2013 Annual Report

2013 ANNUAL REPORT

Madagascar Oil Limited

Contents

Senior Independent Director’s Statement ...... 3

Chief Operating Officer’s Review of Operations ...... 6

Financial Review ...... 11

Corporate Governance Statement ...... 14

Remuneration of Directors ...... 17

Board of Directors ...... 19

Senior Management ...... 21

Directors' Report ...... 22

Corporate Social Responsibility Programme...... 25

Statement of Directors’ Responsibilities ...... 26

Independent Auditors’ Report ...... 27

Statement of Comprehensive Income ...... 29

Consolidated Balance Sheet ...... 30

Consolidated Statement of Cash Flows ...... 31

Consolidated Statement of Changes in Equity ...... 32

Notes to the Consolidated Financial Statements ...... 33

Madagascar Oil Limited

Senior Independent Director’s Statement

Dear Shareholders,

It is with great pleasure that I provide this Senior Independent Director’s Statement in respect of the Financial Statements for the year-ended 31 December 2013. I am making this Statement in the absence of a Chairman since Andrew Morris left the Board in November 2013. I would like to put on record my thanks to Andrew for his efforts and dedication to the Company over the years that he served as a non- executive director and Chairman.

The Company made significant progress in 2013, commencing with the successful raising of additional funds to finance the Steam Flood Pilot (“SFP”) project at our Tsimiroro Field (the “Field”) in Madagascar. This fundraising resulted in the issue of 275,237,772 common shares in the Company (“the Placing and Open Offer”). The Placing and Open Offer was fully subscribed and closed on 12 February 2013, raising approximately US$78.4 million (gross). The vast majority of our substantial shareholders participated in the fundraising and we are grateful for the continued support of our shareholders which has enabled the Company to accelerate its operational progress towards unlocking the significant potential of the Tsimiroro heavy oil field.

Construction of the SFP facility was completed in early spring 2013, allowing operations to commence and leading to the first continuous generation and injection of steam on 8 April 2013. After a slow start to achieve full commissioning, the performance of the SFP has been very encouraging. Oil production has built steadily, initially from Cyclic Steam Stimulation (“CSS” or “Huff and Puff”) cycling of the wells with the subsequent encouraging onset of steam injection support being observed in some areas of the pilot. The key steam oil ratios being achieved are also positive, with combined CSS and steam flood responses being consistently in the 3-5 barrel per barrel range since December 2013. The loss of three wells due to mechanical integrity has been disappointing, however this is not related to the thermal injection process and plans to reinstate these locations are well advanced. The thermal response from the Amboloando reservoir in the pilot area has yielded sufficient information to allow oil production projections to be made and enabled Madagascar Oil SA to declare the commerciality of Tsimiroro under the terms of the Production Sharing Contract (“PSC”) on 8 May 2014 (the “Declaration of Commerciality”). At the end of May 2014 cumulative oil production from the SFP was 94,494 barrels of which 46,079 barrels were stored in the Tsimiroro SFP storage tanks.

After the first year of SFP operations, early projections of the estimated ultimate recoveries from the combined CSS and steam flood responses are being worked on by the management of the Company. A wide range of outcomes remains possible but the potential commerciality of a development even at the lower end of expected outcomes allowed the Company, through its subsidiary Madagascar Oil SA, to proceed with the Declaration of Commerciality. The continued operation of the SFP will contribute to a better assessment of the ultimate oil recovery and rate projections and the exploitation of the area beyond the immediate SFP is being planned as the first step in the full field development at Tsimiroro. Further appraisal of the field and the greater licence area is also being planned including drilling, seismic and other geological studies.

Following the Declaration of Commerciality, Madagascar Oil SA intends to submit a full field development plan (“FFDP”) in the second half of 2014. We will be working closely with our partner L’Office des Mines Nationales et des Industries Strategiques (“OMNIS”) and the Government of Madagascar to finalise the FFDP and obtain an Exploitation Licence which will entitle Madagascar Oil SA to develop and produce oil from Tsimiroro for a period of at least 25 years.

Our Tsimiroro Development Planning Team was established in late summer 2013. This team has derived detailed technical and commercial parameters for the reservoir development, drilling design, facilities requirements and worked on other stakeholder issues for the ongoing appraisal and phased development of the Tsimiroro field. These parameters have been developed by experts with proven worldwide proficiency in thermal field applications and will form the basis of the Tsimiroro FFDP. The initial development phase will be based on extending the SFP area and facilities, targeting the area of the reservoir of which we have the greatest understanding, while simultaneously performing appraisal of the

Madagascar Oil Limited

Senior Independent Director’s Statement remainder of the extensive Tsimiroro Field. Progress of the FFDP will be on a step-by-step basis as further information is obtained.

The Company received confirmation on 21 May 2014 that the decree permitting test sales of Tsimiroro crude oil in the local market had been approved at a meeting of the Madagascar Council of Ministers. I am pleased that Madagascar Oil SA has now accumulated sufficient production to be able to carry out early test sales of our crude oil in the local market. It is intended that test sales of between 55,000 and 73,000 barrels of Tsimiroro crude oil will commence in the second half of 2014 for up to six months under the terms of the PSC. The Company was delighted to welcome the new President of Madagascar, H.E. Hery Rajaonarimampianina, to the Tsimiroro SFP site on 18 June 2014 to inaugurate our newly constructed crude oil blending facilities thus enabling us to undertake the early test sales. These early test sales will represent the first time that oil which has been produced in-country will be sold and our Company is proud to be in the vanguard of this new chapter for Madagascar.

The Company is grateful to the Government of Madagascar including the Ministry of Strategic Resources and OMNIS for the support they have shown us and we look forward to working with them constructively in the coming months as we seek approval to proceed with the appraisal and development of Tsimiroro, alongside SFP operations which we plan to continue to operate for the foreseeable future to improve our understanding of the Field’s production potential.

The safety record during the construction and operational phases was exemplary with zero lost time incidents (“LTIs”) being recorded in 2013 and this has continued into 2014 to date with over 2.6 million man-hours without an LTI to 31 May 2014. The SFP operations and maintenance crew have performed remarkably given the unique nature of the plant and its remote location. Initial problems with the steam generators have been overcome and all four generators are currently available for SFP operations, providing more than sufficient steam for our requirements. One important example of our team’s innovation has been the reduction in the usage of diesel which was initially blended with our crude to run the steam generators. Since January 2014 our generators have been running on 100% Tsimiroro crude, saving significant diesel costs and also demonstrating the positive fuel characteristics of the Tsimiroro crude. Accepting our responsibilities to the Madagascar population and environment continues to be at the heart of our engagement with stakeholders at national, regional and village level. Recruitment and on the job training of the Madagascar workforce both at the SFP location and the Antananarivo office has been an early success of the project. Protection of the environment has also been a feature with particular attention paid to water resource management, erosion control and preventing oil spills. We are working closely with all Madagascar authorities, the National Environment Office and outside agencies to ensure their understanding of the project, that their experience and wisdom is effectively applied to the planning and execution of the project and that we meet and exceed standards jointly agreed.

Our focussed Corporate Social Responsibility Programme has been based upon the principles of sustained development and consultation with the local population in the Tsimiroro Field area while gaining approval from national authorities. The healthcare clinic, water supply, school building and road improvement infrastructure projects are prioritised by the villages adjacent to the SFP and are bringing real benefits to communities. Individual initiatives are being co-ordinated with national authority or National Government Organisation supported institutions such as child vaccination, eye clinics and health awareness campaigns which the presence of the pilot plant and logistics support facilitates.

In December 2012 Paul Ellis stepped up from being a non-executive director to take on the role of Chief Executive Officer (“CEO”) as an interim appointment, from which he resigned in July 2013. The Company has been without a CEO since that time and the management of the Company has been led very effectively by our Chief Operating Officer, Stewart Ahmed, and Chief Financial Officer, Gordon Stein, reporting directly to the Board of Directors. Gordon was subsequently appointed to the Board as an Executive Director in March 2014. We are conducting an active process of recruitment for a new CEO and hope that we will be in a position to make an appointment soon.

Madagascar Oil Limited

Senior Independent Director’s Statement

The Company successfully concluded the settlement of the long-running dispute over Valued Added Tax (“VAT”) liabilities with the Madagascar Tax Administration in November 2013 covering all charges, penalties and interest for VAT payable on foreign services for the period 2007 to end 2011. The settlement reached in 2013 will allow the Company to move forward into the future with a greater degree of confidence. The Madagascan Tax Authorities have yet to carry-out an audit of VAT for the Financial Years 2012 and 2013 and the Company has made an appropriate provision in its Financial Statements for the year ending 31 December 2013 for a possible future VAT settlement for those years.

The Company is working on a financial strategy to secure the funds required to support the next phase of the Group’s planned activities which will include the commencement of the Tsimiroro development, further appraisal drilling and seismic activity on the Tsimiroro field, ongoing exploration licence activities and for corporate working capital requirements. The scale of funds will be determined by the pace of the Tsimiroro development, the number of wells required and forecast revenues from production. In addition to the need to fund the Tsimiroro development in the medium term, the Company requires funding to cover corporate overheads for the foreseeable future. This is discussed in more detail in the Financial Review on page 11. The Company is actively looking at a number of fund-raising options and further information will be provided to shareholders in due course on how the Company will finance the Madagascar Oil Group’s ongoing and future business plans.

Progress on the exploration licenses consisted of the completion of a new geological interpretation over Blocks 3105/6/7 incorporating all existing data including the 2012 acquired Airborne Gravity Gradiometry (”AGG”) data. The two geological outcrop sampling trips in 2013 yielded positive source rock and reservoir quality samples allowing improved risking of the prospect and lead inventory. Seismic infill acquisition programmes have been designed based on maturing the leads to drillable prospects. Since late 2013, we have been actively seeking to farm-out the exploration licences and this process continues with the latest interpretations being made available to the farm-out data room entrants.

In conclusion, the Group has made encouraging progress in 2013 and 2014 will be another important year. After ten years of operating under an exploration licence on Block 3104 we are progressing into a new phase for the Tsimiroro field. Our employees have performed remarkably in meeting the challenges so far and it is with great anticipation that we enter into the next chapter in the developing story of the Tsimiroro Field.

I would like to thank management, our staff and contractors for their dedication and efforts during a year which has seen a significant positive transformation in the Company’s understanding of its major asset. We look forward to the outcome of our endeavours playing a role in the development of Madagascar for the benefit of the country and its people as well as our Company and its shareholders.

Iain Patrick

Senior Independent Director

Madagascar Oil Limited

Chief Operating Officer’s Review of Operations

Highlights

 A Block 3104 Appraisal Report and the Declaration of Commerciality under the terms of the Production Sharing Contract (“PSC”) were submitted to L’Office des Mines Nationales et des Industries Strategiques (“OMNIS”) on 8 May 2014.  Interpretation of well performance to date has been encouraging enough to support the Declaration of Commerciality for the first phase of development and ongoing field appraisal  Preparation of the Tsimiroro Full Field Development Plan (“FFDP”) is underway at the time of publishing this report for a planned submission in the second half of 2014.  Commissioning of the 2013 Steam Flood Pilot (“SFP”) plant was completed and commencement of operations achieved in April 2013.  At the end of May 2014 cumulative oil production from the SFP was 94,494 barrels of which 46,079 barrels were stored in the Tsimiroro SFP storage tanks.  Ministerial approval has been given to Madagascar Oil SA to sell a volume of Tsimiroro produced oil of between 55,000 and 73,000 barrels as a test of acceptability in the domestic market over a six month period beginning in the second half of 2014.  Strong collaborative working relationships have been established with relevant government departments, particularly OMNIS.  A full structural geological re-interpretation of Block 3104 and the Tsimiroro Field has been completed.  All four SFP steam generators are now commissioned and running on 100% Tsimiroro Crude.  Cyclic Steam Stimulation (“CSS”) has been implemented on 24 of the 25 pilot wells  Full continuous data gathering on active and temperature observation wells is providing important information about the performance of pilot wells.  Two new temperature observation wells drilled and cored in late 2013 to speed up interpretation of reservoir performance.  There were no lost time incidents in 2013.  Madagascar Oil SA is in compliance with all National Environment Office (“ONE”) reporting requirements in line with the existing SFP Environmental Permit. Environmental Impact Studies for an initial field development are underway.  Open consultation with local village representatives and authorities continues over infrastructure projects, employment and land use.  Successful surface geology fieldtrips have been completed on the exploration licences.

Summary

The predominant focus of the Madagascar Oil Group during 2013 has been in Block 3104 to transform the interpretation of geological and well data gathered over many decades for Tsimiroro, and on the operation of the Tsimiroro SFP plant. The construction of the SFP was completed in early spring 2013 and operations commenced leading to the first continuous generation and injection of steam on 8 April 2013. CSS has been applied on all 25 wells comprising the SFP. At year-end 2013, cumulative oil production was 36,357 barrels. At the end of May 2014 cumulative oil production was 94,494 barrels of which 46,079 barrels were stored in the Tsimiroro SFP storage tanks. After a slow start in commissioning the steam generators and raising steam injection rates into the pilot flood wells, four generators are now available and are being fuelled by undiluted Tsimiroro crude oil. Full data acquisition from the producing wells which have undergone up to six Huff and Puff cycles has given sufficient encouragement about well production capacity after steam stimulation to declare commerciality under the PSC.

On the three exploration licenses 3105, 3106 and 3107 a complete re-interpretation of the structure and prospectivity of the licences commenced in 2013. This was supported by two successful field trips that recovered reservoir quality and source rock samples from the sedimentary sequence from surface outcrops. The results of the 2012 acquired Airborne Gravity Gradiometry (”AGG”) survey were fully 6

Madagascar Oil Limited

Chief Operating Officer’s Review of Operations integrated into the new evaluation of the blocks. A farm-out programme exercise covering the three licenses was initiated in November 2013.

