Co Plc shall be entitled to the warrants and fees described in paragraph 24.2 below, and Optiva Securities Limited shall be entitled to warrants to subscribe for such number of Common Shares as represent 4% (four per cent) of the number of Placing Shares for which they procure subscribers for three years following Admission.

The Placing Agreement is conditional inter alia upon Admission and may be terminated in certain circumstances prior to Admission including by reason of force majeure or a breach of any of the warranties of the occurrence of an event adversely affecting the position of the Company. The Company has agreed to pay all other costs and expenses relating to the Placing and the application for Admission.

24.2 Broker Appointment of Daniel Stewart & Company Plc

Pursuant to a broker agreement dated 14 December 2017 (amended 22 January 2018), Daniel Stewart & Company Plc (Daniel Stewart) were engaged by the Company for the purposes of acting as the Company’s Lead Broker in connection with a placing to raise up to £10 million by way of an issue of new Common Shares.

In consideration for its services in relation to the Appointment, Daniel Stewart will be paid: (i) a commission of 5 per cent of the aggregate funds raised by Daniel Stewart (subsequently increased to 6 per cent in the Placing Agreement); (ii) warrants to subscribe Common Shares of the Company to the value of 2 per cent of the aggregate funds raised by Daniel Stewart; (iii) an annual corporate broking fee of £25,000 to be paid quarterly in advance; (iv) a corporate finance fee of £20,000 half

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paid on signing the engagement letter and the balance to be paid on completion of the proposed transaction.

The agreement contains customary obligations, indemnities and representations given by the Company to Daniel Stewart.

The agreement is terminable immediately by serving a written notice in the event of any material breach of the Agreement by the other party of its obligations under the agreement.

24.3 Agreement regarding the publication of a prospectus with Allenby Capital Limited

Pursuant to an agreement dated 31 October 2017 between the Company and Allenby Capital Limited, the Company engaged Allenby Capital Limited as the Company’s exclusive financial adviser in connection with the proposed publication of this Document.

In consideration for its services in relation to the appointment, Allenby Capital Limited will be paid: (i) 3 payments of £7,500, with the first payment to be paid on signing the engagement letter and the 2 further payments to be paid for each month for 2 months thereafter; and (ii) £52,500 on the approval of the prospectus by the UKLA (a payment subsequently included in the Placing Agreement detailed in 24.1 above). The Company agreed to reimburse Allenby Capital Limited for all expenses incurred in connection with its services including Allenby Capital Limited’s legal fees and the Company will be liable for certain abortive fees if the engagement is terminated for a reason other than a material breach by Allenby Capital Limited.

24.4 Financial Adviser Appointment of Allenby Capital Limited

Pursuant to a financial adviser agreement dated 31 October 2017 between the Company and Allenby Capital Limited, Allenby Capital Limited has agreed to act as financial adviser to the Company in connection with the Company’s on�going admission to the London Stock Exchange Main Market and the standard segment of the UK Official List, as well as general corporate finance advice.

In consideration for its services, Allenby Capital Limited will be paid (i) a fee of £35,000 per year, payable quarterly in advance; and (ii) a 5 per cent fee on equity funds raised for the Company by Allenby Capital Limited. The Company agreed to reimburse Allenby Capital Limited for all expenses incurred in connection with its services. The agreement contains customary warranties, representations and indemnities given by the Company to Allenby Capital Limited.

The agreement is for a minimum term of 12 months, with 3 months’ notice to be given after the minimum term has expired.

The agreement effectively terminates the previous agreement between the Company and Allenby Capital Limited dated 16 February 2017 which engaged Allenby Capital Limited as the Company’s broker.

24.5 Olieum Joint Venture

On 1 November 2017 the Company announced that it had signed a commitment letter with Olieum Services WLL (“ Olieum ”), an integrated oilfield services and equipment joint venture based in Bahrain, for the procurement of a Genesis BQ500 onshore drilling rig. Olieum has worked closely with the Company to structure a unique lease arrangement that aligns Zenith’s targeted growth plans and cash flows with its future equipment requirements.

The Genesis BQ500 is the latest generation, automated onshore hydraulic drilling rig to be manufactured by B Robotics W S.R.L, a founding partner in Olieum, and a leading Italian oil and gas innovation company specializing in the design and manufacture of advanced oil and gas drilling equipment. The rig is expected to deliver enhanced automation, efficiency and safety to the Company’s drilling operations, whilst driving down costs and time�to�production. This has largely been achieved through extensive research and development in modular rig design, and in key components including the monkey board, slips, lay�up and down machine, pipe containers, roughneck, subs and bits loader, and all the working floor tools.

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Manufacturing of the Genesis BQ500 is scheduled to begin upon the fulfilment of the preliminary conditions detailed in the commitment letter. This is expected to take place in Quarter 2, 2018, with delivery anticipated in Quarter 4, 2018.

24.6 Stock Purchase Agreement with Energy PIA Group S.A. dated 28 February 2017

Pursuant to a stock purchase agreement dated 27 February 2017 between the Company and Energy PIA Group S.A, the Company agreed to purchase the Ingeniera Petrolera Patagonia Ltd (IPP) Shares from Energy PIA Group S.A. free and clear of all liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind.

IPP is the owner of (i) 100% of the shares of Common Stock of PP Holding Inc, (PPH), and (ii) 100% of the shares of the common Stock of Petrolera Patagonia Corporation, (PPC). PPH and PPC together, in turn, own 100% of the issued and outstanding securities in Petrolera Patagonia SRL, which owns certain assets and equipment as well as an 100% interest in two oil properties in Comodoro Rivadavia, Province of Chubut, Argentina.

In consideration for the sale of the IPP shares, the Company paid Energy PIA Group S.A $1,000 (USD). The Company provided representations and warrants that the Company is acquiring the Shares for his own account, for investment purposes, without a view to resell or distribute, nor with the intention of immediately selling, transferring or otherwise disposing of all or any part of such Shares, or any interest therein. The agreement contains customary indemnities, warranties and representations given by the Company to Energy PIA Group S.A.

Amendment to Stock Purchase Agreement with Energy PIA Group S.A. dated 10 March 2017

On 10 March 2017 the Company amended the Stock Purchase Agreement dated 28 February 2017 by and between the Company and Energy PIA Group S.A (the Agreement), as a result of Energy PIA Group S.A inability to locate certain original stock certificates.

The amendment added a provision to the indemnification clause of the Agreement (Article 8) to limit the indemnification so as to indemnify and hold harmless the Company against any loss, damage, expenses and liabilities incurred by the Company or actions, investigations, inquiries, arbitrations, claims, or other proceedings instituted against the Company in relation IPP’s legal and unencumbered ownership of PPC and PPH.

The amendment also added further assurances that after the Closing, at the request of either party, the other shall undertake to perform its obligations under the Agreement and to cause the transactions contemplated to be carried out in accordance with the terms of the Agreement.

24.7 Broker Agreement with Optiva Securities Limited

Pursuant to a broker agreement dated 8 June 2016 between the Company and Optiva Securities Limited, Optiva Securities Limited agreed to assist in coordinating the IPO Placing, which includes using reasonable endeavors to procure placees and to act as corporate broker to the Company following Admission.

In consideration for its services in relation to the Placing and Admission, Optiva Securities Limited was paid (i) £25,000 per annum (plus applicable VAT) (to be paid in equal quarterly instalments in advance) and (ii) a commission of 6% (subsequently reduced to 5% in the Placing Agreement) of the aggregate funds raised by Optiva Securities Limited via the Placing and 6% broker warrants (which fees shall accrue on a daily basis until the date of termination of the agreement). The agreement contains customary warranties, representations and indemnities given by the Company to Optiva Securities Limited.

The agreement is terminable on three months’ written notice by either party, provided that such notice of termination is to expire not earlier than 12 months from the date of the appointment. The agreement contains provision for early termination in certain circumstances.

24.8 Transfer Agency and Registrarship Agreement

The Company entered into a transfer agency and registrarship agreement (the “ Registrar Agreement ”) with Olympia Trust Company (“ Olympia ”) on 5 March 2008. On 11 July 2014, the

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Company consented to the assignment and transfer by Olympia to Computershare Trust Company of Canada (the “ Registrar ”) of all of the right, title and interest of Olympia in the Registrar Agreement. The formal assignment and transfer to the Registrar occurred on such date as was determined by the Registrar on or before 30 November 2014.

Pursuant to the Registrar Agreement, the Company appoints the Registrar to act as registrar and transfer agent to the Company, to keep, inter alia , the registers of holders and the registers of transfers for the Common Shares in the capital of the Company at its principal office in Calgary, Canada and to provide certain other administrative services to the Company in relation to its business and affairs.

The Company is required to pay for the services provided in accordance with a tariff or schedule of fees, which fees are subject to revision from time to time during the term of the agreement. The Company is also required to reimburse all costs and expenses, including the fees, disbursements and expenses of any sub�agents, advisors and legal counsel, if applicable, incurred in carrying out the duties under the Registrar Agreement.

If the Company defaults in its payment obligations under the Registrar Agreement, the Registrar has the right to immediately terminate the agreement. In addition, the Registrar Agreement may be terminated by either party upon three months’ written notice.

Under the Registrar Agreement the Company indemnifies the Registrar (provided it has acted in good faith and without negligence), its directors, officers, employees, agents and assigns against all liabilities, losses, claims, damages, penalties, actions, suits, demands, costs, expenses and disbursements (including legal and advisor fees and disbursements) howsoever arising from or out of any act or omission of the Registrar pursuant to or in relation to the Registrar Agreement.

