Final Results

Urals Energy Public Company Limited

("Urals Energy" or the "Company")

Final Results

Urals Energy PCL (AIM: UEN), the independent exploration and production company with operations in Russia, is pleased to announce its audited financial results for the year ended 31 December 2014.

Leonid Dyachenko, Interim Chief Executive Officer, commented: "2014 has been a challenging year for Urals characterised by low oil prices and volatility on the Russian FOREX markets. With the Company effectively debt free and the remaining corporate issues resolved during the period there is a strong platform for growth on which to build.

"The reserve assessment report prepared by Miller and Lents has given the Group further opportunity to develop our reserves through a series of work over programmes and the drilling of new wells. With our sound financial strength and desire to seek out suitable acquisitions the Board has reason to be optimistic for the future of Urals Energy."

Operational highlights

Financial highlights

*Earnings before interest, taxation, depreciation and amortisation ("EBITDA") is a non IFRS measure which the Group uses to assess its performance. It is defined as earnings before interest and taxation.

Post-period end and outlook

- Ends -

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The accounts for the year ended 31 December 2014 will shortly be available from the Company's website www.uralsenergy.com in accordance with AIM Rule 20.

Interim Chief Executive Officer's Statement

2014 Financial

Operating Environment

2014 was characterised by high volatility in the crude oil market price at an average level of US$98 per barrel (2013: US$109) as well as high volatility on the Russian FOREX market. Domestic prices for light oil products ranged from US$61 to US$155 per barrel (2013: US$100 to US$145). Despite this, the Company generated operating cash flow at a level sufficient to maintain its operation and comply with the license requirements on both fields.

Operating Results

Summary table: Gross Revenues before excise and export duties ($'000)

In 2014, total gross revenues decreased by US$6.6 million (caused by a US$2.9 million decrease in gross revenue on the local market and a US$3.7 million from export shipment). A 7% decrease in gross revenue on the local market with the stable volume of sales is a result of a 10% increase in refined products prices in Rouble equivalent offset by 21% average devaluation of Russian Rouble vs US dollar. A 17% decrease in gross revenue from export shipment resulted from a 21% decrease in crude oil market price (2014: US$86 per bbl, vs 2013: US$109 per bbl.) offset by a 5% increase in the volume shipped in 2014.

High volatility in crude oil prices and FOREX rates in 2014 led to a decrease in average net back prices both for crude oil export sales and for petroleum (refined) products domestic sales. More over an 11% indexation of excise rates for gasoline in 2014 also partly had a negative effect on net back for refined products. Net back for domestic product sales is defined as gross product sales minus VAT, transportation costs, excise tax and refining costs.

Summary table: Net backs (US$/bbl)

Gross profit (net revenues less cost of sales) in 2014 decreased by 30% to US$8.7 million from a profit of US$12.4 million in 2013. The main driver of the decreased profit in 2014 was lower net backs.

Cost of sales in 2014 totalled US$35.8 million as compared with US$37.8 million in 2013 of which US$6.2 million and US$5.9 million respectively represented non-cash items, principally depreciation, amortisation and depletion. The decrease in operating costs is mainly explained by exchange rate fluctuation. In addition, and despite the level of inflation almost doubling in 2014, the Company managed to keep the operating costs in Rouble equivalent in line with the level achieved in 2013 (increase in costs amounted to 0.9 %) as a result of the implementation of strong monitoring procedures.

Selling, general and administrative expenses decreased during 2014 by US$0.6 million to US$8.7 million from US$9.3 million in 2013. The Company demonstrated the average decrease in Rouble denominated SG&A cost in 2014 in the amount of 5% compared with 2013. Professional and consultancy fees are mainly denominated in US dollars and represent quite significant portion of the total SG&A costs. A material amount of the fees in 2014 as well as in 2013 are represented by professional fees related to the requisitioned EGM, and non-recurrent expenses related to legal action and a criminal investigation of the ADRA and Vyatcheslav Rovneiko in Cyprus and Russia. The US$0.1 million increase in 2014 compared with 2013 is caused by the services provided by Miller and Lents in the course of the new reserve assessment report preparation. Increase in wages and salaries in 2014 is represented by severance payment to the former CEO of the Company, Alexei Maximov.