Tsimiroro – Block 3104 (Madagascar Oil SA 100%)

The Tsimiroro heavy oil field covers approximately 1,600 km2 of the 6,670 km2 area of Block 3104. The best independent estimate of contingent original oil in place (Netherland, Sewell & Associates, Inc., September 2011) is approximately 1.7 billion barrels, with further significant prospective oil in place in adjacent untested structures. The oil is heavy (15° API gravity from a recently completed refinery assay) and has a high viscosity at the original temperatures encountered in the shallow sandstone reservoir. In order to reach commercial oil production rates, thermal methods of recovery such as steam injection must be applied to reduce the viscosity of the oil in-situ.

Description of the Tsimiroro Steam Flood Pilot Design and Objectives

The Tsimiroro SFP project was designed to evaluate the potential production rates and recovery factor that can be achieved through thermal stimulation of the Amboloando heavy oil reservoir. Two stimulation methods were to be evaluated. CSS, also known as Huff and Puff, is applied to every well whereby steam is introduced to the well and allowed to transfer heat to the oil. The well is then turned round to production to allow the oil to flow. Oil and the condensed steam are produced back due to the viscosity reduction effect of the heat. Oil production rates decline over time as the temperature reduces and when the flow- rate reaches a pre-determined low the production is stopped and the steam injection cycle is recommenced. This cyclic method has been applied in heavy oil fields around the world, where successful, typically with Recovery Factors of 10-25%. The second method to be evaluated was steam flooding where, in favourable cases, recovery factors of 60% or more have been achieved in successful applications such as the Duri Field, Indonesia and Kern River California, USA. In this methodology, steam is introduced continuously into designated injection wells to heat and drive oil to adjacent continuous production wells.

The Tsimiroro SFP was designed with 25 active wells drilled during 2012 to a regular pattern. Sixteen wells destined for continuous production were drilled in a 4 by 4 square. A steam injection well was drilled at the centre of each set of four production wells making up what is called an “inverted five spot pattern”. Temperature observation wells were initially placed within the steam flood pattern area to periodically measure the temperature and two additional observation wells were drilled and cored in late 2013 to improve data coverage. Several water wells and water disposal wells were drilled in 2012 both to source the water for steam generation and to dispose of the waste water. Madagascar Oil SA installed the infield pipework and manifolds, rod pumping units (‘nodding donkeys’), heat exchangers, four steam generators and associated water treatment, oil/water separation facilities and three 60,000 barrel oil storage tanks. Continuous steam generation and injection commenced on 8 April 2013.

Steam Flood Pilot Operation

Six of the nine inverted five spot patterns of the pilot area were targeted for phased commissioning and steam injection commenced in April 2013 into the first such pattern, centred on designated injection well ISF-1. Steam generator commissioning proved problematic with the first two units requiring significant trouble-shooting given five years of deterioration in the Madagascar climate. Steam generation was initiated with a blend of 85% Tsimiroro crude oil and 15% imported diesel. The lack of available steam led to a gradual well by well, pattern by pattern introduction of steam for cyclic operations. Improved understandings on how to operate the steam generators efficiently culminated in a significant breakthrough in that all four generators have been commissioned with the ability to operate using 100% Tsimiroro crude and requiring relatively few maintenance clean-out interventions. The clean burn of the Tsimiroro crude has been one of many initial observations and will be of significant benefit for future development operations, allowing continuous steam generation without reverting to imported diesel as fuel.

Madagascar Oil Limited

Chief Operating Officer’s Review of Operations

The safety record of the construction phase has continued into the operational phase with zero lost time incidents being recorded in 2013. The SFP operations and maintenance crew have performed remarkably given the unique nature of the plant and the lack of previous exposure to any similar operations. Recruitment and on the job training of the Madagascar workforce has been an early success of the project. Protection of the environment has also been a core value of the Group with particular attention paid to preventing oil spills. Water for steam generation is sourced from a shallow aquifer and monitored daily. Produced water is currently disposed of in the deep Isalo sand after treatment during this pilot phase. At the onset of the SFP operation, it was planned to initiate steam flooding in six of the nine patterns available in order to accelerate the response. However, all of the 25 wells were initially placed on CSS cycling. Four wells experienced shallow casing leaks which were diagnosed by steam or water appearing close to the well at surface. Investigations demonstrated that these leaks exist in the top 10-45 metres of the well and are thought to derive from poor quality of casing installed when the wells were drilled in 2012. One well, ISF-8, was repaired. However three wells, ISF-4, ISF-6 and PSF-9, are awaiting repair or re-drill.

The early months of operations were characterised by disappointing steam injection rates of typically less than 100 barrels of water equivalent per day (“BWEPD”) per well. These rates were gradually improved by progressively raising of the steam injection pressure while maintaining pressure below the level that would induce fractures of the cap-rock. Target injection rates of over 250 BWEPD have been achieved through this increase in injection pressures. Designated injection wells were targeted for early conversion to continuous steam injection and this was achieved in wells ISF-1, 2, 5, 6, 8 and 9. Subsequently the wells in the three patterns originally excluded were also commissioned as more steam became available. The CSS operation was standardised on a 3,000 barrels of water equivalent “BWE” steam slug enabling consistent cycle on cycle performance comparison. This allowed a single slug to be achieved in a 10-15 day period, followed by a shut-in soak for heat transfer to take place before sustained pumped well production. Production periods have typically been of 25 to 50 day durations depending upon oil rates dropping to the point where the next steam injection cycle is deemed beneficial. The initial wells have completed up to six cycles with improvements in oil volumes per cycle still being observed. This has been one of the many encouraging observations from the first year of SFP performance. Other positive observations are the absence of any steam breaches to surface from the reservoir, the containment of heat in the Amboloando as observed at temperature observation wells, peak individual well oil rates of over 160 barrels of oil per day (“BOPD”) and thermal communication between injection and production wells.

The loss of key injection wells ISF-4 and 6 means that the full nine pattern steam flood could not be implemented, with continuous injection only being achieved after one year of operations into six of the nine patterns, centred on ISF-1, ISF-2, ISF-3, ISF-7, ISF-8 and ISF-9. Two wells on CSS cycling PSF-1 and PSF-15 have displayed thermal responses to offset steam injection. One well ISF-5 designated as a continuous injection well has been on continuous natural flow since December 2013 as a response to both pressure and temperature support from offset steam injection. This positive response to reservoir communication at the well in the centre of the SFP area is taken as an encouraging indication of the steam flood process working in the pilot.

As at the reporting date, the thermal response from the pilot area has yielded sufficient information to generate oil production projections from the Amboloando reservoir performance albeit with a wide band of uncertainty. The CSS oil rate projections derived from the first year of operations, can be shown to deliver positive economic results. The steam flood recovery mechanism is projected to enhance recovery factors compared with the CSS method and would yield improved economic indicators over the CSS method alone.

The Tsimiroro Development Planning Team, which was established in late Summer 2013, have prepared detailed technical and commercial inputs into the reservoir development plan, including thermal well and facilities requirements to perform a full field exploitation of the Tsimiroro main field. The Tsimiroro FFDP is being prepared for submission which incorporates a phased approach to field areal development. The initial development phase being studied is based on drilling beyond the current SFP area targeting 8

Madagascar Oil Limited

Chief Operating Officer’s Review of Operations exploitation of the area of the field of which we have the greatest current understanding while simultaneously performing appraisal of the remainder of the giant Tsimiroro Field.

Bemolanga – Block 3102 (Madagascar Oil SA 40%)

The Bemolanga Block covers an area of approximately 5,463 km2 and is operated by Total E&P Madagascar S.A.S, which holds a 60% working interest. The block contains an extensive tar sand deposit that exists at a shallow depth allowing potential surface mining. A detailed evaluation by Total including a two year 160 well coring programme in 2009/2010 was conducted. The results indicated that the oil (bitumen) content of the sand varied from 3.5% to 11% by weight, with an average oil content of 5.5% for the effective mineable area. This oil yield is approximately half of that encountered with typical Canadian oil sands.

Laboratory studies were conducted into the extraction of the bitumen from the rock and an economic model was built. Despite the size of the deposit in the area studied, estimated at 1.2 billion barrels of mineable bitumen, the study confirmed that, at a base oil price range of US$60-$100/bbl Brent, the cost of mining the ore, crushing the rock, extracting the bitumen, upgrading, blending and shipping the heavy oil product would not support a commercial mining project.

Madagascar Oil SA and Total therefore elected to switch their attention to the potential conventional oil and gas plays on the block and carried out an 8,000 km2 AGG survey in 2011 which identified two promising prospective features. The results of this work indicate that further seismic acquisition is required in order to confirm the presence of drillable prospects. A programme of 400 km of 2D seismic has been planned with Total assuming the majority of the costs in accordance with the terms of the Block 3102 farm-in agreement. The amendment to the production sharing contract relating to the Bemolanga field to extend the exploration period is awaiting government approval to allow this work to proceed. No progress on this approval was made in 2013. It is expected that the new Presidency will review the status of all exploration licenses to allow extensions to meet work commitments that have not been progressed during the latter years of the transitional Presidency.

The extension approval had not been received in time to commit to seismic acquisition work in 2014. The operator remains committed to proceeding with this work when the license extension is approved.

Exploration Blocks (Madagascar Oil SA 100%)

 West Manambolo - Block 3105  Morondava - Block 3106  Manandaza - Block 3107

The exploration blocks cover a total area of 17,400 km2 in the Morondava Basin and lie immediately to the south of the Tsimiroro Block.

Earlier operators discovered both gas and light oil in the exploration blocks, but the number of wells drilled to date using modern data is very low and Madagascar is still a frontier area. However, all the elements of a working petroleum system are present and it is entirely possible that commercial volumes of light oil and gas are waiting to be discovered.

Following a seismic programme carried out by Madagascar Oil SA in 2009, a number of encouraging structural leads were identified on the exploration blocks. This work was followed in 2010 with an 800 km2 Gore geochemical study aimed at identifying the signature of hydrocarbon micro-seepage over the identified leads. The results have been re-evaluated during 2013 but have not yielded any conclusive leads. In 2012 the Madagascar Oil SA carried out a 24,000 line km AGG survey over the exploration blocks and the data from this survey has been processed and integrated with the 2009 and earlier seismic surveys, well data, surface geology and regional studies in 2013 in order to produce a revised structural interpretation over the three licenses. The AGG in particular has yielded new insights into the structure which when integrated with the seismic allows new leads to be identified. Two east-west field 9

Madagascar Oil Limited

Chief Operating Officer’s Review of Operations trips in 2013 were successful in gathering outcrop samples from the sedimentary sequence with quality samples gathered validating both quality source rock presence and reservoir quality rock in possible target horizons. New 2D seismic infill programmes have been designed for implementation to identify drillable prospects.

Since late 2013, we have been actively seeking to farm-out the exploration licences and this process continues with the latest interpretations being made available to the farm-out data room entrants. Further work on the exploration blocks will be directed by a successful outcome of the farm-out exercise and the Company will also be investigating the possibility of extensions to the licence exploration periods to allow the prospect and lead inventory to be matured.

Stewart Ahmed

Chief Operating Officer

Madagascar Oil Limited

Financial Review

Summary

The main financial activities of the Group in 2013 related to completion of the construction and commissioning of the SFP facilities and the subsequent commencement of SFP operations in April 2013. Whilst the Group has been producing crude oil from the SFP since soon after that date, no revenues are shown in the financial statements for 2013 as no sales were made during the year. The financial statements for the year to 31 December 2013 therefore include the costs of the SFP, together with the costs of running the corporate group. This includes costs associated with the commercial and technical analysis of the SFP performance and in development planning activities for the Tsimiroro Block. In addition, the Group has incurred costs in undertaking technical studies on our other exploration licences (Blocks 3105, 3106 and 3107).

Following the restructuring of the Board and management team, Madagascar Oil continued reducing its operating cost base in 2013. This included closure of the Houston office in August 2013 and transfer of responsibilities to our Madagascar and UK offices. As a result, staff costs have reduced to US$4.4m (2012: US$5.5m). This reduction reflects a concerted and continuing campaign to reduce general administrative expenses whilst maintaining the Group’s operational capacity.

Total general and administrative and VAT penalty expenses increased to US$10.0m (2012: US$9.6m). This is primarily due to VAT penalties recognised as a result of the tax dispute settlement and increased legal and professional fees relating to the Board restructuring and Houston office closure during 2013.

A one off Property, Plant and Equipment (“PP&E”) impairment charge of US$750,000 (2012: US$nil) has been recognised in respect of obsolete drilling equipment following a physical equipment review. In 2012 an Exploration & Evaluation (“E&E”) impairment charge of US$2.7m was recognised.

The Group continues to invest in exploration and evaluation across all of its licences incurring cash expenditure of US$24.5m (2012: US$50.8m) during the year, primarily relating to the Tsimiroro steam flood pilot.

Cash and bank resources totalled US$24.8m at 31 December 2013 (2012: US$15.9m) inclusive of US$1.1m (2012: US$1.1m) restricted cash balances.

Selected operational and financial data

For the years ended 31 December 2013 2012

US$(000) US$(000)

Operating loss (11,908) (13,534)

Net cash used in operating activities (9,300) (8,751)

(prior to working capital movements)

Net cash used in operating activities (22,170) (8,585)

(including working capital movements)

Exploration and evaluation cash expenditure (24,546) (50,842)

Cash and cash equivalents at 31 December (net) 23,721 14,762

Madagascar Oil Limited

Financial Review

Results for the year

In the year ended 31 December 2013 the Group reported a reduced loss before tax of US$12.1m (2012: US$13.6m).

Operating costs, relating primarily to contractual PSC fees, remained constant at US$1.2m (2012: US$1.2m) for the year.