24.9 Depositary Agreement

A depositary agreement dated 3 January 2017 (the “ Depositary Agreement ”) between the Company and Computershare Investor Services PLC (the “ Depositary ”) under which the Company appoints the Depositary to constitute and issue from time to time, upon the terms of the deed poll executed by Computershare on or about the date of the Depositary Agreement (the “ Deed Poll ”), a series of uncertificated depositary interests (“ Depositary Interests ”) representing securities issued by the Company and to provide certain other services in connection with such Depositary Interests with a view to facilitating the indirect holding by participants in CREST. Computershare agrees that it will comply with the terms of the Deed Poll and that it will perform its obligations with reasonable care and skill. Computershare assumes certain specific obligations, including the obligation to issue to a CREST member Depositary Interests in uncertificated form and to maintain the register of Depositary Interests. Computershare undertakes to provide the depositary services in compliance with the requirements of the Financial Services and Markets Act 2000. Computershare will either itself or through its appointed Custodian as bare trustee hold the deposited property (which includes, inter alia , the securities represented by the Depositary Interests) as may be designated from time to time by the Depositary. The Company agrees to provide such assistance, information and documentation to Computershare as is reasonably required by Computershare for the purposes of performing its duties, responsibilities and obligations under the Deed Poll and the Depositary Agreement, including (to the extent available to the Company) information, which concerns or relates to Computershare’s obligations under the Depositary Agreement. The agreement sets out the procedures to be followed where the Company is to pay or make a dividend or other distribution. The Company is to indemnify Computershare for any loss it may suffer as a result of the performance of the Depositary Agreement except to the extent that any losses result from Computershare’s own negligence, fraud or willful default. Computershare is to indemnify the Company for any loss the Company may suffer as a result of or in connection with Computershare’s fraud, negligence or willful default save that the aggregate liability of the Depositary to the Company over any 12�month period shall in no circumstances whatsoever exceed twice the amount of the fees payable to the Depositary in any 12�month period in respect of a single claim or in the aggregate. Subject to earlier termination, the Depositary is appointed for a fixed term of one year and thereafter until terminated by either party giving not less than six months’ notice. In the event of termination, the parties agree to phase out the Depositary’s operations in an efficient manner without adverse effect on the members of the Company and the Depositary shall deliver to the Company (or as it may direct) all documents, papers and other records relating to the Depositary Interests which are in its possession and which is the property of the Company. The Company is to pay certain fees and charges, including an annual fee, a fee based on

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the number of Depositary Interests per year and certain CREST related fees. Computershare is also entitled to recover reasonable out of pocket fees and expenses.

24.10 REDPSA

On 16 March 2016, the Company’s wholly�owned subsidiary, Zenith Aran, entered into the REDPSA with SOCAR and SOA, a wholly�owned subsidiary of SOCAR (Zenith Aran and SOA being referred to herein as the “Contractor Parties”). The REDPSA covers 642 square kilometers which include the active Muradkhanli, Jafarli and Zardab oil fields (the “Contract Area”). Zenith Aran will hold an 80% participating interest in the REDPSA while SOA holds the remaining 20%. The delivery of the capital assets previously used in respect of the petroleum operations at the three fields in Azerbaijan from the previous operating company to Aran Oil Operating Company Limited, a wholly�owned subsidiary of the Contractor Parties, officially completed on 11 August 2016 (the “Effective Date”).

Under the REDPSA, the Contractor Parties must provide all necessary funds to explore, appraise, evaluate, and develop the crude oil and natural gas resources within the Contract Area.

The Contract Area includes areas where the existing production needs to be improved (the “ Contract Rehabilitation Area ”) and where new production needs to be developed (the “ Contract Exploration Area ”). The Contractor Parties have different obligations in respect of each area.

Rehabilitation and production programme

The Rehabilitation and Production programme was signed on 3 October 2017 and approved by SOCAR on the same date. It provides for a maximum production of approximately 2,382 barrels of crude oil per day. The programme will involve drilling 26 development wells: 21 in Muradkhanli and 5 in Jafarli with the cost per well being $4.3million. Therefore, a total of $111.8 million would be spent on drilling. The programme will also involve the workover of 44 wells, which includes 12 old well reactivations, with the cost per workover being $150,000. Therefore, a total of $6.85 million would be spent on the workovers. Additionally, the programme will provide for facility upgrades of $2.5million and involve running a 64km2 3D exploration seismic and drilling a 1�5000m exploration well. The total net cash flow for the programme is $176 million and the total OPEX of $122.5 million and total CAPEX of $121.15 million.

The wholly owned subsidiary of Zenith Energy Ltd., Zenith Aran has acquired the exclusive rights to conduct petroleum operations in three petroleum producing onshore fields in Azerbaijan.

Termination

The REDPSA can be terminated at any time by either party if the other party commits a material breach of the REDPSA or the “Government Guarantee” in the form attached to the REDPSA and fails to remedy such breach within 90 days of written notice from the other party. SOCAR may terminate by 90 days written notice for, inter alia , certain insolvency events. The Contractor Parties may voluntarily relinquish the Contract Area by giving 90 days written notice to SOCAR.

Compensatory petroleum

The Contractor Parties have an obligation to:

within one year following the Effective Date, deliver at no charge to SOCAR 5% of the total production of petroleum produced from the contract rehabilitation area in each calendar quarter; and
commencing on the first anniversary of the Effective Date, start delivering at no charge to SOCAR 15% of the total production of petroleum produced from the contract rehabilitation area in each calendar quarter,

until the amount delivered is the equivalent of approximately 315,000 barrels of “compensatory” crude oil to SOCAR (“ Compensatory Petroleum ”).

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on a quarterly basis and is shared between SOCAR and the Contractor Parties according to a detailed “R factor” model.

The REDPSA is further described in paragraph 1.3 of Part 10: “ Information on the Group ” of this Document.

24.11 USD $ 2,050,000 Loan from Jiu Feng Investment Hong Kong Limited

The USD $2,050,000 loan from Jiu Feng Investment Hong Kong Limited is described in paragraph 5.1 of Part 18: “ Additional Information ” of this Document.

24.12 EUR 401,148.10 Loan from Eneco Trade S.r.l. (relating to the acquisition of a co�generation plant in Italy)

The EUR 401,148.10 loan from Eneco Trade S.r.l. (relating to the acquisition of a co�generation plant in Italy) is described in paragraph 5.3 of Part 18: “ Additional Information ” of this Document.

24.13 EUR 220,000 Loan from GBM Banca S.p.A

The EUR 220,000 loan from GBM Banca S.p.A is described in paragraph 5.4 of Part 18: “ Additional Information ” of this Document.

24.14 EUR 200,000 Loan from Banca Credito Valtellinese S.C.

The EUR 200,000 loan from Banca Credito Valtellinese S.C. is described in paragraph 5.5 of Part 18: “ Additional Information ” of this Document.

24.15 USD $320,000 General Line of Credit Agreement

The First Credit Agreement is described in paragraph 5.6 of Part 18: “ Additional Information ” of this Document.

24.16 USD $200,000 General Line of Credit Agreement

The Second Credit Agreement is described in paragraph 5.7 of Part 18: “ Additional Information ” of this Document.

24.17 Swiss loan 1

The Swiss loan1 agreement is described in paragraph 5.8 of Part 18: “ Additional Information ” of this Document.

24.18 Swiss loan 2

The Swiss loan 2agreement is described in paragraph 5.9 of Part 18: “ Additional Information ” of this Document.

24.19 Agreement with PrimaryBid Limited

Pursuant to an agreement dated 4 June 2018 between the Company and PrimaryBid Limited (“ PrimaryBid ”), PrimaryBid agreed to host details of the Placing on their online platform which allows certain private investors to gain access to information relating to the Company and make offers to subscribe for Common Shares (“ PrimaryBid Offer ”). The terms of the agreement state that PrimaryBid will provide the following services to the Company:

(a) alert PrimaryBid’s registered users to the regulatory announcement made by the Company regarding publication of the Prospectus and details of the Placing and PrimaryBid Offer;
(b) provide PrimaryBid’s registered users with instructions as to how they can subscribe for Common Shares;
(c) collect subscription proceeds relating to successful applications for subscriptions that PrimaryBid may receive through its website;

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(d) on completion of the PrimaryBid Offer, transfer the net subscription proceeds to the Company and transfer the relevant Common Shares to its registered users who have successfully subscribed for shares.

In consideration for its services, PrimaryBid will be paid a commission of 5 per cent on the sums raised under the PrimaryBid Offer.

24.20 Agreement with Ace Capital Group Limited

On the 5 June 2018 the Company entered in an agreement with Ace Capital Group Ltd (“ Ace ”), to engage Ace as subscription agent to the Company for the purposes of raising capital for the Company.

The agreement provides that Ace will agree a list of investors to whom the Company would like to be introduced, arrange for the despatch to them of the Company’s presentation materials and co� ordinate presentation meetings with interested prospective investors, forward to the Company any requests for additional information by prospective investors and assist the Company in responding to such requests, facilitate the provision of appropriate subscription letters to potential investors and assist in the preparation of any announcements in connection with the capital raise.

Ace is appointed for a minimum of three months from 5 June 2018 and thereafter subject to one month’s notice from either party.

In consideration of the services to be performed by Ace pursuant to the engagement, the Company has agreed to pay Ace a commission of 6% of the aggregate gross value of the subscriptions for new Common Shares procured by Ace.

24.21 Engagement letter with Orion Securities Norway

The Company entered into an engagement letter with Orion Securities Norway (“ OSN ”) on 4 June 2018 pursuant to which OSN is retained as subscription agent to the Company for the purposes of raising capital for the Company.

The terms of the agreement state that OSN will promote trading in the shares of the Company by; (i) relaying the Company results, share prices and news; and (ii) arranging for the Company to make presentations to investors and advising on content and providing feedback reports. OSN also agrees to use all reasonable endeavours to procure subscribers for Common Shares at no less than 5.5 pence per Common Share in connection with the Subscription.

In consideration for ONS’s services, the Company has agreed to pay OSN a commission of 6% of the aggregate gross value of the subscriptions for new Common Shares procured by OSN. The Company will also reimburse OSN for all expenses.

The engagement will terminate on either party giving 3 months’ notice to the other. The Company cannot give notice in the first 12 months of the engagement.

25 Related party transactions

Details of related party transactions entered into by the Company or members of the Group during the period covered by the historic financial information are set out in note 25 of the consolidated financial statements of the Company for the years ended 31 March 2015, 2016 and 2017 and in note 15 to the unaudited condensed consolidated interim financial statements of the Company for the six months ended 30 September 2017 and comparative period (30 September 2016), both of which are contained in Part 16: “ Historical Financial Information ” of this Document.

