Exillon Energy plc Interim Management Statement

Interim Management Statement

19 May 2010

Exillon Energy plc ("Exillon Energy", the "Company" or the "Group") (EXI.LN), an independent oil producer with assets in two oil-rich regions of northern Russia, Timan-Pechora ("Exillon TP") and West Siberia ("Exillon WS"), today issues its Interim Management Statement for the period beginning 1 January 2010. The financial and production data are for the period from 1 January 2010 to 30 April 2010 and all other information, including details on operations is as at 18 May 2010.

Key highlights

Exillon TP

·; Acquired the North Kenyunskoye licence adjacent to Exillon TP's ETP V field.

·; Successfully completed workover of 6 wells in Timan Pechora leading to an increase in production from 2,050 bbl/day to 3,200 bbl/day.

Exillon WS

·; Successfully completed EWS - 15 appraisal well that flowed 1,140 bbl/day of water-free oil naturally to surface, and proved a significant extension of the EWS I field.

·; Successfully completed EWS-31 and EWS-34 wells that flowed 960 bbl/day and 320 bbl/day of water-free oil naturally to surface respectively.

·; The Group has achieved 100% drilling success rate across three wells drilled in 2010, and is on schedule to complete its ongoing drilling program.

·; Completed the pipeline from Exillon WS EWS I field to the connecting road, thereby permitting production at Exillon WS to start in June.

Production

·; The average daily production rate reached 2,780 bbl/day in the period to 30 April 2010, an increase of 64% over the comparable period in 2009 (2009: 1,696 bbl/day).

·; Exillon Energy is expected to increase combined production to 5,600 bopd in June 2010.

Financial

·; Group cash balance of US$ 11.0 million at 30 April 2010 and virtually no debt.

Alessandro Manghi, CEO, commented:

"Exillon Energy delivered an outstanding operational performance in the first 4 months of 2010. The Group has increased production by 56% from the existing wells in Timan Pechora, and completed a pipeline that will allow the Group to produce oil year round from Exillon WS. The Group carried out a highly successful drilling program achieving 100% drilling success rate across three wells drilled after the IPO, with combined production of 2,420 bbl/day from these wells. Remaining infrastructure and drilling development program is well underway." 

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MATERIAL EVENTS AND TRANSACTIONS

License Acquisition

On 25 February 2010, the Group acquired the North Kenyunskoe license in a state auction for a consideration of US$ 0.3 mm.

The North Kenyunskoye license is largely covered by 2D and 3D seismic, and consists of four main structures with recoverable oil reserves and resources currently estimated at: C2 - 16 mmbbls; C3 - 3.6 mmbbls; D1 - 8.7 mmbbls.

This licence acquisition represents a significant addition to the Company's portfolio.

Production

The gross production for the four months to 30 April 2010 averaged 2780 bbl/day. This represents a 64% increase over the comparable period in 2009 when the average daily production rate was 1,696 bbl/day. The Group's revenue for the period comprised revenues from sales of crude oil and amounted to $15.2 million. 100% of the revenue was derived from Exillon TP, which represents just 43.8% of the Group's 2P reserves and 26.5% of the 3P reserves.

Exillon Energy is currently producing 3,200 bbl/day from the Exillon TP fields. The Group produced oil from Exillon WS during March, but has temporarily stopped production due to infrastructure construction and limited access to the fields. The Group expects to resume production from Exillon WS in June at a rate of 2,400 bbl/day.

With the construction of additional in field infrastructure and completion of a tie in to Transneft, the Group intends to increase production from Exillon WS to 6,000 bbl/day and achieve considerably higher margins on selling crude oil.

Drilling

Exillon WS drilled three wells in the period, achieving 100% drilling success rate, and extending a perfect drilling success rate to 13 wells since 2006.

The EWS -15 well, which was spudded on 29 December 2009, was designed to test the northern extension to the EWS I field. The well flowed water-free oil naturally to the surface with a flow rate of 1,140 bbl/day on a 10 mm choke, and was drilled on a turn-key contract for a total consideration of US$ 0.975 million. The well confirmed the presence of 15.2 m of net oil pay within the Jurassic. This is the thickest net oil pay encountered within the EWS I field to date. The average net oil pay within the Jurassic reservoir of the EWS I field, according to the Miller and Lents September 2009 reserves report, is less than 5 m.