Overall, general and administrative and VAT penalty expenses increased to US$10.0m (2012: US$9.6m). The increase is primarily due to VAT penalties recognised as a result of the 2007-2011 VAT settlement paid during the year, and accrued estimated penalties for the outstanding 2012 and 2013 VAT audits. Furthermore, additional legal and professional fees have been incurred relating to the Board restructuring and Houston office closure during 2013.

Following the restructuring of the Board and management team, the Group has focussed on reducing its operating cost base and accordingly, since the closure of the Houston office in August 2013, the underlying recurring general and administrative costs have reduced significantly. Staff costs have reduced by US$1.1m to US$4.4m (2012: US$5.5m) for the year.

A one off PP&E impairment charge of US$750,000 (2012: US$nil) has been recognised in respect of unused drilling equipment following a physical equipment review. In 2012 an E&E asset impairment charge of US$2.7m was recognised, relating to obsolete non-consumable assets previously capitalised.

Balance sheet

The Group’s non-current assets increased during the year to US$221.3m (2012: US$196.7m) as a result of continued investment in the Tsimiroro SFP and ongoing capital expenditure on the remaining exploration blocks.

Diesel inventory has been recognised for the first time in 2013 as significant stocks were held at year end. The diesel was used in 2013 as fuel for the steam generators, local power generation at the SFP site and rolling stock, and was valued at a cost of US$1.0m (2012: US$nil) at 31 December 2013. Since January 2014 diesel has no longer been required for use in the steam generators at the SFP site but will be consumed by other ongoing operations.

Trade and other payables have reduced significantly to US$6.3m (2012: US$22.2m) due to settlement of outstanding suppliers and the 2007-2011 VAT settlement in November 2013.

Cash flow

Operating cash outflow for the year substantially increased to US$22.2m (2012: US$8.6m) predominantly due to settlement of trade and other payables and other working capital movements, including the VAT settlement.

Net cash used in investing activities during the year amounted to US$26.8m (2012: US$58.6m) mainly reflecting US$24.5m (2012: US$50.8m) of exploration costs.

In February 2013 US$78.4m (gross) was raised through an equity offering, of which US$15.0m was used to settle the outstanding short term bridge loan.

The total increase in cash and cash equivalents during the year was US$9.0m (2012: decrease of US$25.7m).

Madagascar Oil Limited

Financial Review

Financial position At 31 December 2013 the Group had total cash and cash equivalents of US$24.8m (2012: US$15.9m) of which approximately US$12.1m was held in a US money market fund and US$12.3m in accounts with banks in the EU. The credit risk on such cash is limited because it is on deposit with banks with good credit ratings assigned by international credit rating agencies. Management considers the above measures to be sufficient to control the credit risk exposure. Restricted cash balances at 31 December 2013 totalled US$1.1m (2012: US$1.1m) representing funds securitised as collateral in respect of future work obligations on the exploration blocks and as security for corporate credit card payments. Going concern The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Senior Independent Director’s Statement and Chief Operating Officer’s Review of Operations. The financial position of the Company at the year end and its cash flows and liquidity position are included in this Financial Review. The Company closely monitors and manages its capital position and liquidity risk regularly throughout the year to ensure that it has sufficient funds to meet forecast cash requirements and satisfy the planned capital programme. After making enquiries and careful consideration, the directors have concluded that there is a reasonable expectation that the Company has access to adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. However in making this assessment the directors have considered the following matter which gives rise to a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. If as a result of this material uncertainty the Company was unable to continue as a going concern, it is unlikely that it would be able to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that may result if the Company was unable to continue as a going concern.

Funding requirements for ongoing operations The Company held US$24.8m cash at the end of December 2013 with this including US$1.1m of restricted cash. As the Company has now declared commerciality on the Tsimiroro Field, under the terms of the PSC it will need additional funds to enable it to progress a development of the Field in 2015 and beyond. It is planned that the Development Plan will be submitted in the second half of 2014 and it is hoped that approval from OMNIS and the other relevant Madagascar Government bodies will be achieved soon afterwards. The Company will need to raise additional funds to meet its obligations going forward and is currently working on a financial strategy to secure the funds to support the next phase of the Group’s planned activities which will include the commencement of the Tsimiroro Development, further appraisal drilling and seismic activity on the Tsimiroro field, ongoing exploration licence activities and for corporate working capital requirements. The estimated quantum of funds will be determined by the pace of the Tsimiroro Development, the number of development wells required and forecast revenues from production. Notwithstanding the need for funds for development of the Tsimiroro field, current cash balances would not be adequate to cover costs in the normal course of business in the event that the project was delayed. The Company is actively looking at a number of fund-raising options and further information will be provided to shareholders in due course on how the Company’s ongoing and planned business plans will be financed. The outcome of the selected fund-raising option cannot be predicted, and sufficient funds may not be forthcoming to fund the Company’s operations. This represents a material uncertainty that may cast significant doubt over the Company’s ability to continue as a going concern.

Gordon Stein Chief Financial Officer

Madagascar Oil Limited

Corporate Governance Statement

Summary The directors recognise the importance of sound corporate governance. The UK Corporate Governance Code does not apply to companies quoted on AIM and there is no formal alternative for AIM listed companies. The directors continue to comply with the UK Corporate Governance Code, so far as it is considered practicable, having regard to the size and current stage of development of the Company. The Quoted Companies Alliance has published a set of corporate governance guidelines for AIM listed companies, which include a code of best practice for AIM companies, comprising principles intended as a minimum standard, and recommendations for reporting corporate governance matters. The Board considers the Quoted Companies Alliance guidelines when implementing corporate governance policies and internal controls. Description of the Company’s corporate governance practices The programme of substantial change which commenced in Q4 2012 following the Company re- assessing the practical application of its Corporate Governance and Internal Controls framework, as detailed in our 2012 report, continued as envisaged into 2013 with the successful completion of the financing transaction in February following the Company’s approach to its major shareholders in 2012 to secure financing support. The Company received offers of support from Benchmark Advantage Fund Limited and BMK Resources Limited (together “Benchmark”) the Company’s largest shareholder, and Persistency Private Equity Limited, which subsequently changed its name to SEP African Ventures Limited, on 6 February 2014 (“SEP AV”). Given the resultant substantial equity position to be held by Benchmark following such a transaction, which would have been likely to exceed 30%, the Company requested that Benchmark enter into a relationship agreement (the “Relationship Agreement”) to govern its relationship with the Company to ensure that certain standards of corporate governance were maintained to the satisfaction of the Independent Directors and the Company’s Nominated Adviser. SEP AV also became a party to the Relationship Agreement, although it was not expected that it would exceed the 30% ownership threshold. The provisions of the Relationship Agreement include, inter alia:

 For as long as Benchmark individually owns more than 10% of the share capital of the Company, Benchmark has the right to appoint two directors (“Investor Director”) to the Board.  For as long as SEP AV individually owns more than 10% of the share capital of the Company, SEP AV has the right to appoint one Investor Director to the Board

The restructuring of its Board and management team in accordance with the terms of the Relationship Agreement completed in June, resulting in a Board of six directors, Andrew Morris (Chairman), Paul Ellis (CEO), Iain Patrick (Senior Independent Director), Richard Laing, Al Njoo and Dr Madjedi Hasan. Subsequently there have been further changes to the Board and following the resignation of Paul Ellis (CEO) on 19 July 2013 the Board immediately began its search for a new CEO and is seeking to appoint a suitable candidate in the near future. On 14 November 2013 the Company announced that Andrew Morris, Non-Executive Chairman of the Company, had, at the direction of Persistency Private Equity Limited, resigned from the Board of Directors of the Company and as Non-Executive Chairman. A new Chairman has yet to be appointed. On 31 March 2014 SEP AV appointed David Mahoney as their Non- Executive Investor Director in accordance with the terms of the Relationship Agreement. A new Independent Director, Gordon Stein, Chief Financial Officer, was immediately appointed. The most recent change to the Board was the resignation of Dr Madjedi Hasan, Benchmark Advantage Fund Limited’s Investor Director on 22 May 2014 who was immediately replaced by Teck Soon Kong. The Board now comprises six members, three of which are independent under the Relationship Agreement as follows:-

 Iain Patrick, Non-Executive – Senior Independent Director  Richard Laing, Non-Executive – Independent Director  Al Njoo, Non-Executive Investor Director on behalf of Benchmark  Teck Soon Kong, Non-Executive Investor Director on behalf of Benchmark  David Mahoney, Non-Executive – Investor Director on behalf of SEP AV  Gordon Stein, Executive – Independent Director & Chief Financial Officer 14

Madagascar Oil Limited

Corporate Governance Statement

The Relationship Agreement provides that on such date as the Independent Directors determine, an additional (fourth) Independent Director shall be appointed.

Whilst as noted above, the Company is currently seeking a CEO, the Directors nevertheless consider the current Board is effective in managing and guiding the business and the Board has established a number of committees as follows:

Audit Committee The Audit Committee is comprised of Richard Laing (Chairman), Al Njoo and David Mahoney. Reporting to the Board, it has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Group is properly measured and reported on. In addition, it receives and reviews reports from the Company’s management and auditors. The Audit Committee meets at least three times a year and actively liaises with the Company’s independent auditors, who have unrestricted access to the committee. Meetings of the Audit Committee are attended by members of senior management as and when required.

Remuneration Committee The Remuneration Committee is comprised of Iain Patrick (Chairman), David Mahoney and Teck Soon Kong and, among other things, makes recommendations to the Board on matters relating to the remuneration of the executive directors. The Remuneration Committee reviews the performance of the executive directors and advises on salary, bonus and incentive remuneration for other employees as directed by the Board. In addition, it makes recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. The Remuneration Committee meets at least twice a year. Directors of the Company do not participate in recommendations of the Remuneration Committee regarding their own remuneration.

Nominations Committee The Nominations Committee is comprised of Iain Patrick (Chairman), Richard Laing and Al Njoo. The Nominations Committee meets at least once per year and additionally according to the Company’s requirements. Generally the Nominations Committee is responsible for identifying and nominating for the approval of the Board candidates to fill vacancies in the Board when they arise. Additionally the Nominations Committee is responsible for providing support to the Company Chairman (and, where appropriate, the Senior Independent Director) in taking steps to remove any underperforming executive or non-executive director.

The Directors do not consider that, given the small size of the Board and its active involvement in the governance of the Company, it is appropriate to delegate matters of corporate governance to a Corporate Governance Committee. The appropriateness of such a committee will however, be kept under regular review by the Board.

Internal Control The Board is responsible for establishing, maintaining and monitoring the Company’s system of internal control, and importance is placed on maintaining a robust control environment. The Board is now satisfied that the failings in internal controls and management systems that were identified in 2012 and detailed in our 2012 report have been addressed following the planned review of all management systems to ensure that they aim to conform to best practice. The appointment of Gordon Stein as Chief Financial Officer, based in the London Corporate Administrative office, together with the appointment of Stuart Wesson as Group Controller in Madagascar and the installation of new leadership in the purchasing and supply chain management functions has led to increased capability and oversight in London and Madagascar. This has included the establishment of more robust monthly management reporting reports, including the monthly reforecasting of projected forward cash flows to ensure that the Board is able to monitor its ongoing cashflow position.

Madagascar Oil Limited

Corporate Governance Statement

In order to enable the Board to discharge its duties to establish, maintain and monitor the Company’s system of internal control, the Board has established and continues to implement the following key initiatives:

• The frequency of Board Meetings has been increased to ensure that all material issues affecting the Company are discussed on a more regular basis; • A comprehensive review of the annual budgeting process and related reporting procedures;  Review and revision of the detailed delegation of authority to management covering purchasing, invoice approval and payments including a process review to ensure efficient and effective application;  Review and improvement of the monthly management reporting process to enable the Board to monitor the performance of the Company; and,  Initiative to strengthen the processes for identification, measuring and managing key business risks in the organisation at the Board level.

RELATIONS WITH SHAREHOLDERS In the absence of a Chairman and Chief Executive Officer, the Senior Independent Director, and the Chief Financial Officer with assistance from the Chief Operating Officer are the Company’s principal spokesmen with investors, analysts, the press and other interested parties.

The Company maintains a website for the purposes of maintaining information flow to shareholders as well as potential investors. It contains all press releases, reports and accounts and extensive information about the Company’s activities. Enquiries from individual shareholders on matters relating to the Company are welcomed. Shareholders are also encouraged to attend the Annual General Meeting at which they are given the opportunity to put questions to the Board.

The Company intends to hold its next Annual General Meeting in the fourth quarter of 2014.

Madagascar Oil Limited

Directors Remuneration Report

Remuneration of Directors

Directors’ emoluments for 2013 The remuneration of the directors for the year ended 31 December 2013 was as follows:

Fees/basic Benefits in Termination 2013 2012 salary kind benefits Total Total (US$) (US$) (US$) (US$) (US$)

Executive

Paul Ellis (1) 112,914 3,105 104,490 220,509 105,170

Non-Executive

Ian Barby (2) 30,424 ˗ 29,762 60,186 61,613

Andrew Morris (3) 91,393 ˗ - 91,393 56,918

Peter Kingston (4) 30,469 - - 30,469 -

Iain Patrick (5) 83,502 - - 83,502 -

Richard Laing (6,7) 36,756 - - 36,756 -

Al Njoo (8) 31,962 - - 31,962 -

Dr. Madjedi Hasan (9) 31,962 - - 31,962 -

Total 449,382 3,105 134,252 586,739 223,701

(1) Paul Ellis stepped down as CEO on 19 July 2013 and resigned as Director on 28 September 2013. Since stepping down, Mr. Ellis continues to be engaged through a consulting contract with the Company at the same annual cash compensation that he received as CEO, the duration of which is 26 months. His compensation as a consultant is not included above. (2) Ian Barby resigned as Non-Executive Director on 28 June 2013. (3) Andrew Morris resigned as Chairman and Director on 14 November 2013. (4) Peter Kingston resigned as Non-Executive Director on 28 June 2013. (5) Includes £5,000 p.a. in fees for service as Chairman of the Remuneration Committee, £5,000 p.a. for service as Chairman of the Nominations Committee and £10,000 p.a. for service as Senior Independent Director. (6) Richard Laing was appointed as Non-Executive Director on 28 June 2013. (7) Includes £6,000 p.a. in fees for service as Chairman of the Audit Committee. (8) Al Njoo was appointed as Non-Executive Director on 28 June 2013. His fees for the period have not yet been remitted. (9) Dr Madjedi Hasan was appointed as Non-Executive Director on 28 June 2013.