Save as set out above, and for the related party transactions set out in note 25 of the consolidated financial statements of the Company for the years ended 31 March 2015, 2016 and 2076 and in note 15 to the unaudited condensed consolidated interim financial statements of the Company for the six months ended 30 September 2017 and comparative period (30 September 2017), there are no related party transactions that were entered into (and still subsist) during the period covered by the consolidated historical financial information and during the period from 1 July 2017 to the date of this Document.

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26 Remuneration and benefits – named executive officers

The following table summarizes annual compensation and long�term compensation of the Company’s “Named Executive Officers” (as defined by Form 51�102F6) for the three most recently completed financial years that ended on 31 March 2017. All the amounts are expressed in thousand Canadian dollars:

		Short	Other	Other
		term	short�	long�
		employee	term	_term _	Termination	Other
Name and		benefit	benefits	benefits	benefits	benefits	Total
principal position	Year (4)	CAD$’000	CAD$’000	CAD$’000	CAD$’000	CAD$’000	CAD$’000
Andrea Cattaneo(1�2)	2015	180	Nil	Nil	Nil	200(3)	380
	2016	303	Nil	Nil	Nil	Nil	303
	2017	224	Nil	Nil	Nil	Nil	224
Luigi Regis Milano(5)	2015	55	Nil	Nil	Nil	Nil	55
	2016	59	Nil	Nil	Nil	Nil	59
	2017	29	Nil	Nil	Nil	Nil	29
Jose Ramon Lopez�Portillo	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Dario Sodero(7)	2016	19	Nil	Nil	Nil	Nil	19
	2017	15	Nil	Nil	Nil	Nil	15
Erik Larre	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Francesco Salimbeni(9)	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Saadallah Al�Fathi(9)	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Nilesh Jagatia(6)	Nil	Nil	Nil	Nil	Nil	Nil	Nil
Alan Hume(8)	2017	138	Nil	Nil	Nil	Nil	138

Notes:

Andrea Cattaneo was appointed President and Chief Executive Officer effective 01 January 2009. As proposed by the Compensation Committee, Mr. Cattaneo’s annual consulting fee payment is approximately CAD$200,000, payable in equal monthly instalments, plus benefits for the years ended 31 March 2017, 2016 and 2015.
Andrea Cattaneo had an yearly compensation of CAD$200,000 from the parent Company, and CAD$24,000 from subsidiary undertakings, for the year ended 31 March 2017.
Bonus paid to CEO approved by the Board of Directors.
Financial years ended 31 March.
Luigi Regis Milano served as Chief Financial Officer from 28 November 2012 to 7 March 2016.
Nilesh Jagatia served as Chief Financial Officer from 7 March 2016 to 6 October 2016.
In the year ending 31 March 2016, Mr. Sodero received a fee for professional consulting services of approximately CAD$19,000. In the year ending 31 March 2017, Mr. Sodero received a fee for professional consulting services of approximately CAD$15,000.
Alan Hume served as Chief Financial Officer from 7 October 2016 to 21 April 2017.
Mr. Francesco Salimbeni passed during the year. He was replaced by Mr. Saadallah Al�Fathi.

The Group has a share option plan (the “Plan”) for the benefit of directors, employees and consultants. The maximum number of shares available under the Plan is limited to 10% of the issued and outstanding common shares at the time of granting options. Granted options are fully vested on the date of grant, at which time all related share�based payment expense is recognised. Share options expire five years from the date of granting.

During November 2016, there were 6,000,000 options granted to Zenith’s officers, directors, employees and consultants. Each option entitles the holder to acquire one Common Share for $0.10 per share for the period ending 31 March 2021. These were also valued using the Black Scholes model. The inputs to the calculation were as follows; stock price of CAD$0.07, exercise price of CAD$0.10, volatility of 100% and a monthly risk�free rate of 0.53%.

On 22 February 2017, the Group announced that Luigi Regis Milano has announced the intention to exercise his stock options to purchase 1,000,000 Common Shares in the capital of the Group at a price of CAD$0.10 per Common Share and a total cost of CAD$100k.

On 17 May 2017, the Group granted additional Options to certain of its Directors and employees to acquire a total of 2,750,000 Common Shares pursuant to its Stock Option Plan. Each Option granted entitles the relevant holder to acquire one Common Share for an exercise price of CAD$0.15 per Common Share. The expiry date of the Options is the date falling five years from the date of grant, being 17 May 2022.

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On 25 May 2017, the Group announced that following the Group’s announcement on 22 February 2017 that Luigi Regis Milano had exercised an option to acquire 1,000,000 new Common Shares in the capital of the Group, the new Common Shares have been issued on 23 May 2017 following confirmation by this Director of the custodian to whom they should be issued.

On 27 September 2017 the Company announced that a Director of the Company had exercised part of his stock options to purchase 1,000,000 Common Shares in the capital of the Company at a price of CAD$0.10 per Common Share, and a total cost of CAD$100k.

On 23 November 2017 the Company announced that Andrea Cattaneo had exercised part of his stock options to purchase 2,000,000 new Common Shares at an exercise price (the “Stock Options Price”) of CAD$0.10 (approximately £0.059) per new Common Share and at a total cost of CAD$200k (approximately £118k).

27 Accounts

The Company’s annual report and accounts will be made up to 31 March in each year. It is expected that the Company will make public its annual report and accounts within 90 days of each financial year end and within 45 days of each quarter (or earlier if possible) and that copies of the annual report and accounts will be sent to Shareholders within six months of each financial year end (or earlier if possible).

28 Issues of new Common Shares

The Directors are authorised to issue an unlimited number of Common Shares. There are no statutory pre� emption rights.

29 Consents

29.1 PKF Littlejohn LLP has given and has not withdrawn its written consent to the inclusion in this Document of its reports set out in Part 13: “ Selected Financial Information – Part B ” and Part 16: “ Historical Financial Information ” in the form and context in which they are included and has authorised the contents of those parts of this Document which comprise its reports for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.
29.2 Chapman Petroleum, in its capacity as Competent Person, has given and has not withdrawn its written consent to the inclusion in this Document of its Competent Person’s Report in Part 23 of this Document and references to it in the form and context in which they are included and has authorised the contents of those parts of this Document which comprise its report for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.
29.3 Allenby Capital Limited has given and not withdrawn its written consent to the inclusion in this Document of its name in the form and context in which it is included.
29.4 Daniel Stewart & Company plc has given and not withdrawn its written consent to the inclusion in this Document of its name in the form and context in which it is included.
29.5 Thomson Reuters (Professional) UK Limited (trading as Practical Law) has given and not withdrawn its written consent to the extraction of information from its publications:
(a) Energy and Natural Resources Multi�Jurisdictional Guide 2014 (Oil and gas regulation in Argentina: overview); and
(b) Energy and Natural Resources Global Guide 2015 (Oil and gas regulation in Azerbaijan: overview),

as reproduced in Sections 1 and 3 of Part 9: “ Argentina, Italy and Azerbaijan ” respectively .

30 General

30.1 The total expenses incurred (or to be incurred) by the Company in connection with Admission and the Placing are approximately £311,700. Assuming £2,020,000 is raised on closing of the Placing and Subscription, the estimated Net Proceeds, after deducting fees and expenses in connection with the Placing, are approximately £1,708,300.

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30.2 No material changes have occurred since the effective date of the Competent Person’s Report the omission of which would make the Competent Person’s Report misleading.

31 Documents available for inspection

Copies of the following documents will be available for inspection in physical form during usual business hours on any day (except Saturdays, Sundays and public holidays) at the offices of Zenith Energy Limited for a period of 12 months following Admission:

(i) the Articles;
(ii) the historical financial information of the Group in respect of the years ended 31 March 2015, 2016 and 2017, together with the related accountant’s report from PKF Littlejohn LLP, which is set out in Part 16: “ Historical Financial Information ” of this Document;
(iii) the accountant’s report from PKF Littlejohn LLP on the unaudited pro forma financial information, which is set out in Part 13, Part B: “ Selected Financial Information – Selected key pro forma financial information ” of this Document;
(iv) the CPR;
(v) the consent letters referred to in paragraph 30 of this Part 18; and
(vi) this Document.

In addition, for the purposes of Rule 3.2.4R(3) of the Prospectus Rules, this Document will be published in electronic form and be available on the Company’s website at www.zenithenergy.ca subject to certain access restrictions applicable to persons located or resident outside the United Kingdom.

The date of this Document is 20 June 2018.

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PART 19 NOTICES TO INVESTORS

The distribution of this Document and the Placing may be restricted by law in certain jurisdictions and therefore persons into whose possession this Document comes should inform themselves about and observe any restrictions, including those set out below. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

1. General

No action has been or will be taken in any jurisdiction that would permit a public offering of the Common Shares, or possession or distribution of this Document or any other offering material in any country or jurisdiction where action for that purpose is required. Accordingly, the Common Shares may not be offered or sold, directly or indirectly, and neither this Document nor any other offering material or advertisement in connection with the Common Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any and all applicable rules and regulations of any such country or jurisdiction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This Document does not constitute an offer to subscribe for any of the Common Shares offered hereby to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation in such jurisdiction.

This Document has been approved by the FCA as a prospectus for the purposes of section 85 of FSMA, and of the Prospectus Directive. No arrangement has been made with the competent authority in any other EEA State (or any other jurisdiction) for the use of this Document as an approved prospectus in such jurisdiction and accordingly no public offer is to be made in any EEA state (or in any other jurisdiction). Issue or circulation of this Document may be prohibited in countries other than those in relation to which notices are given below.

2. For the attention of Canadian investors

The Placing Shares will be subject to resale restrictions imposed by, and subscribers for Placing Shares may not be able to resell such Placing Shares except in accordance with, applicable Canadian securities law and subscribers for Placing Shares have undertaken that (i) they will not offer, sell or deliver, directly or indirectly, any of the Placing Shares in Canada or to or for the benefit of any person resident in Canada until the expiry of any relevant hold period under applicable Canadian securities laws of four months and one day from Admission, unless a trade is permitted under Canadian securities laws; and (ii) they will notify any transferee of Placing Shares of the applicable resale restrictions.

Under Canadian securities law, subject to certain exceptions, securities which are not distributed under a Canadian prospectus are subject to a restricted period in Canada of four months and one day after the distribution date. The Common Shares to be issued outside of Canada pursuant to the Placing will not be distributed under a Canadian prospectus and will be subject to a four month and a day restricted period in Canada (beginning on the date the Common Shares are issued by the Company) which will prevent such Common Shares from being resold in Canada during the restricted period unless a trade is permitted under Canadian securities laws.