The net finance expenses during 2014 were US$17.3 million (2013: US$3.2 million). Net finance expenses for the period primarily consist of exchange rate movements caused by significant strengthening in 2014 of US$ vs Russian Rouble.

Increase of net finance costs in 2014 resulted in a net loss for the year attributable to shareholders of US$13.6 million (2013: net loss of US$0.4million). Without the foreign currency loss of US$17.7 million in 2014 and US$3.7 million in 2013, profit before income tax for the year would represent US$1.6million in 2014 (2013: US$3.2 million).

The decrease in net backs and the decrease of cost of sales in 2014 resulted in a consolidated normalised management EBITDA decrease of US$2.4 million to US$8.1 million in 2014 compared with US$10.5 million in 2013, with EBITDA margins of 18.2% and 20.9% respectively.

Management EBITDA (US$'000) - Unaudited

Net debt Position

As at 31 December 2014, the Company had net cash of US$4.4 million (2013 net cash was US$6.0 million) calculated as long-term and short-term debt less cash in bank and less loans issued.

As at 31 December 2014 as well as at 31 December 2013 the Company was debt free.

Operational update

Petrosakh

In 2014 the Company continued its focus on minimising natural decline in production and exploring new ways of increasing output. Unfortunately, as a result of difficult geological conditions, Petrosakh continued to experience problems with drilling new wells. After delays in drilling of well #112 the Company finished the drilling in June 2015. At the moment well #112 is at the stage of testing and completion. Expected rate of production is around 110 bbls per day.

After current repair and maintenance of the rig and evaluation of the main problems during previous drilling operations, the Company is planning to start the drilling of a new well #54 in July 2015. All necessary materials and equipment are in place. At the moment the Company is planning to complete the drilling of well #54 and start to drill the third well by the end of 2015.

Downstream

Petrosakh continues to refine and sell 100% of its crude oil production domestically. Being the only Company on the island which has a refinery, Urals Energy continues to work in a highly competitive refined products market.

The flexible pricing policy and rational use of the favourable competitive advantages allowed the Company to keep net backs on the sales of oil and oil products stable. Although US$ net backs decreased in 2014 the Rouble net back increased by 10% and this is in spite of the increase in excise rate of 5% from January 2014.

In 2014 the Company started to use a new additive for gasoline production. The new additive led to increase in the yield of light oil products at a lower cost (decrease in cost in 2014 represents 15% compared to 2013).

Оn 9 January 2015 a fire occurred at Petrosakh refinery caused by an accident which occurred during adverse weather conditions. Mainly electrical control equipment was damaged. This accident did not have a significant impact on the refining activity of Petrosakh. The plant was out of operation for approximately one month and was brought back into operation via a manual regime. The Company expects to finish the installation of replacement automated equipment in July 2015 without any effect on the production process.

The Company continues to work to increase the customer base in two main directions i.e. attracting smaller clients and more active participation in different tenders thus avoiding additional intermediaries.

The highly competitive refined products market on the island has caused the Company to reassess its marketing activity. The two main areas under evaluation now are the possible rental of tanks nearby Yuzhno - Sakhalinsk and the acquisition of a petrol station. This is a new market for the Company and management believe that the steps described above will allow the Company to take new niches, small wholesale and retail and increase net backs.

Arcticneft

Current production at Arcticneft is stable and stands at 720 BOPD.

During the reporting period the main efforts of the Company were focused on minimising the natural decline in production through workovers. The target of the programme is to perforate new layers. At the end of 2014 the Company put six temporary abandoned wells into operation as a first step. The estimated level of production per well subject to successful workover is up to 50 bbls per day. The aim of these programmes is to bring production at Arcticneft up to an average of 700 to 720 bbls/day by the end of 2015.

At the moment Arcticneft is working with the official authorities on expanding the boundaries of the license area with subsequent update of the technological scheme of field development. The expected time of finalisation is September 2015.

Unlike previous years the tanker is planned to be loaded and shipped in August 2015. Having analysed the previous shipment(s) the Company came to the conclusion that an earlier shipment is more favourable both from a weather conditions point of view as well as expected market conjuncture.