The EWS-31 well, which was spudded on 30 March 2010, was designed to test an eastern margin of the EWS I field. The well flowed water-free oil naturally to the surface with a flow rate of 960 bbl/day on a 10 mm choke, and was drilled on a turn-key contract in 23 days for a total consideration of US$ 1.19 million. The well confirmed the presence of 5.9 m of net oil pay within the Jurassic.

The EWS-34 well, which was spudded on 25 March 2010, was drilled on a turn key contract in 22 days on the western part of the EWS I field for a total consideration of US$ 0.98 million. The new well encountered the main producing Jurassic P reservoir at 1,807m. Results of wire line logging have confirmed the presence of 6.2m of net oil pay within the Jurassic. Testing of the Jurassic interval in the well will be completed by the end of May.

The EWS-34 well has encountered the Pre Jurassic reservoir at 1817m. The well flowed water-free oil naturally to the surface with a flow rate of 320 bbl/day on an 8 mm choke from the Pre-Jurassic zone.

All three wells have been drilled directionally from existing well pads, and will be put into production by Q3 2010.

The Group is currently drilling wells EWS - 8, EWS - 35 and EWS - 100 and is on schedule to complete these wells by the end of June 2010.

Marketing

In Q3 2009, the Group established a trading subsidiary in Moscow, Regional Resources LLC, to act as an oil trader for the Group. Regional Resources LLC will help the Company to optimise its sales revenue by taking advantage of fluctuations between domestic and international oil prices.

On 3 March 2010, the Group signed an oil processing agreement with Aki Otir, a subsidiary of Russneft.

Operational Management Structure

On 15 March 2010, Exillon moved its operational management centre to Urai (Khanty-Mansiysk Autonomous Okrug, Western Siberia, Russian Federation), close to its Exillon WS assets. The move has reduced administrative costs and improved management oversight, ensuring that the Company has the right management on the ground. Following the decision of David Sturt to resign as Chief Operating Officer, the Company appointed Yuri Ovcharov as his replacement. Yuri brings with him an outstanding track record of success throughout his 25 years in the international oil and gas industry. His unparalleled understanding of the geology of the Company's assets and his technical expertise make him the ideal fit for this position.

FINANCIAL POSITION AND PERFORMANCE

Cash and cash equivalents and term deposits   

The cash and cash equivalents and term deposits at 30 April 2010 were approximately US$ 11.0 million (30 April 2009: US$ 3.2 million).

Capital expenditure 

Capital expenditure in the period to 30 April 2010 was around US$ 12.5 million (2009: US$ 0.5 million). Of the total capital expenditure, approximately 65% was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during the first four months of the year included pipeline construction, equipment for the oil processing facility, and gas power station.

Realised prices

The average realised crude oil price during in the period to 30 April 2010 was approximately US$ 49.0 per barrel which was 73.8% higher compared to the corresponding period last year (2009: US$ 28.2/bbl). The Group's realised crude oil prices achieved a discount of about 3.8% to Brent during the first four months of the year.

CURRENT OPERATIONS AND OUTLOOK

In June 2010 the Group expects to begin production of an additional 2,400 bbl/day from Exillon WS, bringing the Group total to 5,600 bbl/ day, a 170% increase in production since the IPO in December of 2009.

With the construction of additional in field infrastructure and completion of a tie in to Transneft, the Group intends to increase production in Exillon WS to 6,000 bbl/day and achieve considerably higher margins on selling crude oil.

Production at Exillon TP is expected to increase by over 45% from an average production of 2,050 bbl/day to an average production over the year of 3,000 bbl/day, following the completion of a well optimisation programme in early 2010. This is equivalent to a total production of 1.1 million bbl per annum.

Three wells on the EWS I field were drilled directionally from the existing well pads and will be put into production by Q3 2010.

About Exillon:

Exillon Energy is an independent oil producer with assets in two oil-rich regions of Northern Russia: Exillon TP in Timan-Pechora and Exillon WS in West Siberia. Exillon Energy plc is incorporated in the Isle of Man, with an operational centre in Urai, Russian Federation. For further information please visit: www.exillonenergy.com 

Disclaimer

This statement may contain forward-looking statements concerning the financial condition and results of operations of the Group. Forward-looking statements are statements of future expectations that are based on the management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. The Company does not undertake any obligation to update publicly or revise any forward-looking statement as a result of new information, future events or other information.