3. For the attention of European Economic Area investors

In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “ Relevant Member State ”), an offer to the public of the Common Shares may only be made once the prospectus has been passported in such Relevant Member State in accordance with the Prospectus Directive as implemented by such Relevant Member State. For the other Relevant Member States an offer to the public in that Relevant Member State of any Common Shares may only be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

to any legal entity which is a qualified investor as defined under the Prospectus Directive;
to fewer than 100 or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined

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in the Prospectus Directive) in such Relevant Member State subject to obtaining prior consent of the Company for any such offer; or

in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Common Shares shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an “offer to the public” in relation to any offer of Common Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Common Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Common Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (and any amendments, thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

During the period up to but excluding the date on which the Prospectus Directive is implemented in member states of the EEA, this Document may not be used for, or in connection with, and does not constitute, any offer of Common Shares or an invitation to purchase or subscribe for any Common Shares in any member state of the EEA in which such offer or invitation would be unlawful.

The distribution of this Document in other jurisdictions may be restricted by law and therefore persons into whose possession this Document comes should inform themselves about and observe any such restrictions.

4. For the attention of UK investors

This Document comprises a prospectus relating to the Company prepared in accordance with the Prospectus Rules and approved by the FCA under section 87A of FSMA. This Document has been filed with the FCA and made available to the public in accordance with Rule 3.2 of the Prospectus Rules.

In the United Kingdom this Document is for distribution to, and is directed only at, legal entities which are qualified investors as defined under the Prospectus Directive and are (i) persons having professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “ Order ”); or (ii) high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Order; or (iii) persons to whom it may otherwise be lawfully distributed under the Order, (all such persons together being “ Relevant Persons ”). In the United Kingdom, any investment or investment activity to which this Document relates is only available to and will only be engaged in with Relevant Persons. Persons who are not Relevant Persons should not act or rely on this Document or any of its contents.

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PART 20

CREST AND DEPOSITORY INTERESTS

1. CREST and Depositary Arrangements

The Company has established arrangements to enable investors to settle interests in the Common Shares through the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person’s CREST account to another without the need to use share certificates or written instruments of transfer. Securities issued by non�UK companies, such as the Company, cannot be held or transferred electronically in the CREST system. However, depositary interests allow such securities to be dematerialised and settled electronically through CREST. Where investors choose to settle interests in the Common Shares through the CREST system, and pursuant to depositary arrangements established by the Company, Computershare Investor Services plc (the “ Depositary ”) will hold the Common Shares and issue dematerialised depositary interests (the “ Depositary Interests ”) representing the underlying Common Shares, which will be held on trust for the holders of the Depositary Interests. The Depositary Interests will be independent securities constituted under English law which may be held and transferred through the CREST system. Investors should note that it is the Depositary Interests which are and will be admitted to and settled through CREST and not the Common Shares.

The Depositary has and will issue the dematerialised Depositary Interests. The Depositary Interests will be independent securities constituted under English law which may be held and transferred through the CREST system.

The Depositary Interests have and will be created pursuant to and issued on the terms of a deed poll dated 29 November 2016 and executed by the Depositary in favour of the holders of the Depositary Interests from time to time (the “ Deed Poll ”). Prospective holders of Depositary Interests should note that they will have no rights against CRESTCo or its subsidiaries in respect of the underlying Common Shares or the Depositary Interests representing them.

The Common Shares have and will be transferred to the Custodian and the Depositary will issue Depositary Interests to participating members and provide the necessary custodial services. In relation to those Common Shares held by Shareholders in uncertificated form, although the Company’s register shows the Custodian as the legal holder of the Common Shares, the beneficial interest in the Common Shares remains with the holder of Depositary Interests, who has the benefit of all the rights attaching to the Common Shares as if the holder of Depositary Interests were named on the certificated Common Share register itself.

Each Depositary Interest is and will be represented as one Common Share, for the purposes of determining, for example, in the case of Common Shares, eligibility for any dividends. The Depositary Interests do and will have the same ISIN number as the underlying Common Shares and will not require a separate listing on the Official List. The Depositary Interests are traded and settled within the CREST system in the same way as any other CREST securities.

2. Deed Poll

In summary, the Deed Poll contains provisions to the following effect, which are binding on holders of Depositary Interests:

Holders of Depositary Interests warrant, inter alia , that Common Shares held by the Depositary or the Custodian (on behalf of the Depositary) are free and clear of all liens, charges, encumbrances or third�party interests and that such transfers or issues are not in contravention of the Company’s constitutional documents or any contractual obligation, law or regulation. Each holder of Depositary Interests indemnifies the Depositary for any losses the Depositary incurs as a result of a breach of this warranty.

The Depositary and any Custodian must pass on to holders of Depositary Interests and, so far as they are reasonably able, exercise on behalf of holders of Depositary Interests all rights and entitlements received or to which they are entitled in respect of the underlying Common Shares which are capable of being passed on or exercised. Rights and entitlements to cash distributions, to information, to make choices and elections and to attend and vote at meetings shall, subject to the Deed Poll, be passed on in the form in which they are received together with amendments and additional documentation necessary to effect such passing�on, or, as the case may be, exercised in accordance with the Deed Poll.

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The Depositary will be entitled to cancel Depositary Interests and withdraw the underlying Common Shares in certain circumstances including where a holder of Depositary Interests has failed to perform any obligation under the Deed Poll or any other agreement or instrument with respect to the Depositary Interests.

The Deed Poll contains provisions excluding and limiting the Depositary’s liability. For example, the Depositary shall not be liable to any holder of Depositary Interests or any other person for liabilities in connection with the performance or non�performance of obligations under the Deed Poll or otherwise except as may result from its negligence or wilful default or fraud. Furthermore, except in the case of personal injury or death, the Depositary’s liability to a holder of Depositary Interests will be limited to the lesser of:

a. the value of the Common Shares and other deposited property properly attributable to the Depositary Interests to which the liability relates; and
b. that proportion of £5 million which corresponds to the proportion which the amount the Depositary would otherwise be liable to pay to the holder of Depositary Interests bears to the aggregate of the amounts the Depositary would otherwise be liable to pay to all such holders in respect of the same act, omission or event which gave rise to such liability or, if there are no such amounts, £5 million.

The Depositary is not liable for any losses attributable to or resulting from the Company’s negligence or wilful default or fraud or that of the CREST operator.

The Depositary is entitled to charge holders of Depositary Interests fees and expenses for the provision of its services under the Deed Poll.

Each holder of Depositary Interests is liable to indemnify the Depositary and any Custodian (and their agents, officers and employees) against all liabilities arising from or incurred in connection with, or arising from any act related to, the Deed Poll so far as they relate to the property held for the account of Depositary Interests held by that holder, other than those resulting from the wilful default, negligence or fraud of the Depositary, or the Custodian or any agent, if such Custodian or agent is a member of the Depositary’s group, or, if not being a member of the same group, the Depositary shall have failed to exercise reasonable care in the appointment and continued use of such Custodian or agent.

The Depositary may terminate the Deed Poll by giving not less than 30 days’ prior notice. During such notice period, holders may cancel their Depositary Interests and withdraw their deposited property and, if any Depositary Interests remain outstanding after termination, the Depositary must as soon as reasonably practicable, among other things, deliver the deposited property in respect of the Depositary Interests to the relevant holder of Depositary Interests or, at its discretion sell all or part of such deposited property. It shall, as soon as reasonably practicable deliver the net proceeds of any such sale, after deducting any sums due to the Depositary, together with any other cash held by it under the Deed Poll pro rata to holders of Depositary Interests in respect of their Depositary Interests.

The Depositary or the Custodian may require from any holder, or former or prospective holder, information as to the capacity in which Depositary Interests are owned or held and the identity of any other person with any interest of any kind in such Depositary Interests or the underlying Common Shares and holders are bound to provide such information requested. Furthermore, to the extent that the Company’s constitutional documents require disclosure to the Company of, or limitations in relation to, beneficial or other ownership of, or interests of any kind whatsoever, in the Common Shares, the holders of Depositary Interests are to comply with such provisions and with the Company’s instructions with respect thereto.

It should also be noted that holders of Depositary Interests may not have the opportunity to exercise all of the rights and entitlements available to holders of Common Shares in the Company, including, for example, in the case of Shareholders, the ability to vote on a show of hands. In relation to voting, it will be important for holders of Depositary Interests to give prompt instructions to the Depositary or its nominated Custodian, in accordance with any voting arrangements made available to them, to vote the underlying Common Shares on their behalf or, to the extent possible, to take advantage of any arrangements enabling holders of Depositary Interests to vote such Common Shares as a proxy of the Depositary or its nominated Custodian.

A copy of the Deed Poll can be obtained on request in writing to the Depositary.

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3. Depositary Agreement

The Depositary Agreement between the Company and the Depositary under which the Company appoints the Depositary to constitute and issue from time to time, upon the terms of the Deed Poll, a series of Depositary Interests representing securities issued by the Company and to provide certain other services in connection with such Depositary Interests with a view to facilitating the indirect holding by participants in CREST. The Depository agrees that it will comply with the terms of the Deed Poll and that it will perform its obligations with reasonable care and skill. The Depository assumes certain specific obligations, including the obligation to issue to a CREST member Depositary Interests in uncertificated form and to maintain the register of Depositary Interests. The Depository undertakes to provide the depositary services in compliance with the requirements of the Financial Services and Markets Act 2000. Computershare will either itself or through its appointed Custodian as bare trustee hold the deposited property (which includes, inter alia , the securities represented by the Depositary Interests) as may be designated from time to time by the Depositary. The Company agrees to provide such assistance, information and documentation to the Depository as is reasonably required by the Depository for the purposes of performing its duties, responsibilities and obligations under the Deed Poll and the Depositary Agreement, including (to the extent available to the Company) information, which concerns or relates to the Depository’s obligations under the Depositary Agreement. The agreement sets out the procedures to be followed where the Company is to pay or make a dividend or other distribution. The Company is to indemnify Depository for any loss it may suffer as a result of the performance of the Depositary Agreement except to the extent that any losses result from the Depository’s own negligence, fraud or wilful default. The Depository is to indemnify the Company for any loss the Company may suffer as a result of or in connection with the Depository’s fraud, negligence or wilful default save that the aggregate liability of the Depositary to the Company over any 12�month period shall in no circumstances whatsoever exceed twice the amount of the fees payable to the Depositary in any 12� month period in respect of a single claim or in the aggregate. Subject to earlier termination, the Depositary is appointed for a fixed term of one year and thereafter until terminated by either party giving not less than six months’ notice. In the event of termination, the parties agree to phase out the Depositary’s operations in an efficient manner without adverse effect on the members of the Company and the Depositary shall deliver to the Company (or as it may direct) all documents, papers and other records relating to the Depositary Interests which are in its possession and which is the property of the Company. The Company is to pay certain fees and charges, including an annual fee, a fee based on the number of Depositary Interests per year and certain CREST related fees. Computershare is also entitled to recover reasonable out of pocket fees and expenses.