Taxation

At the end of 2014 the Russian government adopted a set of changes in the tax regime for oil and gas companies. The new changes provide for the gradual increase of Mineral Extraction Tax with a simultaneous decrease in Export Duty and Excise Tax for the nearest three years. The Company evaluated the influence of these changes on the financial position of its subsidiaries. Following consideration of varying scenarios, management believes that the new changes will not have a material negative impact on Arcticneft as an increase in in Mineral Extraction Tax is mitigated by a decrease in Export Duty. At Petrosakh given that only 28% of refined products in are subject to Excise, we anticipate that the new changes in the tax legislation will increase the tax burden on the Company.

Petraco loan

In June 2014 the Company entered into a short-term loan agreement with Petraco under which Petraco agreed to advance the sum of up to US$7.6 million to the Company. The Company received US$3.8 million under the agreement and the loan including the accrued interest was fully repaid as a result of the non-cash settlement transactions with trade receivables due to crude oil sales to Petraco in December 2014.

ADRA and settlements with Mr Rovneiko

In October 2013 the Company received a notification informing it of the existence of a "Debt Repayment Agreement" (the "Alleged Agreement") claiming that the Company was liable to pay a party the sum of the US$41,652,000 by 15 December 2013, representing collateral allegedly provided by the Company in relation to the party's 8,010,000 pledged shares to Finfund. On 26 December 2014 the Company signed a comprehensive settlement agreement with Mr Vyatcheslav Rovneiko, a former Director of the Company, on all outstanding litigation and pending or threatened disputes. All parties to the dispute are pleased to bring it, and all other related or unrelated allegations, to a full and final resolution. As part of the overall settlement, Mr Vyatcheslav Rovneiko agreed to withdraw his claim for US$41.7 million arising out of the disputed Alleged Agreement.

Outlook

Operationally 2014 was been a year of some important improvements:

At Arcticneft, the work over programme led to an increase in daily production to 720 bbls/d for a marginal increased cost. We have developed a plan to bring forward significant undeveloped proven reserves confirmed by the Miller & Lens report completed in January 2014, but this does require a more stable environment and improved oil price.

At Petrosakh, with the completion of well #112, we anticipate stabilising production at an average of approximately 1,100 bbl/d. We found immediate solutions to the effects of the damage to the refinery and were able to restore production with better yields of our key products. We expect the new control equipment to be in operation by the end of this month.

In terms of financial results, the fall in the Rouble/ Dollar exchange rate offset to a substantial extent the dramatic fall in the oil price in the summer, but nevertheless the Company's profits and EBITDA have fallen compared with 2013. However, as the two operational companies must be financed in Roubles, there are translation effects that must be taken through the P & L, though they do not have cash effects. In terms of our cash position Urals Energy remains effectively debt free, using trade finance for a few months each year largely to finance the cash flow effects of the fact that the Company only sells crude from Arcticneft once a year. The Board has therefore continued to review and in some cases submitted bids for acquisition opportunities, but were not prepared to compromise our investment return criteria and hurdles.

On corporate issues, Urals Energy settled the litigation with Mr Vyatcheslav Rovneiko and there is little doubt that this has allowed the Company's management to concentrate effectively on operations and other corporate matters. Mr Alexei Maximov was replaced initially by Mr Sergey Uzornikov as interim CEO, but the pressure of combining this role with that of CFO was excessive. Mr Leonid Dyachenko therefore agreed to step in as CEO on an interim basis. We have had discussions with a number of candidates for the role, but believe that until the financial environment in Russia and the oil market improve, it would not be prudent to make a new appointment. Mr S Kononov, a representative of Adler SA, has been appointed as the President of the Moscow operations company, and is working closely with Mr Dyachenko, Mr Ogaryov and Mr Uzornikov. They are supported by an experienced team to manage operations and corporate matters.

The Company has weathered extremely testing trading and corporate factors during 2013 and 2014. The Board is confident that having done so, we can take advantage of our relative financial strength and the support of our shareholders to develop our own reserves and conclude acquisitions as the general environment improves. Russia has the largest oil and gas reserves, talented engineers, and we have the experience of meeting the challenges of doing business in this environment.

Leonid Dyachenko

Interim Chief Executive Officer