Subsequent to year end Gordon Stein and David Mahoney were appointed to the Board on 31 March 2014. Dr Madjedi Hasan resigned from, and Teck Soon Kong was appointed to the Board on 22 May 2014.

In addition to the remuneration shown above, the Group incurred share-based payment charges of $787,000 (2012: $37,000) in respect of the above named directors.

Madagascar Oil Limited

Directors Remuneration Report

Share options granted for directors who served during the year are as follows:

1 January 2013 Granted during the Lapsed / forfeited 31 December 2013 year during the year

Executive Director

Paul Ellis - 2,500,000 - 2,500,000

Non-Executive

Ian Barby 78,947 - (78,947) -

Andrew Morris 78,947 1,500,000 - 1,578,947

Iain Patrick - 300,000 - 300,000

Richard Laing - 300,000 - 300,000

Total 157,894 4,600,000 (78,947) 4,678,947

Remuneration Committee Details on the composition and role of the remuneration committee are outlined on page 15

No director plays a part in any discussion about his own remuneration.

Madagascar Oil Limited

Board of Directors

John (Iain) Alexander Patrick, Non-Executive Director and Senior Independent Director

Mr. Patrick has 30 years’ experience in the international oil and gas industry. After graduating with an LLM in 1980, Iain worked as an oil industry lawyer before joining Monument Oil and Gas plc in 1988 where he held the position of Commercial Director until the sale of the company in 1999. Iain then co- founded PWX Limited, a consultancy providing business development support to a number of oil and gas companies. In 2006, Iain was appointed as Director of Commercial & Legal Affairs of Gulf Keystone Petroleum (UK) Limited, before joining Edgo Energy limited as the Commercial Director in 2008. Iain is currently CEO of the oil and gas consultancy, Trinity Energy Limited, and a director of Wessex Exploration plc.

Richard Laing, Non-Executive Director

Mr. Laing started his career at PricewaterhouseCoopers, qualifying as a Chartered Accountant, having studied Engineering at Cambridge University. Mr. Laing spent fifteen years at De La Rue where he progressed to become CFO of this FTSE 250 company with a position on the Board of Directors. In 2000 he joined CDC Group plc (formerly the Commonwealth Development Corporation), where he gained extensive exposure to emerging markets in Africa and Asia in particular, initially as CFO and then in 2004 taking over as CEO. He also has first-hand experience of financing significant projects both directly and through collaboration with governments and international finance institutions.

Al Njoo, Non-Executive Director

Mr. Njoo has over 25 years’ experience in energy banking and industry in Central and South East Asia, China and North America. He is co-founder and director of Calgary-based Nations Petroleum, which has successfully developed and transformed three major steam flood developments in Kazakhstan, Azerbaijan, and California.

He began his career as a corporate and energy banker with the Chase Manhattan corporate and investment banks. He is a principal at the Benchmark group, Singapore, and director of Merrill Lynch Indonesia. He is a trustee of Give to Asia, San Francisco, and the Sumber Waras hospital, Jakarta. Mr. Njoo is one of the sponsors for the UBS impact focus SME (small and medium sized enterprise) fund and the Impact Investment Exchange, Singapore, promoting social causes and entrepreneurs worldwide.

David Mahoney, Non-Executive Director

Mr. Mahoney, was born and educated in the UK and began his career there, handling probate matters and wills/estates administration. He then moved offshore to Guernsey, and in an offshore finance industry career spanning 28 years has worked for an accountancy firm and major banking groups in Guernsey, Jersey, Grand Cayman, and the Bahamas, handling complex multi-jurisdictional offshore structures, for ultra-high net worth clients worldwide, whilst most recently providing consultancy services on risk management, operational procedures, and regulatory compliance matters to offshore banks. He holds numerous senior board positions in diverse trading operations in the UK, Europe, and the United States.

Gordon Stein, Executive Director & Chief Financial Officer

Gordon Stein is a member of the Chartered Institute of Public Finance & Accountancy and was previously CFO at Cadogan Petroleum plc which is an independent oil and gas exploration, development and production company with onshore gas and condensate assets in Ukraine. Preceding this he has been CFO at Vanguard Energy Limited and Regal Petroleum plc. He has also held senior financial and operational management positions in Fairfield Energy Limited, Acorn Oil & Gas Limited, LASMO plc, 19

Madagascar Oil Limited

Board of Directors

Monument Oil & Gas plc, Centrica plc and BG plc. Gordon has over 21 years' experience in the upstream oil and gas sector in the UK and internationally, including Ukraine, Tunisia, Venezuela, Algeria and Turkmenistan.

Teck Soon Kong, Non-Executive Director

Mr. Kong spent 31 years with Royal Dutch Shell plc (“Shell”) and five years as an adviser in the Minister’s Office of Petroleum & Mineral Resources, Saudi Arabia. Following his retirement from Shell in 1996, he served as Chairman and Chief Executive Officer of Nelson Resources Limited, Chief Operating Officer and Chief Executive Officer of Nimir Petroleum, Director of Pearl Energy (Pte) Ltd. and also as Chairman of Noble Denton Holdings Ltd. from 2002 to 2009. Mr. Kong currently serves as a Director of Sterling Resources and has held the position of Chairman at AIM listed Sunkar Resources plc since 2006. Mr. Kong holds a BSc (Hons) in Chemical Engineering from Imperial College, University of London.

Madagascar Oil Limited

Senior Management

Stewart Ahmed, Chief Operating Officer

Stewart Ahmed joined the Company in March 2013. A petroleum engineer with considerable international experience, he is based in Madagascar and has also been appointed as General Manager of the Company’s operating subsidiary, Madagascar Oil SA. Mr. Ahmed started his career with Chevron where he spent twelve years working on various North Sea and Gulf of Mexico development projects from London, Aberdeen and Louisiana including heavy oil experience on the Alba Field. He became the resident General Manager for Dove Energy in Sana’a, Yemen, where he lived for eleven years and managed the exploration programme and subsequent development of the Sharyoof field and brought it onto production peaking at 25,000 BOPD. More recently he was General Manager for Midas Oil & Gas in Yemen. Mr. Ahmed has a BSc in Mining and Petroleum Engineering from the University of Strathclyde.

Stuart Wesson, Group Controller

Mr. Wesson joined Madagascar Oil in October 2012 and is based in Madagascar. His background has been as a Finance Director / Manager within Oil & Gas, Petrochemical and Infrastructure Projects during the past 35 years, within Denmark, Japan, Indonesia, Angola, Algeria and Madeira. More recently he was Finance Manager for KBR in Madeira, controlling the finance function for KBR’s Bonny Island LNG Project in Nigeria. Prior to this he has worked on projects for Total, Chevron, Texaco, Shell, AP Moeller, BP Chemicals, CNR/Ranger Oil and PPLI/Bimantara. Mr. Wesson FCCA, is a Fellow of the Chartered Association of Certified Accountants, having qualified in the UK in 1978.

Dr. Emma Ralijohn, Deputy General Manager – Madagascar

Dr. Emma Ralijohn is Deputy General Manager of Madagascar Oil SA, having joined in 2007, and is primarily responsible for working with government authorities for contract and environmental requirements. She has been a faculty member for a leading Business School in Madagascar since 1991. She led her country in obtaining the first ever signed Compact with the USA-funded Millennium Challenge Account (MCA) in 2005 when she worked as Finance Adviser to the President of Madagascar. She was named CEO of the entity set up to manage the US$110 million fund from MCA. She also served as a Director in the Banking and Financial Supervision Board of the Madagascar Central Bank since 2005. She is the President of Upstream Oil Companies Association and a founding member of the American Chamber of Commerce in Madagascar. Dr. Ralijohn has a Ph.D. in Finance and a Doctorate ès Sciences de Gestion in Strategic Management.

Madagascar Oil Limited

Directors Report

Directors’ Report

The Directors submit their report together with the audited consolidated financial statements of Madagascar Oil Limited for the year ended 31 December 2013.

Business Review

The principal activity of the Company and its subsidiary undertakings (together the “Group”) during the year continued to be the potential development of the Tsimiroro heavy oil deposit and the exploration for conventional oil on five contiguous onshore blocks in Madagascar.

The information that fulfils the requirements of the business review and future developments can be found within the Senior Independent Director’s Statement, the Chief Operating Officer’s Review of Operations, and the Corporate Governance Statement included in this Annual Report.

Results and Dividends

The loss on ordinary activities after taxation for 2013 and 2012 amounted to US$12.1 million and US$13.6 million, respectively. The directors have not recommended payment of a dividend.

Directors

The Directors of the Company at the date of this Annual Report and their biographical details are set out on page 19 of this Annual Report. Board changes during the year were:

On 14 November 2013, Mr. Andrew J. Morris resigned as Non-Executive Chairman and Director of the Company.

On 19 July 2013, Mr. Paul W. Ellis resigned as Chief Executive Officer of the company. On 28 September 2013 Mr. Paul W. Ellis also resigned as Director of the company.

On 28 June 2013, Mr. Ian Barby and Mr Peter Kingston resigned as Non-Executive Directors of the Company.

On 28 June 2013, Mr. Richard Laing, Mr. Al Njoo and Dr. Madjedi Hasan were appointed as Non- Executive Directors of the Company.

On 31 March 2014, Mr. Dave Mahoney was appointed as a Non-Executive Director of the Company and Gordon Stein as an Executive director.

On 22 May 2014, Dr. Madjedi Hasan resigned as a Non-Executive Director of the Company.

On 22 May 2014, Teck Soon Kong was appointed as a Non-Executive Director of the Company.

Madagascar Oil Limited

Directors Report

The interests of the Directors and persons connected with them in the issued share capital of the Company at 31 December 2013, all of which are beneficial, are as follows:

Number of Common Number of Share Total Shares Options (1)

Iain Patrick - 300,000 300,000

Richard Laing - 300,000 300,000

Al Njoo (2) - - -

Dr. Madjedi Hasan (2) - - -

(1) See Note 23 of the financial statements for details regarding the share options granted to these individuals. (2) Does not include an aggregate of 207,323,648 Common Shares held by Benchmark Advantage Fund Ltd for which Mr. Njoo and Dr. Madjedi Hasan are nominated directors in accordance with the terms of the Relationship Agreement. Dr. Hasan has resigned since 31 December 2013.

Share Capital

As at 27 June 2014, 531,372,879 Common Shares are issued and fully paid (excluding 400,000 restricted shares).

Significant Interests

As of the date of this report the Company has been notified of the following interests of 3% or more in the Company’s issued share capital.

Benchmark Advantage Fund Ltd 207,323,648 39.02% Outrider Management LLC 121,377,028 22.84% SEP African Ventures Limited (formerly Persistency Capital LLC) 106,815,538 20.10% The John Paul DeJoria Family Trust 30,703,852 5.78%

The Company has not been notified of any other person who has an interest in 3% or more in the Company’s share capital.

Post Reporting Date Events

On 8 May 2014, the Madagascar Oil SA declared to its partner L’Office des Mines Nationales et des Industries Strategiques (“OMNIS”) that it has determined that the Tsimiroro Licence Block 3104 is a “Commercial Discovery” under the terms of the Production Sharing Contract (“PSC”). As a consequence of this, the Madagascar Oil SA simultaneously submitted an Appraisal Report to OMNIS which has triggered a period of up to 180 days for the submission of a full field development plan. Submission of the Declaration of Commerciality enables OMNIS to apply for a presidential decree for a Mining Title converting the PSC from the current exploration phase to an initial 25 year exploitation period.

On 23 May 2014, Madagascar Oil S.A. was advised by the Communique de Presse: Conseil des Ministres (the “Communique”) that the decree approving test sales of Tsimiroro crude oil in the local

Madagascar Oil Limited

Directors Report market was approved at a meeting of the Council of Ministers. It is intended that test sales of between 55,000 and 73,000 barrels of Tsimiroro crude oil will commence in the second half of 2014 for up to six months under the terms of the current exploration licence.

Going Concern

At the date of this report, there is a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. This is discussed in the Financial Review on page11 and in Note 2 to the financial statements. After making enquiries and careful consideration, the Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

Disclosure of Information to the Auditors

Each person who is a Director at the date of approval of this Annual Report confirms that:  So far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and  Each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

IAIN PATRICK Senior Independent Director 27 June 2014

Madagascar Oil Limited

Corporate Social Responsibility

Corporate Social Responsibility Programme

Madagascar Oil deploys its Corporate Social Responsibility (“CSR”) strategy in the Melaky and Menabe Regions to encourage concerned stakeholders to work together towards sustainable development. Madagascar Oil has an active and visible programme of support for the communities adjacent to its areas of operation. Our aim is to contribute to the economic and social well-being of these communities.

The Company conducts regular consultation to determine the needs of the local communities. The objectives of the programme include education, health, environment awareness, respect of human rights, and economic development to promote standards of living improvement. The Company also makes charitable donations for local causes and to national disaster funds.