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PART 21 DEFINITIONS

The following definitions apply throughout this Document unless the context requires otherwise:

“Admission” means admission of the Placing Shares, Subscription Shares, Offer Shares and Admission Shares to the standard segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange; “Admission Shares” means the Canadian Placing Shares, Salary Sacrifice Shares and the Settlement Shares, a combined total of 6,721,647 Common Shares; “Articles” means the Notice of Articles and Articles of the Company in force from time to time; “Azerbaijan Acquisition” means the acquisition of rights by Zenith Aran pursuant to the REDPSA; “Azeri Asset” means the three fields which comprise the Company’s Azerbaijani Operations (Muradkhanli, Jafarli and Zardab) have a compounded acreage of 642 square kilometres; “Business Corporations Act” means the Business Corporations Act (British Columbia), SBC 2002, c 57; “Business Day” means a day (other than a Saturday or a Sunday) on which banks are open for business in London and British Columbia; “Canadian Placing Shares” means the 4,000,000 Common Shares issued under the Canadian private palcing announced on 10 January 2018, which are expected to be admitted to the standard segment of the Official List on 26 June 2018; “certificated” or “in certificated form” means in relation to a share, warrant or other security, a share, warrant or other security, title to which is recorded in the relevant register of the share, warrant or other security concerned as being held in certificated form (that is, not in CREST); “Chairman” means the Chairman of the Board from time to time, as the context requires; “Chapman Petroleum” or the means Chapman Petroleum Engineering Ltd; “Competent Person” “City Code” means the UK City Code on Takeovers and Mergers; “Common Shares” means the common shares of no par value in the capital of the Company including, if the context requires, the Placing Shares, Subscription Shares, Offer Shares and Admission Shares; “Company” or “Zenith” means Zenith Energy Ltd., a corporation incorporated in British Columbia under the British Corporations Act (British Columbia) on 20 September 2007, with number BC0803216; “Convertible Loan Notes” means the CHF Swiss Francs unsecured convertible loan notes unsecured convertible loan notes issued by the Company as

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described in paragraph 3.3 of Part 18 (Additional Information) of this document;

“CPR” or “Competent Person’s Report”

“CREST” or “CREST System”

means the Competent Person’s Report prepared by Chapman Petroleum, reporting as at 31 March 2018, published in Part 23 of this Document; means the paperless settlement system operated by Euroclear enabling securities to be evidenced otherwise than by certificates and transferred otherwise than by written instruments;

“CREST Manual” means the compendium of documents entitled “CREST Manual” issued by Euroclear from time to time and comprising the CREST Reference Manual, the CREST Central Counterparty Service Manual, the CREST International Manual, the CREST Rules, the CSS Operations Manual and the CREST Glossary of Terms;

“CREST Regulations” means The Uncertified Securities Regulations 2001 (SI 2001 No. 3755), as amended;

“CREST Requirements”

means the rules and requirements of Euroclear as may be applicable to issuers from time to time, including those specified in the CREST Manual;

“CRESTCo” means CRESTCo Limited, the operator (as defined in the Uncertificated Regulations) of CREST; “Custodian” means the custodian nominated by the Depositary; “Deed Poll” means the Deed Poll as defined on page 143; “Depositary” means Computershare Investor Services plc; “Depositary Agreement” means the Depositary Agreement as defined on page 145; “Depositary Interests” means the dematerialised depositary interests (denominated in Pounds Sterling) in respect of the Common Shares issued or to be issued by the Depositary; “Directors” or “Board” or “Board of means the board of directors of the Company as at the date Directors” of this Document, whose names are set out on page 41 of this Document, or the board of directors from time to time of the Company, as the context requires, and “Director” is to be construed accordingly;

“Directors’ Letters of Appointment”

means the letters of appointment for each of the Directors, details of which are set out in Part 18: “Additional Information”;

“Disclosure Guidance and Transparency means the disclosure guidance and transparency rules Rules” or “DTR” sourcebook of the FCA made pursuant to section 73A of FSMA as amended from time to time; “Document” or “this Document” or means this document comprising a prospectus relating to the “Prospectus” or “this Prospectus” Company prepared in accordance with the Prospectus Rules

means this document comprising a prospectus relating to the Company prepared in accordance with the Prospectus Rules made under section 73A of FSMA and approved by the FCA under section 87A of FSMA;

“EEA” means the European Economic Area; “EEA States” means the member states of the European Union and the European Economic Area, each an “EEA State”;

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“Effective Date”

means 11 August 2016;

“Enlarged Common Shares in Issue” means 210,421,766 Common Shares, being the Existing Shares, Subscription Shares, Offer Shares and the Placing Shares; “EU” means the Member States of the European Union; “Euroclear” means Euroclear UK & Ireland Limited; “Exchange Act” means the US Securities Exchange Act of 1934, as amended; “Existing Shares” means the existing Common Shares in issue prior to the Placing, and as at the date of this Document; “FCA” means the UK Financial Conduct Authority; “FSMA” means the Financial Services and Markets Act 2000 of the UK, as amended; “general meeting” means a meeting of the Shareholders of the Company; “Group” the Company and the Subsidiaries; “IFRS” means International Financial Reporting Standards as adopted by the European Union; “Independent Directors” means those Directors of the Board considered by the Board to be independent for the purposes of any appropriate corporate governance regime complied with by the Company from time to time; “IPO” the admission of the Common Shares to the standard segment of the official list and to trading on the main market for listed securities of the London Stock Exchange in January 2017; “IPO Placing” means the placing of 33,322,143 Common Shares in January 2017, as announed on 11 January 2017; “IPO Prospectus” means the prospectus issued in connection with the IPO; “January Placing” means the placing of 9,000,000 Common Shares, as announced on 24 January 2018; “Listing Rules” means the listing rules of the FCA made pursuant to section 73A of FSMA as amended from time to time;

“London Stock Exchange” means London Stock Exchange plc;

“Market Abuse Regulation” The Market Abuse Regulation (S94/2014);

“Net Proceeds” means the funds received on closing of the Placing and Subscription less any expenses paid or payable in connection with Admission, the Subscription and the Placing;

“Offer Price” means 4 pence per Common Share, being the same as the Placing Price;

“Offer Shares” means the up to 20,000,000 Common Shares to be issued pursuant to the PrimaryBid Offer;

“Official List”

means the official list maintained by the FCA;

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“Oil Share Agreement”

“Options”

“Placing”

“Placing Price”

“Placing Shares”

“Pounds Sterling” or “£”

“Premium Listing”

“PrimaryBid Offer”

“Prospectus Directive”

“Prospectus Rules”

“REDPSA”

“Registrar”

“Registrar Agreement”

“Regulatory Information Service”

“SEC”

“Securities Act”

means the obligation connected with a business combination completed in July 2010, pursuant to which, for a period of three years commencing 30 November 2010, the Group would provide the vendor with 50% of the annual gross revenue derived from the sale of barrels of oil from the properties and 25% of the annual gross revenue derived from the sale of barrels of oil;

means the stock options over Common Shares granted pursuant to the Stock Option Plan;

means the proposed Placing of the Placing Shares: (i) by the Company; and (ii) on behalf of the Company (in respect of Common Shares placed by Daniel Stewart & Co Plc and Optiva Securities Limited), in each case at the Placing Price and on the terms and subject to the conditions set out in this Document;

means 4 pence per new Common Share;

means the 46,500,000 Common Shares to be issued pursuant to the placing;

means British pounds sterling, the lawful currency of the UK;

means a listing on the Premium Listing Segment of the Official List under Chapter 6 of the Listing Rules;

the offer to subscribe for Offer Shares at the Offer Price arranged PrimaryBid as set out in paragraph 24.19 of Part 18;

means Directive 2003/71/EC (and any amendments thereto, including Directive 2010/73/EU, to the extent implemented in the relevant member state), and includes any relevant implementing measures in each EEA State that has implemented Directive 2003/71/EC;

means the prospectus rules of the FCA made pursuant to section 73A of FSMA, as amended from time to time;

means the Rehabilitation, Exploration, Development and Production Sharing Agreement entered into on 16 March 2016 between SOCAR, Zenith Aran and SOA, as described in paragraph 1.2 of Part 10: “ Information on the Group ” and paragraph 24.10 of Part 18: “ Additional Information ”;

means Computershare Trust Company of Canada or any other registrar appointed by the Company from time to time;

means the transfer agency and registrarship agreement dated 5 March 2008 between the Company and Olympia Trust Company, and in which Olympia Trust Company’s right, title and interest were assigned and transferred to the Registrar in 2014, further details of which are set out in Part 18: “ Additional Information ”;

means a regulatory information service authorised by the UK Listing Authority to receive, process and disseminate regulatory information in respect of listed companies;

means the US securities and Exchange Commission;

means the US Securities Act of 1933, as amended;

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“Senior Manager”

“Settlement Shares”

“Share Settlement”

“Shareholders”

“SOA”

“SOCAR”

means the senior manager of the Company whose name is set out in Part 11: “ Directors, Senior Management and Corporate Governance ” under the heading “ Senior Management ”; means the 1,598,579 Common Shares issued in settlement of debt in Canada, as announced on 24 January 2018, which are expected to be admitted to the standard segment of the Official List on 26 June 2018;

