Commencement of Arbitration Proceedings

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4 May 2011 For immediate release

MADAGASCAR OIL LIMITED

("Madagascar Oil" or the "Company")

Commencement of Arbitration Proceedings

Madagascar Oil announces that, further to the declaration of force majeure announced on 21 March 2011, arbitration proceedings were commenced on 29 April 2011, in accordance with the terms of the Production Sharing Contracts ("PSCs") for Blocks 3104, 3105, 3106 and 3107 (the "Blocks") that it operates in Madagascar. The arbitration filings claim breach of contract by the Government of Madagascar and OMNIS, the regulatory agency of the government that manages the country's oil and gas resources. The arbitration claims were formally submitted to the International Chamber of Commerce ("ICC") in accordance with the requirements of the PSCs. The Company's filing seeks declaration that the PSCs are valid and that OMNIS be instructed to proceed with the approval process of the Company's work programmes and related extensions as contemplated under the PSCs.

Simultaneously, the Company has also submitted a notice of dispute to the Government of Madagascar under the rules of the International Centre for Settlement of Investment Disputes ("ICSID") with regard to its threatened expropriation of the Company's assets. While the arbitration process under the ICC rules begins immediately, the notice sent by the Company under ICSID triggers a nine-month cooling off period designed to stimulate negotiations between the parties.

The Company will continue to aggressively pursue a meeting with the Government in order to satisfactorily rectify the current situation. In the event of a mutually satisfactory settlement, all arbitration proceedings can be set aside.

Trading in the Company's shares continues to remain suspended pending clarification of the Government's intentions regarding the Blocks. The Company will provide further updates in due course.

Laurie Hunter, Chief Executive Officer, said:

"We are committed to negotiating a resolution with the Government of Madagascar and remain optimistic this can be achieved. Today's announcement is simply a mechanism for us to protect our shareholders' interests in the event that we are unsuccessful in a negotiated settlement. This first step in the process of arbitration proceedings does not in any way preclude the possibility of an early resolution between the parties, which we firmly believe is within the best interests of all involved, not least because of the impact the alternative may have on potential future foreign investment into the country."

Contact Information:

Pelham Bell Pottinger +44 (0)20 7861 3232

Mark Antelme

Jenny Renton

Strand Hanson Limited +44 (0)20 7409 3494

Simon Raggett

Angela Peace

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