During 2013-2014 the Company carried out the following major projects:

Road Improvements

Rehabilitation of the road from Ankondromena to Folakara (12km) and rehabilitation of the worst sections of the road from Tsiroanomandidy to Tsimiroro including a portion of the national road RN1Bis in order that the road is made usable during the 2014 dry season (March to October).

Water Supply

The Company provides local communities with access to safe drinking water and latrines. During 2013, Madagascar Oil drilled one additional well in Folakara and another one in Ankisatra.

Construction and implementation of a water supply and sanitation network in Beravina (2,400 inhabitants) was completed in Oct 2013, in collaboration with our sustainable technology partner Water Aid.

Education

Education and health programmes put children at the heart of our CSR activities: preparing Malagasy generations today to participate in the full field development of tomorrow.

Provision of school equipment and materials for teachers in remote villages: contribution to teachers’ salaries and contribution to repairs of school tables and benches in Menabe Region.

School construction projects have commenced in May 2014: a 5 class-room elementary school for Ankondromena and the Company has made a contribution to the first primary school in Mahavelo (200 pupils).

Health

Supply of medical equipment and medicines to the Ankisatra Health Centre. Contribution to the de- worming and vaccination campaign in remote villages.

In March 2013, a cataract treatment programme “Eyes Illness Screening" was provided in partnership with Lions Sight First Madagascar (Health Unit of Lions Club International) for the first time in remote villages adjacent to our operations: surgical operations for 23 patients were carried out and 70 pairs of glasses were distributed to villagers from Ankondromena, Ankisatra, Folakara, Soaloka and Betsipolotra.

Economic Development and Sustainability

Establishment of tree nurseries for re-forestation; re-forestation protects the environment and creates income for the villagers. 3,000 trees were planted in 2013-2014 covering an area of 12 hectares.

Promoting the creation of income generating activities is a key project in 2014 with three main objectives: villagers’ training, empowerment and reaching self-sufficiency in food. 25

Madagascar Oil Limited

Statement of Directors’ Responsibilities

Bermuda Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Company and its subsidiaries and the profit or loss for that year. The Directors are required to prepare the financial statements of the Company and its subsidiaries on the going concern basis unless it is inappropriate to presume that the Company and its subsidiaries will continue in business.

The Directors confirm that suitable accounting policies have been used and applied consistently. They also confirm that reasonable and prudent judgments and estimates have been made in preparing the financial statements for the year ended 31 December 2013 and that applicable standards have been followed.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and for ensuring that the financial statements comply with International Financial Accounting Standards. Legislation in Bermuda governing the financial statements and other information included in the Annual Report may differ from legislation in other jurisdictions. They are also responsible for safeguarding the assets for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.

Madagascar Oil Limited

Independent Auditor’s Report

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MADAGASCAR OIL LIMITED

We have audited the consolidated financial statements (the ‘‘financial statements’’) of Madagascar Oil Limited (the “Group”) for the year ended 31 December 2013 which comprise the Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law in Bermuda and International Financial Reporting Standards (IFRSs).

Respective responsibilities of directors and auditors

As explained more fully in the Directors’ Responsibilities Statement set out on page 26 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law in Bermuda and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the UK Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 90 of The Companies Act 1981 (Bermuda) and for no other purpose. We do not, in giving the opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report and consolidated financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

 give a true and fair view of the state of the Group’s affairs as at 31 December 2013 and of the Group’s loss and cash flows for the year then ended;

 have been properly prepared in accordance with IFRSs; and

 have been prepared in accordance with the requirements of the Companies Act 1981 (Bermuda).

Madagascar Oil Limited

Independent Auditor’s Report

Emphasis of matter

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of disclosures in Note 2 to the financial statements concerning the Group’s ability to continue as a going concern which indicates that there is a material uncertainty regarding the outcome of the proposed fundraising activity intended to support the Group’s operations for the foreseeable future. Should the proposed fundraising activity be unsuccessful, the Group may no longer be viable. This condition indicates the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Other matters

The maintenance and integrity of the Madagascar Oil Ltd website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

PricewaterhouseCoopers LLP

Chartered Accountants London, United Kingdom 27 June 2014

Madagascar Oil Limited

Statement of Comprehensive Income

For the years ended 31 December 2013 2012 Note US$(000) US$(000) Revenue — —

Operating expenses Operating costs 7 (1,183) (1,178) General and administrative expenses 8 (8,895) (9,638)

Exceptional items Property, plant and equipment impairment 15 (750) - Exploration and evaluation impairment 16 - (2,718) VAT penalties 30 (1,080) -

Operating loss 5 (11,908) (13,534)

Finance income 9 90 56 Finance costs 10 (153) (17) Foreign exchange loss 11 (165) (117)

Loss before tax (12,136) (13,612)

Tax credit / (charge) 12 44 (2)

Net loss and total comprehensive loss (12,092) (13,614)

Loss per share Basic and diluted (US$) 13 (0.02) (0.05)

The notes on pages 33 to 63 form an integral part of these consolidated financial statements.

Madagascar Oil Limited

Consolidated Balance Sheet

As of 31 December 2013 2012 Note US$(000) US$(000) Assets

Non-current assets Property, plant and equipment 15 18,848 20,074 Exploration and evaluation assets 16 188,635 168,028 Other intangible assets 17 100 140 Non-current tax assets 14 12,657 7,366 Restricted cash 21 1,107 1,107 Total non-current assets 221,347 196,715 Current assets Inventory 19 1,024 - Other receivables and prepayments 20 1,478 4,117 Cash and cash equivalents 21 23,721 14,762 Total current assets 26,223 18,879

Total assets 247,570 215,594

Equity and liabilities Capital and reserves Issued capital 22 293,046 220,112 Equity-settled transactions reserve 23 4,756 3,507 Accumulated deficit (61,473) (49,881) Total equity 236,329 173,738

Non-current liabilities Provisions 26 4,846 4,512 Total non-current liabilities 4,846 4,512

Current liabilities Trade and other payables 24 6,280 22,226 Bridge financing 25 - 15,000 Provisions 26 115 118 Total current liabilities 6,395 37,344 Total equity and liabilities 247,570 215,594

The notes on pages 33 to 63 form an integral part of these consolidated financial statements.

The financial statements were approved by the Board of Directors on 27 June 2014.

Madagascar Oil Limited

Consolidated Statement of Cash Flows

For the years ended 31 December 2013 2012

Note US$(000) US$(000)

Cash flows from operating activities: Net loss (12,092) (13,614)

Adjustments for: Income tax expense recognised in net loss 12 (44) 2 Depreciation 15 56 51 Amortisation 17 49 46 Impairment of Plant, property and equipment 15 750 — Impairment of Exploration and evaluation assets 16 — 2,718 Loss on disposal of Plant, property and equipment 15 7 19 Share based payments 23 1,749 1,909 Finance costs 10 153 17 Finance income 9 (90) (56) Provision for employee benefits 26 (3) 40 Net foreign exchange loss 11 165 117

(9,300) (8,751) Movements in working capital Increase /(decrease) in other receivables 20 475 (6,580) Increase in inventories 19 (1,024) — (Decrease)/increase in trade and other payables 24 (12,321) 6,748

Income taxes paid — (2) Net cash used in operating activities (22,170) (8,585)

Cash flows from investing activities Interest received 9 83 54 Payments for intangible assets 17 (9) (11) Payments for property, plant and equipment 15 (2,336) (7,790) Exploration and evaluation costs paid 16 (24,546) (50,842) Net cash used in investing activities (26,808) (58,589)

Cash flows from financing activities Proceeds from issues of equity shares, net of issue costs 22 58,819 25,025 (Repayment of) /proceeds from bridge financing 25 (885) 15,000 Restricted cash 21 — 1,452 Net cash provided by financing activities 57,934 41,477

Net increase / (decrease) in cash and cash equivalents 8,956 (25,697)

Cash and cash equivalents at beginning of year 21 14,762 40,459 Exchange gains on cash and cash equivalents 3 -

Cash and cash equivalents at end of year 21 23,721 14,762

Non-cash Investing and Financing Activities: Non-cash additions in exploration and evaluation assets 180 13,157 Depreciation capitalised in exploration and evaluation assets 2,751 2,256 The notes on pages 33 to 63 form an integral part of these consolidated financial statements.

Madagascar Oil Limited

Consolidated Statement of Changes in Equity

Equity-Settled Share Share Transactions Accumulated Capital Premium Reserves Deficit Total US$(000) US$(000) US$(000) US$(000) US$(000)

Balance at 1 January 2012 197 194,890 4,470 (39,139) 160,418

Loss for the year and total — — — (13,614) (13,614) comprehensive loss Transfer of equity settled transaction reserve — — (2,872) 2,872 — Recognition of equity-settled transactions under employee share option plan (note 23) — — 1,909 — 1,909 Issue of ordinary shares to shareholders, net of issue 60 24,965 — — costs (note 22) 25,025

Balance at 31 December 2012 257 219,855 3,507 (49,881) 173,738

Loss for the year and total — — — (12,092) (12,092) comprehensive loss Transfer of equity settled — — (500) 500 — transaction reserve Recognition of equity-settled transactions under employee — — 1,749 — 1,749 share option plan (note 23) Issue of ordinary shares to shareholders, net of issue 275 72,659 — — 72,934 costs (note 22)

Balance at 31 December 2013 532 292,514 4,756 (61,473) 236,329

The notes on pages 33 to 63 form an integral part of these consolidated financial statements.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

1. General information

Madagascar Oil Limited (Bermuda) (the “Company”) is an exempted limited liability company incorporated and domiciled in Bermuda with registration number 37901. The address of its registered office is Canon’s Court 22 Victoria Street – Hamilton HM12 Bermuda.

Madagascar Oil Limited and its subsidiaries (collectively, the “Group”) commenced business in 2004 by entering into six production sharing contracts (“PSCs”) with the Republic of Madagascar for oil exploration and production in Madagascar.

2. Significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

NEW AND AMENDED IFRS STANDARDS

The following relevant new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2013, but had no significant impact on the Group:

Topic Key requirements Effective date

Amendment to IFRS 1, The amendments provide relief to first-time adopters 1 January 2013 Government Loans of IFRSs by allowing prospective application of IFRS 9 or IAS 39 and paragraph 10A of IAS 20 to government loans outstanding at the transition to IFRS.

Amendment to IFRS The amendments require entities to disclose 1 January 2013 7,‘Financial information about the rights of offset and related Instruments: Offsetting arrangements for financial instruments under an Financial Assets and enforceable master netting agreement or similar Financial Liabilities’ agreement.

IFRS 10, IFRS 10 replaces guidance in IAS 27 regarding the 1 January 2013 ‘Consolidated financial principles for the presentation and preparation of statements’ and consolidated financial statements when an entity corresponding controls one or more other entities. It builds on amendment to IAS 27, existing principles by identifying the concept of ‘Consolidated and control as the determining factor in whether an entity separate financial should be included within the consolidated financial statements’ statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

NEW AND AMENDED IFRS STANDARDS (CONTINUED)

IFRS 11, ‘Joint IFRS 11 is a more realistic reflection of joint 1 January 2013 Arrangements’ arrangements by focusing on the rights and (early adopted obligations of the arrangement rather than its legal on 1 January form. There are two types of joint arrangement: joint 2012) operations and joint ventures. Proportional consolidation of joint ventures is no longer allowed.

IFRS 12, ‘Disclosure of Provides disclosure requirements for IFRS 10, IFRS 1 January 2013 interests in other 11 and IAS 28 (Associates) and introduces disclosure entities’ requirements for unconsolidated structured entities.

IFRS 13, Fair value The standard’s objective is to define fair value on the 1 January 2013 measurement basis of an ‘exit price’ notion and uses a ‘fair value hierarchy’, which results in a market-based, rather than entity-specific, measurement.

Amendment to IAS 1, The main change resulting from these amendments is 1 July 2012 Financial statement a requirement for entities to group items presented in presentation regarding ‘other comprehensive income’ (OCI) on the basis of other comprehensive whether they are potentially reclassifiable to profit or income loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI.

Amendment to IAS 1, The amendment clarifies the difference between 1 January 2013 ‘Financial statement voluntary additional comparative information and the presentation regarding minimum required comparative information. comparatives’

Amendment to IAS 16, The amendment clarifies that spare parts and 1 January 2013 ‘Property, plant and servicing equipment are classified as property, plant equipment’ and equipment rather than inventory when they meet the definition of property, plant and equipment.

Amendment to IAS 19, These amendments eliminate the corridor approach 1 January 2013. Employee benefits and calculate finance costs on a net funding basis. Applied retrospectively.

Amendment to IAS 27 IAS 27 (revised 2011) includes the provisions on 1 January 2013 (revised 2011), separate financial statements that are left after the Separate financial control provisions of IAS 27 have been included in the statements new IFRS 10.

Amendment to IAS 28, IAS 28 includes the requirements for joint ventures, 1 January 2013 ‘Associates and joint as well as associates, to be equity accounted ventures’ following the issue of IFRS 11.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

NEW AND AMENDED IFRS STANDARDS (CONTINUED)

Amendment to IAS 32, The amendment clarifies the treatment of corporation 1 January 2013 ‘Financial instruments: tax relating to distributions and transaction costs Presentation’ such that corporation tax related to distributions is recognised in the income statement and the corporation tax related to the costs of equity transactions is recognised in equity.

STANDARDS ISSUED BUT NOT YET EFFECTIVE

The following standards and amendments to existing standards have been published and are mandatory from the financial year on or after the effective dates shown below but are not currently relevant to the Company (although they may affect the accounting for future transactions and events).

Topic Key requirements Effective date

IFRS 9, Financial The standard is the first standard issued as part of a 1 January 2018 Instruments wider project to replace IAS 39. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The classification depends on the entity’s business model and the contractual cash flow characteristics of the instrument. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply.