Means the business process whereby securities or interests in securities are delivered, in simultaneous exchange for payment of money, to fulfil contractual obligations, such as those arising under securities trades;

means the holders of the Common Shares and/or Placing Shares, as the context requires;

SOCAR Oil Affiliate, a company incorporated under the laws of Azerbaijan;

the State Oil Company of Azerbaijan Republic;

“SOCARMO” The Marketing and Operations Department of SOCAR;

“Standard Listing” means a listing on the Standard Listing Segment of the Official List under Chapter 14 of the Listing Rules; “Stock Option Plan” the Company’s shareholder approved stock option plan, further details of which are set out in paragraph 6 of Part 18: “ Additional Information ” of this Document; “Subsidiary” as defined in section 2(2) of the Business Corporations Act (British Columbia);

“Subscription” the subscription for Subscription Shares at the Subscription Price by a number of investors on the terms as set out in paragraph 24 of Part 18; “Subscription Price” means 4 pence per Common Share, being the same as the Placing Price;

“Subscription Shares” means the up to 4,000,000 Common Shares to be issued pursuant to the Subscription;

“Takeover Panel”
“Torrente Cigno Concession”
“Trading Day”

“TSXV”

means the UK Panel on Takeovers and Mergers;

The gad production concession at Torrente Cigno, Italy;

means a day on which the main market of the London Stock Exchange (or such other applicable securities exchange or quotation system on which the Shares are listed) is open for business (other than a day on which the main market of the London Stock Exchange (or such other applicable securities exchange or quotation system) is scheduled to or does close prior to its regular weekday closing time);

means the TSX Venture Exchange;

“UK Listing Authority” means the FCA in its capacity as the competent authority for listing in the UK pursuant to Part VI of FSMA;

149

“uncertificated”or“uncertificated form”	means, in relation to a share or other security, a share or
	other security, title to which is recorded in the relevant
	register of the share or other security concerned as being held
	in uncertificated form (that is, in CREST) and title to which
	may be transferred by using CREST;
“United Kingdom”or“UK”	means the United Kingdom of Great Britain and Northern
	Ireland;
“United States”or“US”	has the meaning given to the term “United States” in
	Regulation S;
“VAT”	means (i) within the EU, any tax imposed by any Member
	State in conformity with the Directive of the Council of the
	European Union on the common system of value added tax
	(2006/112/EC), and (ii) outside the EU, any tax corresponding
	to, or substantially similar to, the common system of value
	added tax referred to in paragraph (i) of this definition;
“Warrants”	means the 46,881,622 warrants granted between April 2014
	and January 2018 to subscribe for Common Shares, as more
	particularly described in paragraph 4 of Part 18: “Additional
	Information” of this Document, of which 17,804,706 were
	outstanding as at 19 June 2018; and
“Zenith Aran”	Zenith Aran Oil Company Limited (the Company’s wholly�
	owned subsidiary), a company incorporated under the laws
	of the British Virgin Islands.

References to a “company” in this Document shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established.

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PART 22

GLOSSARY OF TECHNICAL TERMS

The following technical definitions apply throughout this Document unless the context requires otherwise:

Reserves

Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on:

(a) Analysis of drilling, geological, geophysical and engineering data;
(b) The use of established technology;
(c) Specified economic conditions, which are generally accepted as being reasonable, and shall be disclosed.

Reserves are classified according to the degree of certainty associated with the estimates.

Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.

Each of the reserves categories (proved, probable and possible) may be divided into developed and undeveloped categories:

(a) Developed reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (e.g., when compared to the cost of drilling a well) to put the reserves on production. The developed category may be subdivided into producing and non�producing.

Developed producing reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut�in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.

Developed non�producing reserves are those reserves that either have not been on production or have previously been on production but are shut�in and the date of resumption of production is unknown.

(b) Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g., when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (proved, probable, possible) to which they are assigned.

In multi�well pools it may be appropriate to allocate total pool reserves between the developed and undeveloped categories or to subdivide the developed reserves for the pool between developed producing and developed non�producing. This allocation should be based on the estimator’s assessment as to the reserves that will be recovered from specific wells, facilities, and completion intervals in the pool and their respective development and production status.

Levels of Certainty for Reported Reserves

The qualitative certainty levels referred to in the definitions above are applicable to “individual reserves entities”, which refers to the lowest level at which reserves calculations are performed, and to “reported

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reserves”, which refers to the highest�level sum of individual entity estimates for which reserves estimates are presented. Reported reserves should target the following levels of certainty under a specific set of economic conditions:

(a) at least a 90% probability that the quantities actually recovered will equal or exceed the estimated proved reserves;
(b) at least a 50% probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves; and
(c) at least a 10% probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable plus possible reserves.

A quantitative measure of the certainty levels pertaining to estimates prepared for the various reserves categories is desirable to provide a clearer understanding of the associated risks and uncertainties. However, the majority of reserves estimates are prepared using deterministic methods that do not provide a mathematically derived quantitative measure of probability. In principle, there should be no difference between estimates prepared using probabilistic or deterministic methods.

General

“BIT”	Before Income Tax;
“AIT”	After Income Tax;
“M$”	Thousands of Dollars;
“Effective Date”	The date for which the Present Value of the future cash flows and
	reserve categories are established;
“$US”	United States Dollars;
“BRENT”	North Sea Oil – the common reference for crude oil used for oil price
	comparisons outside North America:
“WTI”	West Texas Intermediate – the common reference for crude oil used
	for oil price comparisons in North America:
Technical Data
“psia”	Pounds per square inch absolute;
“MSTB”	Thousands of Stock Tank barrels of oil (oil volume at 60 F and
	14.65 psia);
“MMscf”	Millions of standard cubic feet of gas (gas volume at 60 f and
	14.65 psia);
“Bbls”	Barrels;
“Mbbls”	Thousands of barrels;
“MMBTU”	Millions of British Thermal Units – heating value of natural gas;
“STB/d”	Stock Tank Barrels of oil per day – oil production rate;
“Mscf/d”	Thousands of standard cubic feet of gas per day – gas production
	rate;
“GOR (scf/STB)”	Gas�Oil ratio (standard cubic feet of solution gas per stick tank barrel
	of oil);
“mKB”	Metres Kelly Bushing – depth of well in relation to the Kelly Bushing
	which is located on the floor of the drilling rig. The Kelly Bushing is
	the usual reference for all depth measurements during drilling
	operations;

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“EOR” Enhanced Oil Recovery; “GJ” Gigajoules; “Marketable or Sales Natural Gas” Natural gas that meets specifications for its sale, whether it occurs naturally or results from the processing of raw natural gas. Field and plant fuel and losses to the point of the sale must be excluded from the marketable quantity. The heating value of marketable natural gas may vary considerably, depending on its composition; therefore, quantities are usually expressed not only in volumes but also in terms of energy content. Reserves are always reported as marketable quantities; “NGLs” Natural Gas Liquids – Those hydrocarbon components that can be recovered from natural gas as liquids, including but not limited to ethane, propane, butanes, pentanes plus, condensate, and small quantities of non�hydrocarbons; “Raw Gas” Natural gas as it is produced from the reservoir prior to processing. It is gaseous at the conditions under which its Volume is measured or estimated and may include varying amounts of heavier hydrocarbons (that may liquefy at atmospheric conditions) and water vapour; may also contain sulphur and other non�hydrocarbon compounds. Raw natural gas is generally not suitable for end use; and “EUR” Estimated Ultimate Recovery.

153

PART 23 COMPETENT PERSON’S REPORT

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N
W E
�
Georgia Russia S
Caspian Sea
Armenia ZARDAB FIELD MURADKHANLI Baku
FIELD
Aran
JAFARLI FIELD Economic
Region
Iran
Company Block
Area of Interest
Georgia Russia
Caspian Sea
A Z E R B A I J A N
Armenia
Baku
ZENITH ENERGY LTD.
COMPANY BLOCK
IMISHLI AREA, ARAN E.R., AZERBAIJAN
I r a n
ORIENTATION MAP
APR. 2018 JOB No. 6445 FIGURE No. 1
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----- Start of picture text -----

E
N S
� W
5 km
Muradkhanli Southeast Pool Jafarli Field
48
Muradkhanli Pool 1
Muradkhanli Field
Muradkhanli Pool 2
Muradkhanli Pool 3
Muradkhanli South Pool
Muradkhanli North Pool
Zardab Field
LEGEND Contract Area Exploration Area
Note: Contours are Structure on Lower Cretaceous (C.I.=100 m)
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W E
�
S
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LEGEND
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Company Block Exploration Area Source: U.S. Energy Information Administration

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----- Start of picture text -----

ZARDAB FIELD
MURADKHANLI
FIELD
JAFARLI FIELD
50
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----- Start of picture text -----

ZENITH ENERGY LTD.
----- End of picture text -----

CASPIAN SEA REGION OIL AND GAS FIELDS MAP APR. 2018 JOB No. 6445 FIGURE No. 2a

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----- Start of picture text -----

KOPET DAG DETACHED
TURAN CONTINENTAL BLOCK
OUTER SALIENT
Pre-Pliocene Outcrop Pre-Pliocene Outcrop
Pliocene-Quaternary Outcrop Pliocene-Quaternary Outcrop
CASPIAN SEA
Karabogaz High
Kopet Dag
Outer Salient
SOUTH CASPIAN BLOCKS (Detached)
South Caspian Structural Block
Turkmen Block
CIMMERIAN CONTINENTAL BLOCKS Shoreline of
Caspian Sea
Pre-Pliocene Outcrop
Pliocene-Quaternary Outcrop EXPLANATION
Folds
CAUCASUS COLLISION ZONE
Thrust Fault
Caucasus Oceanic Crust - Strike-slip Fault
Flysch Deformation Belt 0 100 KILOMETERS
Slump Structure
v v
v
v
involved)
v
g Salient
e
nt
a
e
y
v
D
s
Talysh Salient
m
r
Elburz Reentrantv
(Basement involved)
si
t
S s
p
on/
te
e
m
e
genic B
W
A
psheron - Pribalkhan
Co
elt
o
m
s
Ashgabat
Convergent Wrench System
v
h
Or
r
a
c
p
Greater
s
en
(B
v
Cau
Ko
su
l
ca
Buckle Folds
& Shale Diapirs
l Turkmen Block
l
l
v
l
l
l
v
l
l
Kura Basin
l
l
l
Complex AccretionaryLesser Caucasus
Zone of Slump &
Growth Faulting
l
B
a
l
l
l
ck
l
T
h
l
v
l
l
ru
s
l
l
l
t
l
l
l
l
l
v
l
l
v
v
l
l
l
----- End of picture text -----

Source: U.S.G.S.

