Full Year Results and Operational Update

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN

14 May 2013

MADAGASCAR OIL LIMITED

 ("Madagascar Oil", "MOIL", the "Group" or the "Company")

Full Year Results and Operational Update

Madagascar Oil today announces its full year results and provides a brief operational update for the year ended 31 December, 2012.

Highlights

Operational:

Ø Construction phase of the Tsimiroro Steam Flood Pilot is reaching completion and steam injection into the first wells has commenced. During 2012 the Company drilled 28 wells in the Tsimiroro field: 16 production wells, nine steam injection wells and three observation wells. In addition several water wells and water disposal wells were drilled

Ø The Steam Flood Pilot is designed to evaluate the potential production rates and recovery factor that could be achieved through thermal stimulation

Ø A 24,000 line km Airborne Gravity Gradiometry survey was conducted across MOIL's three exploration blocks and an initiative is underway to consolidate all available data to assess the potential for light hydrocarbons

Ø Major overhaul of the Board, management and control environment was initiated in Q4 2012, including the appointment of new Chairman, Chief Executive Officer and Chief Operating Officer and the restructuring of risk and project cost controls to provide greater visibility and oversight by the Board of Directors. As part of this initiative, the Houston office is expected to close In July 2013 and responsibilities moved to offices in Madagascar and the UK.

Financial Results:

Ø Net loss for the year ended 31 December 2012 of $13.6 million. ($13.2 million in 2011).

Ø Capital expenditure amounted to $64.5 (201: $16.8 million)

Ø The Group ended the year with $14.8 million of unrestricted cash and cash equivalents (2011: $40.5 million) and a further $1.1 million of restricted cash (2010: $2.6 million).

Ø Outstanding short-term bridge loan of $15.0 million at year end (repaid in February 2013), trade and other payables in the ordinary course of business of $22.2 million (2011: $6.4 million) and receivables and prepayments of $4.1m million (2011: $2.9 million).

Ø The Madagascar Conseil d'Etat has decided on a technicality not to consider the merits of the Company's appeal against the Foreign Services VAT assessments for 2007 and 2008. The Company will continue negotiations with the tax administration on the issue, which affects all upstream oil companies in Madagascar.

Ø Significant cost overruns experienced in 2012 on the Steam Flood Pilot, requiring a major capital raise in February 2013 by way of an approximately US$78 million, fully subscribed, Placing and Open Offer in which virtually all of MOIL's institutional shareholders participated.

Commenting on today's announcement, Andrew Morris, Chairman, said:

"The efforts of 2012 and into early 2013 have created an impressive platform for the Company to execute the Steam Flood Pilot and we are delighted to announce that first steam is being injected into the initial wells. We are disappointed that costs during the year were significantly higher than anticipated, but we expect that the funds we have now raised will allow us to operate the Steam Flood Pilot for sufficient time to gather the information we need to assess the commercial potential of the Tsimiroro heavy oil field and to develop a plan for full field development. Additionally, we believe that the initiatives we have taken to improve the leadership and risk and control culture and processes within the Company will stand us in good stead to deliver on our strategic goals. Tsimiroro has the potential to be a world class asset and 2013 promises to be a very exciting year."

Contact Information:

A copy of the Company's annual report and accounts for 2012 is being posted to shareholders today and is available for download via the Company's website at www.madagascaroil.com.

Chairman's Statement

It is with great pleasure that I provide this Chairman's Statement in respect of the Financial Statements for year-ended 31 December 2012. I take over as Chairman of your Company at an exciting time for Madagascar Oil.

The financial year under review was a year of great activity for the Company as the major capital program of construction of the Steam Flood Pilot commenced. Towards the end of 2012 the Company faced some significant strategic, operational and financial challenges. While operations in the field progressed well, the costs associated with building the facilities and infrastructure required for our Steam Flood Pilot were considerably more than we had anticipated. Operating in a remote location such as Tsimiroro inevitably results in a number of unexpected operational challenges. To manage these challenges, the Board has been implementing enhanced operational systems and controls to ensure that it is able to identify and resolve such issues in a more effective and proactive manner.