IFRS 10, IFRS 10 replaces guidance in IAS 27 regarding the 1 January 2014 ‘Consolidated financial principles for the presentation and preparation of statements’ and consolidated financial statements when an entity corresponding controls one or more other entities. It builds on amendment to IAS 27, existing principles by identifying the concept of ‘Consolidated and control as the determining factor in whether an entity separate financial should be included within the consolidated financial statements’ statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

IFRS 11, ‘Joint IFRS 11 is a more realistic reflection of joint 1 January 2014 Arrangements’ arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures Proportional consolidation of joint ventures is no longer allowed.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

STANDARDS ISSUED BUT NOT YET EFFECTIVE (CONTINUED)

IFRS 12, ‘Disclosure of Provides disclosure requirements for IFRS 10, IFRS 1 January 2014 interests in other 11 and IAS 28 (Associates) and introduces entities’ disclosure requirements for unconsolidated structured entities.

IAS 27 (revised 2011), IAS 27 (revised 2011) includes the provisions on 1 January 2014 Separate financial separate financial statements that are left after the statements control provisions of IAS 27 have been included in the new IFRS 10.

Amendment to IAS 28, IAS 28 includes the requirements for joint ventures, 1 January 2014 ‘Associates and joint as well as associates, to be equity accounted ventures’ following the issue of IFRS 11.

IAS 36, ‘Impairment of This amendment removes certain disclosures of the 1 January 2014 assets’ recoverable amount of CGU’s which had been included in IAS 36 by the issue of IFRS 13.

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company when the relevant standards and interpretations come into effect.

BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRICs, being standards and interpretations issued by the International Accounting Standards Board (“IASB”), in force at 31 December 2013. They have been prepared on the historical cost and going concern basis.

GOING CONCERN

The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Senior Independent Director’s Statement and Chief Operating Officer’s Review of Operations. The financial position of the Company at the year end and its cash flows and liquidity position are included in this the Financial Review. The Company closely monitors and manages its capital position and liquidity risk regularly throughout the year to ensure that it has sufficient funds to meet forecast cash requirements and satisfy the planned capital programme. After making enquiries and careful consideration, the directors have concluded that there is a reasonable expectation that the Company has access to adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. However in making this assessment the directors have considered the following matter which gives rise to a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. If as a result of this material uncertainty the Company was unable to continue as a going concern, it is unlikely that it would be able to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that may result if the Company was unable to continue as a going concern.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

Funding requirements for ongoing operations: The Company held $24.8m cash at the end of December 2013 with this including $1.1m of restricted cash. As the Company has now declared commerciality on the Tsimiroro Field, under the terms of the PSC it will need additional funds to enable it to progress a development of the Field in 2015 and beyond. It is planned that the Development Plan will be submitted in the second half of 2014 and it is hoped that approval from OMNIS and the other relevant Madagascar Government bodies will be achieved soon afterwards. The Company will need to raise additional funds to meet its obligations going forward and is currently working on a financial strategy to secure the funds to support the next phase of the Group’s planned activities which will include the commencement of the Tsimiroro Development, further appraisal drilling and seismic activity on the Tsimiroro field, ongoing exploration licence activities and for corporate working capital requirements. The estimated quantum of funds will be determined by the pace of the Tsimiroro Development, the number of development wells required and forecast revenues from production. Notwithstanding the need for funds for development of the Tsimiroro field, current cash balances would not be adequate to cover costs in the normal course of business in the event that the project was delayed. The Company is actively looking at a number of fund-raising options and further information will be provided to shareholders in due course on how the Company’s ongoing and planned business plans will be financed. The outcome of the selected fund-raising option(s) cannot be predicted, and sufficient funds may not be forthcoming to fund the Company’s operations. This represents a material uncertainty that may cast significant doubt over the Company’s ability to continue as a going concern.

BASIS OF CONSOLIDATION

Subsidiaries The consolidated financial statements incorporate the financial statements of the Company and its wholly-owned subsidiaries. Subsidiaries are those entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The following companies have been consolidated within the Group financial statements:

Voting Name of Subsidiary Registered Holding power held Principal activity % % Madagascar Oil Ltd Mauritius 100 100 Investment Madagascar Oil Services Ltd Mauritius 100 100 Administration and technical Madagascar Oil SA Madagascar 100 100 Oil exploration and production Madagascar Oil (USA) LLC United States 100 100 Administration and technical

Transactions eliminated upon consolidation Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. There is no non-controlling interest in any of the subsidiaries of the Group.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

FOREIGN CURRENCY TRANSLATION

Functional and presentation currency Management has concluded that the US dollar is the functional currency of each entity of the Group due to the following facts:

• Most of the expenses of the entities of the Group are denominated in US dollars; • Planned oil sales are anticipated to be denominated in US dollars and indexed to international markets; and • The majority of funds raised from financing activities (debt or equity instruments) are either generated in US dollars or are raised in GBP and immediately converted to US dollars.

The consolidated financial statements are presented in US dollars.

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation is provided at rates calculated to write each asset down to its estimated residual value evenly over its expected useful life as follows: (Years) Drilling and exploration equipment 5-10 Vehicles 5 Equipment 5-10 Other 5

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

INTANGIBLE ASSETS

Software acquired separately is reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight-line basis over their estimated useful lives of 4 years and recorded in the consolidated statement of comprehensive income as depreciation and amortisation expense. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

EXPLORATION AND EVALUATION ASSETS

The Group applies the full cost method of accounting for exploration and evaluation costs. Under the full cost method, costs directly associated with exploring for and evaluating oil and gas properties are accumulated and capitalised. However, they do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the statement of comprehensive income as they are incurred. Depreciation of property, plant and equipment assets utilised in exploration and evaluation activities is capitalised within exploration and evaluation costs. No depreciation is charged during the exploration and evaluation phase. Management believes that the carrying value of these costs will be recovered from future operations.

If the exploration and evaluation is ceased or if it is determined that the carrying value cannot be supported by future production or sale, the excess of the carrying value above recoverable amount will be expensed in the period that the determination of an impairment is made. Where an impairment subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

At the completion of the exploration and evaluation phase, if technical feasibility is demonstrated and commercial reserves are discovered, then, following the decision to continue into the development phase, the carrying value of the relevant exploration and evaluation asset will be reclassified as a development asset, but only after the carrying value of the asset has been assessed for impairment.

IMPAIRMENT

Property, plant and equipment and intangible assets excluding exploration and evaluation assets At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

The recoverable amount is the higher of fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Fair value is determined as the amount that would be obtained from the sale of an asset in an arm’s length transaction. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income.

Non-financial assets which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

(or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the statement of comprehensive income.

Exploration and evaluation assets Impairment tests are performed when the Group identifies facts or circumstances implying a possible impairment in accordance with IFRS 6. Where the Group identifies that an asset may be impaired the Group performs an assessment of the recoverable value in accordance with the requirements of IFRS 6. Any impairment identified is immediately charged to the statement of comprehensive income.

JOINT OPERATIONS

The Group has applied IFRS 11 to all joint arrangements as of 1 January 2012. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations from each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint operations. Joint operations are accounted for using proportionate consolidation.

Under proportionate consolidation, the Group’s share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.

INVENTORY

Diesel inventories are stated at the lower of cost and net realisable value. Cost is determined by the FIFO (first-in-first-out) method and is comprised of direct purchase and transportation costs. Net realisable value represents the estimated selling price less all estimated costs of completion and the estimated costs necessary to make the sale.

FINANCIAL ASSETS

Cash and cash equivalents Cash and cash equivalents consist of cash on hand and demand deposits. Restricted cash consists of bank deposits used to secure credit facilities and the bank letters of guarantee submitted to the Malagasy State as per the Production Sharing Contracts’ requirements during the Exploration Period.

Other receivables Other receivables are initially measured at fair value and subsequently amortised cost using the effective interest method less any impairment.

Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

FINANCIAL LIABILITIES AND EQUITY

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs, which are charged to share premium.

Trade payables Trade payables are initially measured at fair value and subsequently held at amortised cost using the effective interest method.

Bridge financing Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

PROVISIONS

Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated.

Decommissioning provision When the Group is legally, contractually or constructively required to restore a site, the estimated costs of site restoration are provided for. The amount recognised is the present value of the estimated future expenditure for restoring the sites of drilled wells and related facilities to their original status. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related oil and gas property. The amount recognised is reassessed each year in accordance with local conditions and requirements. Any change in the present value of the estimated expenditure is dealt with prospectively. The unwinding of the discount is included as a finance cost.

Employee benefits provision The Group recognises a provision for employee holiday pay earned but not taken at the end of each accounting period.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

TAXATION

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit and is accounted for using the statement of financial position liability method.

Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the statement of financial position date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or to settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the year Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity or other comprehensive income, in which case the tax is also recognised directly in equity or other comprehensive income, as appropriate.

Value Added Tax When Value Added Tax (“VAT”) is expected to be recoverable through the existence of future sales, the Group’s policy is to record this recoverable VAT as a non-current tax asset. In instances where the future recoverability of VAT cannot be assessed with sufficient confidence,

Madagascar Oil Limited

Notes to the Consolidated Financial Statements the Group’s policy is to add the potentially irrecoverable VAT to the cost of the underlying transaction and capitalise or expense the amount according to the treatment of the underlying transaction.

SHARE-BASED PAYMENTS

The Group issues equity-settled share-based payments to some of their employees and directors through stock options plans, restricted shares or warrants. These plans are measured at fair value on the grant date and are accounted for as an employee expense on a straight-line or graduated vesting for each tranche basis over the vesting period of the plans.

The equity settled transaction reserve accounts for the expense associated with options that have been granted but not yet vested. The cost of the share options is recognised as an increase in the equity settled transaction reserve at the time of the award and this reserve is transferred to the accumulated deficit account over time when such shares become vested.

The Group may also issue equity instruments as a counterpart of goods and services received from financial institutions and other intermediaries. These instruments (warrants) are accounted for as an expense on the basis of the market value of goods and services received.

The proceeds received net of any directly attributable costs are credited to share capital (nominal value) and share premium.

LEASING

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

EARNINGS PER SHARE

(i) Basic earnings per share Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

SEGMENT REPORTING

Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer (or equivalent), used to make strategic decisions. The Chief Executive Officer (or equivalent) considers the business from an activity perspective.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

3. Critical accounting judgments and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described above, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Recoverability of exploration and evaluation costs The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible exploration and evaluation assets, is inherently uncertain. Management makes the judgements necessary to implement the Group’s policy with respect to exploration and evaluation assets and considers these assets for impairment at least annually with reference to indicators in IFRS 6. Further details are provided in note 16.

Decommissioning costs The cost of decommissioning is estimated by reference to the Group’s experience, with key judgements including the application of local laws and regulations, estimates of the related costs, timing and discount rates. Further details are provided in note 26.

Share based payments The share-based payment charge is determined based on a number of judgements, including selection of an appropriate valuation model, estimation of the number of awards that will ultimately vest, and vesting periods. Further details are provided in note 23.

Legal proceedings and commercial disputes The Group only recognises a provision where there is a present obligation from a past event, a transfer of economic benefit is probable and the amount of cost of the transfer can be estimated reliably. Application of this accounting policy requires the Group’s management to make critical judgements to determine the probable outcome of legal proceedings. Among the factors considered are the nature of the disputes and litigations, the progress of the cases, the opinions of legal advisers, experience of similar cases and any decision of the Group’s management as to how it will respond to any such claim or litigation. Further details are provided in note 30.

4. Segmental reporting

Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief executive (or equivalent) to allocate resources to the segments and to assess their performance.

In the opinion of the directors, the operations of the Group comprise one class of business, being oil and gas exploration and related activities in only one geographical area, Madagascar.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

5. Loss from operations

Loss from operations has been arrived at after charging:

Year Ended 31 December 2013 2012 US$(000) US$(000)

Depreciation of plant, property and equipment 56 51 Amortisation of intangible assets 49 46 Impairment of plant, property and equipment 750 - Impairment of exploration and evaluation assets - 2,718 Loss on disposal 7 19 Staff costs (see note 6) 4,403 5,541 Operating lease rentals (see note 29) 452 433

During the year the Group (including its overseas subsidiaries) obtained the following services from the company’s auditors and their associates:

Year Ended 31 December 2013 2012 US$(000) US$(000) Outgoing auditor Fees payable to BDO US LLP for the audit of the Company’s annual - 207 accounts Total audit fees payable to BDO firms - 207

Interim review 24 26 Tax advisory fees 13 13 Total fees payable to BDO firms 37 246

Incoming auditor Fees payable to PricewaterhouseCoopers LLP for the audit of the 143 - Company’s annual accounts Total audit fees payable to PricewaterhouseCoopers LLP 143 -

Tax advisory fees payable to PricewaterhouseCoopers LLP and its 151 29 associates Total fees payable to PricewaterhouseCoopers firms 294 29

6. Staff costs

Employee benefits recognised as an expense during the year comprised:

Year Ended 31 December 2013 2012 US$(000) US$(000)

Wages and salaries 2,178 3,361 Social security costs & benefits 476 271 Share-based payments (see note 23) 1,749 1,909 4,403 5,541

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

7. Operating costs

Year Ended 31 December 2013 2012 US$(000) US$(000)

Depreciation of plant, property and equipment 56 51 PSC administrative fees 837 837 PSC training fees 290 290 1,183 1,178

PSC administrative and training fees represent the contractual charges for all licenses under the Production Sharing Contracts signed with the Republic of Madagascar.

8. General and administrative expenses

Year Ended 31 December 2013 2012 US$(000) US$(000)

Staff costs (see note 6) 4,403 5,541 Legal and professional fees 1,519 830 Travel and telecommunications 749 941 Other expenses 2,224 2,326 8,895 9,638

9. Finance income

Year Ended 31 December 2013 2012 US$(000) US$(000)

Interest income on short-term bank deposits 90 56

10. Finance costs

Year Ended 31 December 2013 2012 US$(000) US$(000)

Unwinding of discounts on provisions (see note 26) 153 17

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

11. Foreign exchange loss

The net foreign exchange loss recognised totalling US$165,000 (2012: US$117,000) relates mainly to the consequence of the movements of the Malagasy currency (“MGA”) as well as the movements of other currencies against the US dollar during the years 2012 and 2013.