Company Block

ZENITH ENERGY LTD.

CASPIAN SEA REGION REGIONAL GEOLOGY MAP APR. 2018 JOB No. 6445 FIGURE No. 2b

205

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FIGURE No. 2c
JOB No. 6445
GEOLOGICAL MAP
ZENITH ENERGY LTD.
TABLE OF FORMATIONS
REPUBLIC OF AZERBAIJAN
APR. 2018
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FIGURE No. 2d
JOB No. 6445
GEOLOGICAL MAP
ZENITH ENERGY LTD.
REPUBLIC OF AZERBAIJAN
APR. 2018
Company Block
E
N S
� W
53
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207

EPOCH	FORMATION	DEPTH
UPPER QUARTERNARY		200

		400


		600


		800
LOWER QUARTERNARY

		1000

		1200



		1400




		1600




		1800




		2000
PLIOCENE

		2200


		2400



		2600



		2800
MIOCENE	CHOKRAK


		3000



	MAYKOP	3200
		3400
OLIGOCENE
		3600

EOCENE

		3800


		4000

UPPER CRETACEOUS	VOLCANICS	4200
		4400

ZENITH ENERGY LTD.

MURADKHANLI FIELD KURA BASIN, AZERBAIJAN STRATIGRAPHIC COLUMN APR. 2018 JOB No. 6445 FIGURE No. 2e

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209 31 19 77 88 45 44 27 84 68 61 19
WEST EAST
UPPER QUARTERNARY
-400
-800
LOWER QUARTERNARY
-1200
-1600
UPPER PLIOCENE
-2000
MIDDLE PLIOCENE
-2400
LOWER PLIOCENE
-2800
CHOKRAK
-3200
MAYKOP
-3600
-4000
EOCENE
-4400
-4800
UPPER CRETACEOUS
VOLCANICS
-5200
H,m
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OIL RESERVOIRS FAULT

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----- Start of picture text -----

ZENITH ENERGY LTD.
MURADKHANLI FIELD
KURA BASIN, AZERBAIJAN
STRUCTURAL CROSS SECTION
APR. 2018 JOB No. 6445 FIGURE No. 2f
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ZENITH ENERGY LTD.

MURADKHANLI FIELD AZERBAIJAN WELL MOC-1 LOG ANALYSIS Middle Eocene Formation APR. 2018 JOB No. 6445 FIGURE No. 2g

210

Middle Eocene

ZENITH ENERGY LTD. MURADKHANLI FIELD AZERBAIJAN WELL M25a LOG ANALYSIS Middle Eocene Formation APR. 2018 JOB No. 6445 FIGURE No. 2h

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----- Start of picture text -----

N
W E
�
S
Pool 2
355
353
1
759 57
181
344
617 451
721 135
191
3606
151
891 290
36
268 42
155
2149 73
49
211 236 1478
858
186 Pool 1
174
1406
Pool 3
5 km
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Active well in Upper Cretaceous Formation

Active well in Chokrak Formation Location

Probable estimated drainage area

PUD estimated drainage area

2 Well number 2 Cumulative production - Thousands of STB to 2015

Note: Contours are Structure on Lower Cretaceous (C.I.=100 m)

ZENITH ENERGY LTD. MURADKHANLI POOLS 1,2,3 Upper Cretaceous Formation MURADKHANLI FIELD, AZERBAIJAN DEVELOPMENT MODEL APR. 2018 JOB No. 6445 FIGURE No. 3a

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N
W E
�
S
913
191
104
24
563 1
93
63
5 km
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Active well in Mid. Eocene Formation

Location

Probable estimated drainage area PUD estimated drainage area 2 Well number 2 Cumulative production - Thousands of STB to 2015

ZENITH ENERGY LTD.

MURADKHANLI SE POOL Middle Eocene Formation MURADKHANLI FIELD, AZERBAIJAN DEVELOPMENT MODEL APR. 2018 JOB No. 6445 FIGURE No. 3b

Note: Contours are Structure on Lower Cretaceous (C.I.=100 m)

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60
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----- Start of picture text -----

N
W E
�
S
2
2
3
1
5 km
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Active well in Mid. Eocene Formation

Location

Horizontal location estimated drainage area

2 Well number
2 Cumulative production - Thousands of STB to 2015

ZENITH ENERGY LTD.

Note: Contours are Structure on Lower Cretaceous (C.I.=100 m)

MURADKHANLI SOUTH POOL Middle Eocene Formation MURADKHANLI FIELD, AZERBAIJAN DEVELOPMENT MODEL APR. 2018 JOB No. 6445 FIGURE No. 3c

215

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----- Start of picture text -----

N
W E
�
S
N/A
29
4
104
5 km
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Active well in Mid. Eocene Formation

Location

Horizontal location estimated drainage area

2 Well number 2 Cumulative production - Thousands of STB to 2015

Note: Contours are Structure on Lower Cretaceous (C.I.=100 m)

ZENITH ENERGY LTD.

MURADKHANLI NORTH POOL Middle Eocene Formation MURADKHANLI FIELD, AZERBAIJAN DEVELOPMENT MODEL

APR. 2018 JOB No. 6445 FIGURE No. 3d

216

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----- Start of picture text -----

N
W E
�
63 S
468
5
189
502
570
122 154
2 13
73
97
261
811
55
131
1 km
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Active well in Mid. Eocene Formation

Location Probable estimated drainage area PUD estimated drainage area

2 Well number 2 Cumulative production - Thousands of STB to 2015

ZENITH ENERGY LTD. JAFARLI POOL Middle Eocene Formation JAFARLI FIELD, AZERBAIJAN DEVELOPMENT MODEL APR. 2018 JOB No. 6445 FIGURE No. 3e

Note: Contours are Structure on Lower Cretaceous (C.I.=100 m) 63

217

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N
W E
�
S
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----- Start of picture text -----

5 km
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Active well in Maykop

Workover Candiate

Note: Contours are Structure on Lower Cretaceous (C.I.=100 m)

ZENITH ENERGY LTD. ZARDAB POOL Maykop Formation ZARDAB FIELD, AZERBAIJAN DEVELOPMENT MODEL APR. 2018 JOB No. 6445 FIGURE No. 3f

218

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266

Photos from Site Visit

Baku and Muradkhanli Oil Field, Azerbaijan

September 2015

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Zenith Personnel at Work in Zenith Head Office in Baku

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Chapman Associate at Muradkhanli Field Office

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Chapman, Zenith and SOCAR Personnel in Muradkhanli Field

==> picture [257 x 193] intentionally omitted <==

Typical Flowing Muradkhanli Oil Well

113

267

Photos from Site Visit

Baku and Muradkhanli Oil Field, Azerbaijan

September 2015

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Service Rig Moving to Work Over Well with ESP

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Chapman and Zenith Personnel with SOCAR Field Supervisors

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Heater Treaters and Other Equipment at Muradkhanli Central Facilities

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3000 BBL Oil Storage Tank at Muradkhanli Central Facilities

114

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----- Start of picture text -----

Austria
Switzerland Hungary
Slovenia
Croatia
France
ITALY
Gulf of Venice Bosnia
& Herz.
Misano Adriatico
Adriatic Sea
Rome San Mauro
Torrente Cigno
Lucera
Tyrrhenian Sea
Mediterranean Sea
Tunisia
Algeria
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----- Start of picture text -----

ZENITH ENERGY LTD.
----- End of picture text -----

COMPANY’S CONCESSIONS ITALY ORIENTATION MAP APR. 2018 JOB No. 6445 FIGURE No. 1a

118

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119

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280

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128

282

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----- Start of picture text -----

ISOLE TREMITI
LAVIZZA
GIO
COLLE GINESTRE
MAFALDA
COLLE DI LAURO
TORRENTE
CIGNO
VALLE DEL ROVELLO
MASSERIA VERTICCHIO
MASSERIA GROTTAVECCHIA
MELANICO
M A R E
ASSO
MASSERIA PETRILLI A D R I A T I C O
CROCE
MASSERIA
TERTIVERI ACQUASALSA Foggia
TORRENTE �
LUCERA CELONE
TORRENTE
VULGANO
POSTA NUOVA
MACCHIA DI PIERN O
MONTE VRECCIARO
PECORARO SEDIA D'ORLANDO
Barletta, �
Andria, Trani
CANDELA
�
Benevento
NUSCO
40 km
Austria
Switzerland. Hungary
Slovenia
San Andrea
Croatia
France
ITALY
Gulf of Venice & Herz.Bosnia
Misano Adriatico ZENITH ENERGY LTD.
Adriatic Sea
Rome San Mauro LUCERA CONCESSION
Masseria
Torrente Cigno Acquasals
Lucera PUGLIA REGION, ITALY
Tyrrhenian Sea
LAND MAP
Mediterranean Sea
APR. 2018 JOB No. 6445 FIGURE No. 1
Tunisia
Algeria
129
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283

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130
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Source: Doglioni and Flores, An Introduction to the Italian Geology, 1997
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ZENITH ENERGY LTD.