For information 1 USD = 2,240 MGA as of 31 December 2013 and 1 USD = 2,271 MGA as of 31 December 2012.

12. Tax

The tax (credit) / expense for the Group is:

Year Ended 31 December 2013 2012 US$(000) US$(000)

The minimum tax liability payable by Madagascar Oil SA — — The tax liability due (to) / by Madagascar Oil (USA) LLC (44) 2 (44) 2

Year Ended 31 December 2013 2012 US$(000) US$(000)

The charge for the year can be reconciled per the statement of comprehensive income as follows: Loss on ordinary activities before taxes (12,136) (13,612) Tax benefit on ordinary activities at the rate of corporation tax in Bermuda of 0% — —

Tax charges attributable to taxable overseas jurisdictions — 2 Income/expenses disallowed for tax — — Tax losses carried forward — — Movements in deferred taxation — — Foreign tax refund due (44) — Tax (credit) / charge for the year (44) 2

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

13. Loss per share

Basic loss per share amounts are calculated by dividing the loss for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted loss per share amounts are calculated by dividing the loss for the year attributable to owners of the parent by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. The effect of the warrants and options are anti-dilutive in 2013 and 2012, and are therefore excluded from our calculation of diluted loss per share.

Year ended 31 December 2013 2012 US$(000) US$(000)

Net loss attributable to owners of the parent (12,092) (13,614)

Basic weighted average number of shares 500,105,820 247,026,841

Effect of dilutive potential ordinary shares Shares related to warrants n/a n/a Shares related to options n/a n/a Diluted weighted average number of shares 500,105,820 247,026,841

Loss per share Basic US$(0.02) US$(0.05) Diluted US$(0.02) US$(0.05)

14. Non-current tax assets

As at 31 December 2013 2012 US$(000) US$(000)

VAT receivable 12,657 7,366

VAT receivable shall be recovered when the Company begins collecting VAT on sales of crude oil.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

15. Property, plant and equipment

Drilling & Exploration Cost Vehicles Equipment Other Equipment Total US$(000) US$(000) US$(000) US$(000) US$(000)

Balance at 1 January 2012 136 420 48 27,457 28,061 Additions 166 41 — 7,580 7,787 Disposals — (44) — — (44) Balance at 31 December 2012 302 417 48 35,037 35,804 Additions — 37 — 2,299 2,336 Disposals — (294) — (6) (300) Balance at 31 December 2013 302 160 48 37,330 37,840

Drilling & Accumulated depreciation and Exploration impairment Vehicles Equipment Other Equipment Total US$(000) US$(000) US$(000) US$(000) US$(000)

Balance at 1 January 2012 (136) (367) (25) (12,923) (13,451) Depreciation expense (13) (32) (6) (2,256) (2,307) Disposals — 28 — — 28 Balance at 31 December 2012 (149) (371) (31) (15,179) (15,730) Depreciation expense (33) (21) — (2,751) (2,805) Impairment — — — (750) (750) Disposals — 287 — 6 293 Balance at 31 December 2013 (182) (105) (31) (18,674) (18,992)

Drilling & Exploration Net book value Vehicles Equipment Other Equipment Total US$(000) US$(000) US$(000) US$(000) US$(000)

Balance at 1 January 2012 — 53 23 14,534 14,610 Balance at 31 December 2012 153 46 17 19,858 20,074 Balance at 31 December 2013 120 55 17 18,656 18,848

An impairment charge of $750,000 (2012: $nil) has been recognised in relation to obsolete unused drilling equipment following a physical equipment review.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

16. Exploration and evaluation assets

During the Exploration Period of the existing Production Sharing Contracts the Group considers as intangible assets: • The exploration works performed in the licenses 3104 Tsimiroro, 3105 Manambolo, 3106 Morondava and 3107 Manandaza • The costs associated with the implementation of the SFP project on license 3104 Tsimiroro Total US$(000) Balance at 1 January 2012 103,971 Additions 60,365 Capitalisation of depreciation 2,256 Impairment (i) (2,718) Asset retirement costs 4,154 Balance at 31 December 2012 168,028

Additions 24,547 Capitalisation of depreciation 2,751 Reclassification (6,871) Asset retirement costs 180 Balance at 31 December 2013 188,635

At 31 December 2012 US$(000) Cost 170,746 Accumulated amortisation and impairment (2,718) Net book value 168,028

At 31 December 2013 US$(000) Cost 191,353 Accumulated amortisation and impairment (2,718) Net book value 188,635

The net book value at 31 December 2013 includes costs relating to the following licenses:

As of 31 December 2013 2012 US$(000) US$(000) Licence 3102 Bemolanga (operated by TOTAL)(ii) — — Licence 3104 Tsimiroro (operated) 174,483 155,023 Licence 3105 Manambolo (operated) 4,359 3,983 Licence 3106 Morondava (operated) 5,045 4,639 Licence 3107 Manandaza (operated) 4,748 4,383 Total 188,635 168,028

(i) The Company recorded an impairment on capitalised non-consumable assets of US$2.7 million in 2012 after conducting a physical inventory and evaluation of the age of the materials. (ii) All historical costs related to the Bemolanga block were recovered through the sale of 60% of the interest to TOTAL in 2008.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

17. Other intangible assets

Cost Software US$(000) Balance at 1 January 2012 924 Additions 11 Disposals (621) Balance at 31 December 2012 314 Additions 9 Disposals (12) Balance at 31 December 2013 311

Accumulated amortisation and impairment US$(000) Balance at 1 January 2012 (749) Amortisation expense (46) Disposals 621 Balance at 31 December 2012 (174) Amortisation expense (49) Disposals 12 Balance at 31 December 2013 (211)

Net book value US$(000) Balance at 1 January 2012 175 Balance at 31 December 2012 140 Balance at 31 December 2013 100

Other intangible assets relate to software that the Group uses for its operations and accounting.

18. Joint operations

License 3102 Bemolanga Since 17 September 2008 the Group has held a 40% interest in a joint venture with the group TOTAL for the license 3102 Bemolanga. Under the farm-out agreement TOTAL has become the operator.

The Group is entitled to a proportionate share of the rental income received and bears a proportionate share of the expenses. All expenditures through 2013 were carried by the operator except for certain administrative and training costs payable to the Company’s regulator OMNIS.

The following amounts are included in the consolidated financial statements as a result of the share of the Group in the joint venture operations:

Year ended 31 December 2013 2012 US$(000) US$(000)

Current liability (note 24) - (119) Expenses (140) (270)

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

19. Inventory

As at 31 December 2013 2012 US$(000) US$(000)

Diesel fuel 1,024 -

Diesel is currently used for equipment and as a diluent to blend with Tsimiroro crude oil to fuel the steam generators for the SFP.

The cost of diesel is capitalised within exploration and evaluation assets as incurred. During the year US$1.1m of diesel costs were incurred and capitalised.

20. Other receivables and prepayments

As at 31 December 2013 2012 US$(000) US$(000)

Prepayments to OMNIS 394 386 Supplier advances 262 1,867 Other prepayments 370 1,772 Other receivables 452 92 1,478 4,117

The Directors consider that the carrying amount of other receivables and prepayments approximates to their fair value and no amounts are provided against them.

21. Cash and cash equivalents

As at 31 December 2013 2012 US$(000) US$(000)

Cash and bank balances 24,828 15,869 Restricted cash(i) (1,107) (1,107) Net cash available 23,721 14,762

(i) Cash collateral of US$882,500 (2012: US$882,500) is held at the bank to cover bank guarantees for minimum work commitments on the exploration blocks. These guarantees are subject to forfeiture in certain circumstances if the Group does not fulfil its minimum work obligations. A certificate of deposit for US$225,000 (2012: US$225,000) is held as collateral for the Group’s credit card facilities.

Credit risk

Credit risk refers to the risk that counter-party will default on its contractual obligations resulting in financial loss to the Group and is managed on a Group basis.

The Group’s principal financial assets are cash and cash equivalents and other receivables. The Group’s maximum exposure to credit risk on these assets is US$25.2 million (2012: US$15.9 million). The credit risk on such cash is limited because it is on deposit with banks with good credit ratings assigned by international credit rating agencies. Management considers the above measures to be sufficient to control the credit risk exposure. 52

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

22. Share capital

As at 31 December 2013 2012 Total number of authorised shares 1,200,000,000 1,200,000,000

Fully paid Common Shares in issue 531,372,909 256,568,467 Total number of shares fully paid 531,372,909 256,568,467

Par value per share in USD 0.001 0.001

Number of Share Share Capital Total Shares Premium US$(000) US$(000) US$(000)

At 1 January 2012 196,668,467 197 194,890 195,087 Shares issued 59,900,000 60 24,965 25,025 At 31 December 2012 256,568,467 257 219,855 220,112

Shares forfeited (433,330) - - - Shares issued 275,237,772 275 72,659 72,934 At 31 December 2013 531,372,909 532 292,514 293,046

In February 2013, the Company issued 275,237,772 new ordinary shares for gross proceeds of US$78.4 million. The related transaction costs amounting to US$5.5 million have been netted off the gross proceeds. Of the gross proceeds, US$14.1 million was settled by conversion of shareholder bridge financing to equity (see note 25 and note 28).

During the year, 433,330 (2012: nil) restricted shares were forfeited as the vesting conditions were not met.

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt (when any), cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated deficit.

The Group finances its business through external share capital. In February 2013 the Group raised US$ 72.9 million (net) through the issue of additional ordinary shares. The proceeds are used to finance the Group’s ongoing development and appraisal of the Tsimiroro block and exploration across other blocks.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

23. Share-based payments

Share options Share options are granted to directors and to selected employees and contractors.

Movements in the number of share options outstanding and their weighted average exercise prices are as follows: 2013 2012 Number of Weighted Number of Weighted share average share average options exercise options exercise price (in p) price (in p) Outstanding at the beginning of the 11,295,788 0.59 7,725,788 0.72 year Granted during the year 10,170,000 0.19 4,270,000 0.31

Forfeited during the year (770,000) (1.10) (700,000) (0.32) Lapsed during the year (455,788) (1.90) - - Outstanding at the end of the year 20,240,000 0.34 11,295,788 0.59

Exercisable at the end of the year 11,690,000 0.46 9,448,788 0.59

The weighted average remaining contractual life of share options outstanding at year end was 5.64 years (2012: 2.59 years).

Share options outstanding at year-end have the following terms, prices and expiry dates: Estimated Outstanding Outstanding Grant Exercise First vesting Expiry Fair Value of Options Options Dates Price Date Date Option 2013 2012 27/03/2006 US$13 27/03/2006 27/03/2012 US$6.00 - 60,000 27/07/2007 US$10 27/07/2008 27/07/2017 US$5.00 - 100,000 18/11/2010 £0.95 29/11/2011 18/11/2015 US$0.62 1,250,000 1,250,000 18/11/2010 £0.95 29/11/2011 18/11/2020 US$0.90 - 315,788 30/06/2011 £0.50 30/06/2012 30/06/2016 US$0.17 3,880,000 4,000,000 30/06/2011 £0.50 31/12/2012 30/06/2015 US$0.17 2,000,000 2,000,000 13/3/2012 £0.30 13/3/2013 13/3/2017 US$0.23 1,160,000 1,160,000 21/3/2012 £0.32 31/12/2013 21/3/2017 US$0.23 800,000 800,000 13/4/2012 £0.32 13/4/2012 13/4/2017 US$0.21 150,000 150,000 1/6/2012 £0.32 31/12/2012 1/6/2017 US$0.09 220,000 420,000 29/6/2012 £0.32 31/12/2012 29/6/2017 US$0.10 200,000 200,000 1/10/2012 £0.32 1/7/2013 1/10/2017 US$0.17 510,000 590,000 8/10/2012 £0.32 31/12/2013 8/10/2017 US$0.16 - 150,000 10/11/2012 £0.32 31/12/2013 10/11/2017 US$0.16 - 100,000 10/01/2013 £0.32 31/12/2013 10/01/2018 US$0.16 290,000 - 29/05/2013 £0.18 01/08/2013 29/05/2016 US$0.10 30,000 - 29/05/2013 £0.18 01/01/2014 29/05/2023 US$0.18 5,250,000 - 29/05/2013 £0.18 31/07/2013 29/05/2016 US$0.10 600,000 - 29/05/2013 £0.18 29/05/2013 29/05/2023 US$0.18 600,000 - 29/05/2013 £0.18 31/12/2014 29/05/2023 US$0.18 1,500,000 - 10/07/2013 £0.18 10/07/2014 10/07/2023 US$0.10 1,800,000 -

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

All amounts stated are after consideration of the Company’s 10:1 stock split which took place in 2010.

The fair value of options granted in the year was determined using the Black-Scholes valuation model. The significant inputs into the model were as follows:

• Share prices at grant date were determined based on the last known share price for capital increase. 2013 options were valued on trading prices of £0.1025 to £0.1988 at the date of grants. 2012 options were valued on trading prices of £0.18 to £0.31 at the date of grants.

• Volatility was calculated using two years of historic share price data of the Company.

• Risk free rates based on US government bonds for the option term.

• No forfeiture rate was recognised.

• No expected dividends were considered.

At the year end the total share options equity-transaction settled reserve totalled US$4.756 million (2012: US$3.507 million). The expense recognised related to outstanding stock options plans granted to management and employees was US$1.909 million in 2012 and US$1.749 million in 2013 with a further US$0.5 million (2012: US$2.872 million) transferred to retained earnings for expired and lapsed options.