ITALY REGIONAL GEOLOGY APR. 2018 JOB No. 6445 FIGURE No. 2a 131

285

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----- Start of picture text -----

ZONES OF INTEREST
----- End of picture text -----

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----- Start of picture text -----

ZENITH ENERGY LTD.
ITALY
STRATIGRAPHIC CHART
APR. 2018 JOB No. 6445 FIGURE No. 2b
132
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133

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300

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----- Start of picture text -----

GIORE 40 km
LONGASTRINO
DOSSO DEGLI ANGELI
ALFONSINE
TOCCAGGIO
PORTO CORSINI TERRA
RAVENNA
CASALE TERRA
COCCHI
Ravenna
�
TITO
SAN MARCO M A R E
AN POTITO E
COTIGNOLA
TOCCAGGIO
DEI GRILLI A D R I A T I C O
�
Forlì -
Cesena
�
Rimini
MISANO
ADRIATICO
Pesaro Urbino
�
MONTELURO
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----- Start of picture text -----

Austria
Switzerland. Hungary
Slovenia
San Andrea
Croatia
France
ITALY
Gulf of Venice & Herz.Bosnia
Misano
Adriatico
Adriatic Sea
Rome San Mauro
Masseria
Torrente Cigno Acquasals
Lucera
Tyrrhenian Sea
Mediterranean Sea
Tunisia
Algeria
147
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----- Start of picture text -----

ZENITH ENERGY LTD.
MISANO ADRIATICO
CONCESSION
EMILIA ROMAGNA REGION, ITALY
LAND MAP
APR. 2018 JOB No. 6445 FIGURE No. 1
----- End of picture text -----

301

148

302

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----- Start of picture text -----

Source: Doglioni and Flores, An Introduction to the Italian Geology, 1997
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ZENITH ENERGY LTD.

ITALY REGIONAL GEOLOGY APR. 2018 JOB No. 6445 FIGURE No. 2a 149

303

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----- Start of picture text -----

ZONES OF INTEREST
----- End of picture text -----

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----- Start of picture text -----

ZENITH ENERGY LTD.
ITALY
STRATIGRAPHIC CHART
APR. 2018 JOB No. 6445 FIGURE No. 2b
150
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S. BENEDETTO DEL TRONTO
�
Ascoli Piceno
COLLE DEI NIDI
SETTECERRI
S. MAURO
�
Teramo
CELLINO
STOCCAGGIO
MUTIGNANO
40 km
�
Pescara
Austria
Switzerland. Hungary
Slovenia
San Andrea
Croatia
France
ITALY
Gulf of Venice & Herz.Bosnia
Misano Adriatico
ZENITH ENERGY LTD.
San Adriatic Sea
Rome Mauro
Torrente Cigno MasseriaAcquasals SAN MAURO CONCESSION
Lucera
Tyrrhenian Sea ABRUZZO REGION, ITALY
LAND MAP
Mediterranean Sea
APR. 2018 JOB No. 6445 FIGURE No. 1
Tunisia
Algeria
165
M A R E A D R I A T I C O
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319

166

320

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----- Start of picture text -----

Source: Doglioni and Flores, An Introduction to the Italian Geology, 1997
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ZENITH ENERGY LTD.

ITALY REGIONAL GEOLOGY APR. 2018 JOB No. 6445 FIGURE No. 2a 167

321

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----- Start of picture text -----

ZONES OF INTEREST
----- End of picture text -----

==> picture [266 x 156] intentionally omitted <==

----- Start of picture text -----

ZENITH ENERGY LTD.
ITALY
STRATIGRAPHIC CHART
APR. 2018 JOB No. 6445 FIGURE No. 2b
168
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----- Start of picture text -----

RTONA
S. MARIA
IMBARO
CIVITA
ISOLE TREMITI
AGLAVIZZA
O FIUME TRESTE STOCCAGGIO
FIUME TRESTE COLLE GINESTRE
MAFALDA
COLLE
DI LAURO
TORRENTE
CIGNO
Masseria Vincelli 1
4 VALLE DEL ROVELLO
MASSERIA VERTICCHIO
MASSERIA GROTTAVECCHIA
40 km MELANICO
CAMPOBASSO MASSERIA PETRILLI
�
MASSERIA
SANTA CROCE
LUCERA ACQUASALSA
TERTIVERI F
Austria
Switzerland. Hungary
Slovenia
San Andrea
Croatia
France
ITALY
Gulf of Venice & Herz.Bosnia
Misano Adriatico ZENITH ENERGY LTD.
Adriatic Sea
Rome San Mauro TORRENTE CIGNO
TorrenteCigno MasseriaAcquasals CONCESSION
Lucera MOLISE REGION, ITALY
Tyrrhenian Sea
LAND AND WELL MAP
Mediterranean Sea APR. 2018 JOB No. 6445 FIGURE No. 1
Tunisia
Algeria
183
M A R E A D R I A T I C O
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337

184

338

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----- Start of picture text -----

Source: Doglioni and Flores, An Introduction to the Italian Geology, 1997
----- End of picture text -----

ZENITH ENERGY LTD.

ITALY REGIONAL GEOLOGY APR. 2018 JOB No. 6445 FIGURE No. 2a 185

339

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ZONE OF INTEREST
----- End of picture text -----

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----- Start of picture text -----

ZENITH ENERGY LTD.
ITALY
STRATIGRAPHIC CHART
APR. 2018 JOB No. 6445 FIGURE No. 2b
186
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340

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----- Start of picture text -----

4
MASSERIA
VINCELLI 1
UP DIP GAS
AQUIFER
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ZENITH ENERGY LTD. TORRENTE CIGNO CONCESSION MOLISE REGION, ITALY MASSERIA VINCELLI STRUCTURE APR. 2018 JOB No. 6445 FIGURE No. 2c

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AI assistant

Zenith Energy — Capital/Financing Update 2018

8200_prs_2018-06-20_21cd872c-6c93-4905-8e20-baca354a0426.pdf

Zenith Energy Ltd.

COMMON SHARES IN ISSUE IMMEDIATELY FOLLOWING THE PLACING AND SUBSCRIPTION

210,421,766

CONTENTS

PART 1

SUMMARY

Business Strategy

Azerbaijan

Italy

Consolidated Statement of Financial Position

Consolidated Statement of Comprehensive Income

Consolidated Statements of Cash Flows

Financial Position

Cash Flows

Closing cash

Revenues

Revenues (net of royalties)

Oil

Gas

Costs

PERIOD SUBSEQUENT TO THE PERIOD COVERED BY THE FINANCIAL INFORMATION

Unaudited pro�forma statement of net assets

PART 2

RISK FACTORS

RISKS RELATING TO THE GROUP’S FOREIGN OPERATIONS

RISKS RELATING TO FOREIGN OIL AND GAS OPERATIONS

RISKS RELATING TO THE GROUP’S OPERATIONS IN AZERBAIJAN

REHABILITATION AND PRODUCTION PROGRAMME

MINIMUM EXPLORATION WORK PROGRAMME

AZERBAIJAN COULD BE AFFECTED BY REGIONAL TENSIONS AND UNREST

THE IMPLEMENTATION OF FURTHER MARKET�BASED ECONOMIC REFORMS IN AZERBAIJAN INVOLVES RISKS

OFFICIAL DATA IN AZERBAIJAN MAY BE UNRELIABLE

THERE ARE RISKS ASSOCIATED WITH THE UNDERDEVELOPMENT AND EVOLUTION OF THE LEGISLATIVE, TAX AND REGULATORY FRAMEWORK IN AZERBAIJAN

FOREIGN JUDGMENTS AND ARBITRAL AWARDS MAY NOT BE ENFORCEABLE IN AZERBAIJAN

RISKS RELATING TO THE COMPANY AND ITS OPERATIONS

ACTIVITIES IN THE OIL AND GAS SECTORS CAN BE DANGEROUS, POSING HEALTH, SAFETY AND ENVIRONMENTAL RISKS

REGULATORY

ENVIRONMENTAL CONCERNS

SIGNIFICANT CAPITAL EXPENDITURE

AVAILABILITY OF DRILLING EQUIPMENT AND ACCESS

OPERATIONAL RISKS

TITLE TO ASSETS

RESERVE ESTIMATES

PRICES, MARKETS AND MARKETING

VARIATIONS IN FOREIGN EXCHANGE RATES AND INTEREST RATES

BORROWING LEVELS, LEVERAGE AND RESTRICTIVE COVENANTS

ISSUANCE OF DEBT

HEDGING

INSURANCE

MANAGEMENT OF GROWTH

THIRD�PARTY CREDIT RISK

CONFICTS OF INTEREST

RELIANCE ON KEY PERSONNEL

COMPETITION

SEASONALITY

POSSIBLE FAILURE TO REALISE ANTICIPATED BENEFITS OF FUTURE ACQUISITIONS AND DISPOSALS

EXPIRATION OF PERMITS, LICENCES AND LEASES

DELAY IN CASH RECEIPTS

IMPACT OF FUTURE EXPENDITURES

CHANGES IN LEGISLATION

RISKS RELATING TO THE SHARES

THE COMMON SHARES ARE LISTED ON THE STANDARD SEGMENT OF THE UK OFFICIAL LIST AND AFFORD INVESTORS A LOWER LEVEL OF REGULATORY PROTECTION THAN A PREMIUM LISTING

SHAREHOLDERS WILL NOT HAVE THE OPPORTUNITY TO VOTE TO APPROVE TRANSACTIONS

INVESTORS WILL EXPERIENCE A DILUTION OF THEIR PERCENTAGE OWNERSHIP OF THE COMPANY ON THE EXERCISE OF OUTSTANDING OPTIONS, WARRANTS OR CONVERSION OF CONVERTIBLE LOAN NOTES OR IF THE COMPANY DECIDES TO OFFER ADDITIONAL COMMON SHARES IN THE FUTURE

SHAREHOLDERS WILL NOT BE ENTITLED TO THE TAKEOVER PROTECTIONS PROVIDED BY THE CITY CODE

THE COMPANY IS INCORPORATED IN CANADA, AND AS SUCH IS SUBJECT TO CANADIAN COMPANY LAW

INVESTORS MAY NOT BE ABLE TO REALISE RETURNS ON THEIR INVESTMENT IN COMMON SHARES WITHIN A PERIOD THAT THEY WOULD CONSIDER TO BE REASONABLE

THE COMPANY DOES NOT CURRENTLY INTEND TO PAY DIVIDENDS AND ITS ABILITY TO PAY DIVIDENDS IN THE FUTURE MAY BE LIMITED

RISKS RELATING TO TAXATION

FUTURE CHANGES IN TAX REGULATION APPLICABLE TO THE COMPANY’S ENTITIES MAY REDUCE NET RETURNS TO SHAREHOLDERS

TAX RISKS RELATED TO ITALIAN OPERATIONS

TAX RISKS RELATED TO AZERBAIJANI OPERATIONS

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

General

Investors should read this Document in its entirety.

Presentation of financial information

Non�financial operating data

Zenith Energy Capital/Financing Update 2018