Restricted shares Historically the Group has granted restricted shares to directors and selected employees. No restricted shares were granted in 2012 or 2013.

The main features of the plans are summarised in the following table: Estimated Grant Vesting Fair Value of Shares Shares Shares Plan Dates Date Shares Granted Forfeited Vested S27 18/11/2010 29/01/2011 1.5 USD 20,000 - 20,000 S28 18/11/2010 29/01/2011 1.5 USD 300,000 - 300,000 S29 18/11/2010 28/02/2012 1.5 USD 780,000 - 780,000 S30 18/11/2010 02/01/2012 1.5 USD 100,000 - 100,000 S31 18/11/2010 02/01/2012 1.5 USD 666,670 - 666,670 S31 18/11/2010 29/11/2013 1.5 USD 333,330 (333,330) - S32 01/08/2011 01/08/2012 0.57 USD 100,000 - 100,000 S32 01/08/2011 01/08/2013 0.57 USD 100,000 - 100,000 S32 01/08/2011 01/08/2014 0.57 USD 100,000 (100,000) -

During the year 433,330 restricted shares were forfeited. There are no longer any unvested restricted shares in issue. At 31 December 2012 the weighted average fair value of unvested restricted shares was $1.15.

During 2013 and 2012, the Company reclassified certain amounts within the equity accounts in order to reflect only unvested restricted shares, warrants and options in the equity settled transaction reserve account.

The expense recognised in the statement of comprehensive income relating to restricted shares granted to management and employees is US$190,000 (2012: US$497,000). 55

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

24. Trade and other payables

As at 31 December 2013 2012 US$(000) US$(000)

Trade payables 1,980 8,353 Other payables 61 47 Accruals 4,239 13,707 Amounts owed to operator - 119

6,280 22,226

The directors consider that the carrying amount of trade and other payables approximates to their fair value. All amounts are payable within one year.

25. Bridge financing

As at 31 December 2013 2012 US$(000) US$(000)

Bridge financing - 15,000

In December 2012 the Company entered into a series of agreements to raise additional financing. It was envisaged that this financing transaction would be in the form of a Convertible Preference Share Offering, where the lead investors were existing shareholders Benchmark and Persistency. In anticipation of this financing the Company entered into a Facility Agreement in December 2012 for a short term bridge financing of US$15.0 million provided by Benchmark and Persistency, which would be repaid in cash once longer term financing had been secured. The terms of the Bridge Financing included a share pledge of the Company’s Mauritian subsidiary, an original maturity date of 31 January 2013, and a break fee, payable in shares, of US$3.0 million in the event that the contemplated transaction to issue Convertible Preference Shares was superseded by an alternative transaction.

In February 2013, an alternative financing in the form of a Placing and Open Offer was implemented and the bridge loan was partially converted to equity with the remaining repaid in cash (US$0.9 million) and a US$3.0 million break fee was paid to Benchmark and Persistency through the issuance of shares.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

26. Provisions US$(000) US$(000) Current Non-Current Employee benefits At 1 January 2013 118 — Used during year (3) — At 31 December 2013 115 —

Decommissioning costs At 1 January 2013 — 4,512 Additions — 181 Unwinding of discount — 153 At 31 December 2013 — 4,846

The provision for employee benefits represents accrued annual leave.

The provision for decommissioning costs represents management’s best estimate of the present value of costs for the plugging and abandonment costs associated with the core holes and wells drilled to date and the production facilities installed in relation with the production test conducted on license 3104 Tsimiroro. This provision will increase as additional wells are drilled and infrastructure is installed and will be settled on the actual decommissioning of the assets with the main activity estimated to occur in 2040.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

27. Financial instruments

All financial instruments, except derivatives, are defined as any contract that gives rise to both the recognition of a financial asset in one entity and a financial liability or equity instrument in another entity.

The estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in the market. For the purpose of estimating the fair value of financial assets maturing in less than one year, the Group uses the market value. For other investments, the Group uses quoted prices in the market. In relation to financial liabilities, since most loans are taken at variable rates or fixed rates that approximate to market rates, the fair value of loans approximates their carrying value.

Set out below is a comparison of the carrying amount and fair values of the Group’s financial instruments. The different levels have been defined as follows:

Level 1: valued using trading prices (unadjusted) in active markets for identical assets and liabilities;

Level 2: valued using inputs that are observable for the asset or liability, either directly (that is as prices), or indirectly (that are derived from prices); and

Level 3: valued using inputs that are not observable for the asset or liability.

(a) Financial instruments by category At the end of the year, the Group held the following financial instruments:-

As at 31 December 2013 2012 US$(000) US$(000)

Loans and receivables Cash and cash equivalents (Level 1) 24,828 15,869 Other receivables 452 92 25,280 15,961

Financial liabilities measured at amortised cost Bridge financing - 15,000 Trade and other payables 6,280 22,226 6,280 37,226

The directors consider that the carrying amounts of financial assets and financial liabilities which are recorded at amortised cost in the financial statements approximate their fair values for current and non-current loans.

(b) Risk management policy In the context of its business activity, the Group operates in an international environment in which it is confronted with market risks, specifically foreign currency risk and interest rate risk. It does not use derivatives to manage and reduce its exposure to changes in foreign exchange rates and interest rates.

Cash and cash equivalents are generally kept in the Company’s functional currency except for an amount corresponding to the needs of the local subsidiaries and such funds required for the parent company to pay its Directors and vendors who are paid in Great British Pounds. The policy

Madagascar Oil Limited

Notes to the Consolidated Financial Statements of the Group is to have a balance in the currency of the local subsidiaries not higher than the expected needs in local currency for one month.

In addition to market risks, the Group is also exposed to liquidity and credit risk. Credit risk is discussed in note 21.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board of directors. The Group manages liquidity risk by maintaining adequate cash reserves and continuously monitoring forecast and actual cash flows. The Group aims to maximise operating cash flows in order to be in a position to finance the investments required for its development.

The Group’s liquidity position and its impact on the going concern assumption are discussed further in the Financial Review and Directors’ Report.

All the Group’s financial liabilities are due within one year at both December 2013 and December 2012.

Foreign currency risk

The Group is exposed to movements in the $US / MGA, US$ / CAD and $US / GBP exchange rates. Foreign exchange risk arises from recognised assets and liabilities.

The carrying amounts of the Group’s foreign currency denominated monetary assets/liabilities were as follows:-

As at 31 December 2012 USD GBP CAD EUR ZAR MGA Total US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) Other receivables 73 — — — — 19 92 Restricted cash 1,107 —- — — — — 1,107 Cash and cash equivalents 14,501 217 — — — 44 14,762 Exposure (assets) 15,681 217 — — — 63 15,961 Bridge financing 15,000 — — — — — 15,000 Trade and other payables 13,647 248 — 41 1 5,289 19,226 Exposure (liabilities) 28,647 248 — 41 1 5,289 34,226 Net exposure (12,966) (31) — (41) (1) (5,226) (18,265)

As at 31 December 2013 USD GBP CAD EUR ZAR MGA Total US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) Other receivables 80 - - 328 - - 408 Restricted cash 1,107 X - - - - - 1,107 Cash and cash equivalents 23,474 190 x - - - 57 23,721 Exposure (assets) 24,661 190 - 328 - 57 25,236 Bridge financing ------Trade and other payables 1,466 1,425 19 - - 3,370 6,280 Exposure (liabilities) 1,466 1,425 19 - - 3,370 6,280 Net Exposure 23,195 (1,235) (19) 328 - (3,313) 18,956

At 31 December 2013, a 10% weakening or strengthening of the US dollar against the other currencies in which the Group’s monetary assets and monetary liabilities are denominated would not have a material effect on the Group’s net current assets or loss before tax.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

Interest rate risk The interest rate profile of the Group’s financial assets and liabilities at 31 December 2013 was as follows:-

As at 31 December 2013 2012 US$(000) US$(000)

Cash at bank at floating interest rate 24,361 14,718

All other financial instruments were non-interest bearing. The cash at bank at floating interest rates consist of deposits which earn interest at variable rates depending on length of term and amount on deposit.

At 31 December 2013, a 1% increase in short-term interest rates would have a positive US$0.2 million impact on consolidated profit before tax and equity. At 31 December 2012 a 1% increase would have had a positive US$ 0.1 million impact on consolidated profit before tax and equity. A 1% movement represents management’s assessment of the reasonable possible change in interest rates.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

28. Related party transactions

Transactions between the Company and its subsidiaries which are related parties of the Company have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Company and other related parties are disclosed below.

Repayment of bridge financing and break fee to shareholders

In February 2013, financing of US$78.4 million (gross) in the form of a Placing and Open Offer was secured, and the US$15.0 million bridge loan provided by shareholders Benchmark and Persistency was partially converted to equity with the remaining repaid in cash (US$0.9 million). A US$3.0 million break fee was paid to Benchmark and Persistency through the issuance of shares at US$0.32 per share. See note 25 for further details.

Compensation of key management personnel Key management includes directors (executive and non-executive), the Chief Financial Officer, the Chief Operating Officer, and General Counsel.

The compensation paid or payable to key management for employee services is shown below:

Years Ended 31 December 2013 2012 US$(000) US$(000)

Short-term employee benefits 1,280 1,806 Termination benefits 265 575 Share-based payments 1,048 1,237 2,593 3,618

Further information about the remuneration of individual Directors is provided in the Directors Remuneration report.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

29. Commitments a) Capital commitments

As at 31 December 2013, the work commitments for Block 3104 Tsimiroro had been fulfilled and the total outstanding minimum work commitments with respect to the exploration blocks were US$750,000 (2012: US$750,000). Bank guarantees have been established in respect of the Group’s obligations for minimum exploration work commitments. See note 21 for further details.

The licence contracts for this block also include the following annual expenditure commitments:

 Administrative fees  Block 3104: US$250,000 per year  Three other exploration blocks: US$162,500 per year per block

 Training fees  Block 3104: US$100,000 per year  Three other exploration blocks: US$50,000 per year per block

The licence contracts as part of the joint venture with the group TOTAL for the license 3102 Bemolanga include annual expenditure commitments of US$100,000 per year as administrative fees and US$40,000 as training fees.

b) Operating lease commitments

Years ended 31 December 2013 2012 US$(000) US$(000)

Minimum lease payments under operating leases recognised 452 433 as an expense during the year

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

As at 31 December 2013 2012 US$(000) US$(000)

Not longer than 1 year 437 368 Longer than 1 year and not longer than 5 years - - 437 368

Operating lease payments represent rentals payable by the Group for its office facilities and housing facilities for expatriates. The lease terms are up to one year, and the majority of lease agreements are renewable at the end of the lease at market rate.

Madagascar Oil Limited

Notes to the Consolidated Financial Statements

30. Commercial disputes Tax Disputes As highlighted in the 2012 Annual Accounts, Madagascar Oil SA (“MOSA”) had received an Initial VAT Notification for the fiscal year 2009 and MOSA’s tax returns for 2010 & 2011 were in the process of being audited. The specific area of audit focus related to the disputed notional VAT (Foreign Services VAT) being applied to services provided by foreign suppliers ex Madagascar.

Under the Malagasy tax codes, the Tax Administration is formally required to notify audited parties of the VAT amount due and any associated penalties due for each fiscal year which have been subject to audit; this is then followed up by a Final Notification.

During 2012 MOSA received an initial Notification for year 2009 but no Final Notification, and for years 2010 & 2011 MOSA had not yet received an Initial Notification.

Following legal argumentation and negotiation the Final Notifications for years 2009, 2010 & 2011 were issued by the Tax Administration to MOSA on 4 November 2013. This tax adjustment claimed by the Tax Administration was MGA 10.026 Billion (Ariary) for fiscal years 2007, 2008, 2009, 2010 & 2011, inclusive of all penalties.

On 8th November US$4.476m (MGA 10.026 billion) was transferred to the Madagascan Tax Administration in final settlement of the VAT dispute covering fiscal years 2007-2011. This settlement agreement definitively and irrevocably closed the tax dispute with the Madagascan Tax Administration for the years 2007-2011. The tax authorities cannot reopen these tax years for further audit except in the case of fraud. This still leaves the years 2012 and 2013 open for audit and assessment. A provision for management’s best estimate of the expected 2012 and 2013 settlement and penalties has been recognised in the financial statements. The likely outcome of the 2012 and 2013 audits and negotiations, and the timing of the resultant settlements are uncertain. Due to the commercially sensitive nature of the provision the details and amount have not been separately disclosed.

Meanwhile the Association Professionnelle du Secteur Petrolier Amont de Madagascar (“APPAM”), of which MOSA is a member, continue their initiative to seek an exemption from Foreign Services VAT for upstream Oil & Gas exploration and development companies.

See Note 2 for further information on the Company’s Accounting policy for the treatment of VAT.

31. Events after the balance sheet date

On 8 May 2014, the Madagascar Oil SA declared to its partner OMNIS that it has determined that the Tsimiroro Licence Block 3104 is a “Commercial Discovery”, under the terms of the Production Sharing Contract (“PSC”). As a consequence of this, the Madagascar Oil SA simultaneously submitted an Appraisal Report to OMNIS which has triggered a period of up to 180 days for the submission of a full field development plan. Submission of the Declaration of Commerciality enables OMNIS to apply for a presidential decree for a Mining Title converting the PSC from the current exploration phase to an initial 25 year exploitation period.

On 23 May 2014, Madagascar Oil S.A. was advised by the Communique de Presse: Conseil des Ministres (the “Communique”) that the decree approving test sales of Tsimiroro crude oil in the local market was approved at a meeting of the Council of Ministers. It is intended that test sales of between 55,000 and 73,000 barrels of Tsimiroro crude oil will commence in the second half of 2014 for up to six months under the terms of the current exploration licence. 63