When the cost overruns and resulting financing shortfall became apparent towards the end of last year, the Board approached its major shareholders seeking financial support. At the year-end the Company had secured from two of its major shareholders, Benchmark Advantage Fund, Ltd and its affiliates ("Benchmark") and Persistency Private Equity Limited ("Persistency"), a US$15 million bridge financing and a commitment to invest US$45 million as part of a proposed US$65 million convertible preference share issue. Post the year-end, we received strong support from our broader institutional shareholder base to participate in an alternative financing arrangement and negotiated an issue of common shares in the Company (the "Placing and Open Offer") in which virtually all of our institutional shareholders participated. The Placing and Open Offer was fully subscribed and closed on 12 February 2013, raising approximately US$78 million (gross). This fund raising significantly strengthened the Company's net asset position, enabling the Board to accelerate its operational progress towards unlocking the significant potential of the Tsimiroro heavy oil field and to maintain the exploration and appraisal progress on the Company's other blocks.

In connection with the financing transactions, the Company agreed to make significant changes to its Board and management team. Mr. Laurie Hunter stepped down as Chairman and CEO, Mr. Mark Weller stepped down as COO and a comprehensive restructuring of the Board was initiated. I would like to put on record my sincere thanks to Laurie, Mark and the former non-executive directors for their efforts and dedication to Madagascar Oil over the years.

We are confident that the changes we have implemented, and are still implementing, will enable the Company to refocus and deliver timely, measurable results from the Steam Flood Pilot. Critical to our success is the culture that we are building within Madagascar Oil, being one of excellence, efficiency and accountability that, amongst other things, will put the management and control closer to the operations in Madagascar. To this end we will be closing our office in Houston in the summer and will transfer all responsibilities to our offices in the UK and Madagascar. I would like to thank all our staff in Houston for their hard work and support for the Company's activities.

The accomplishments throughout 2012 and into early 2013 have created an impressive platform for the Company to commission and execute the Steam Flood Pilot. The Board is confident that the Steam Flood Pilot will be fully functional in the near term and will provide the necessary data to evaluate the commercial potential of the Tsimiroro heavy oil field. The substantial funds which have recently been raised will allow the Company to operate the Steam Flood Pilot during 2013/2014, increasing the amount of data that can be accumulated in order further to evaluate the potential for full field development. The Board believes that Tsimiroro represents a potentially world-class asset and 2013 promises to be a very exciting year.

In addition to the Tsimiroro heavy oil project, we are also establishing the potential for light hydrocarbons in both the Tsimiroro Block and our Exploration Blocks (blocks 3105, 3106 and 3107). During 2012 we completed a 24,000 line km Airborne Gravity Gradiometry ("AGG") survey and during 2013 we will process and integrate all the information we have gathered to assess the most effective way to take these assets forward. We continue to work with our partner Total SA on our Bemolanga Block where the focus is now on light hydrocarbons in the deeper formations.

We continue to be committed to building strong relationships with the communities located in our area of operation and we have an active programme of corporate social responsibility activities to bring benefits to these communities. Details of these activities are included elsewhere in this report.

We enjoy an excellent relationship with our partners at OMNIS, the Malagasy agency for the development of petroleum and mineral resources, and were delighted that the remaining force majeure issue with respect to the Exploration Blocks was amicably and satisfactorily resolved in April 2012.

We anticipate 2013 being an important year for Madagascar Oil, but it will also be an important year for Madagascar itself. A presidential election is presently scheduled for 24 July 2013, with a run-off likely to take place in September. We welcome this important step toward bringing stability to the political situation in Madagascar.

While we access an international pool of talent in building our team, we are also focused upon the

development of our national staff in Madagascar, where, until now, there has been no significant upstream oil industry. We are pleased to note that a large majority of our employees are Malagasy nationals and we take their professional development very seriously as it is critical to the future success of the Company, the country and the industry.

I would like to welcome Mr. Paul Ellis to the Board as Chief Executive Officer of the Company. Mr. Ellis was formerly CEO of Serica Energy plc and has extensive experience in the management of international upstream oil and gas operations. I also welcome our new non-executive directors Mr. Peter Kingston and Mr. Iain Patrick as well as new Chief Operating Officer Stewart Ahmed. As part of the continued build-up of the company's leadership team, we expect additional members to join the Board and management team over the coming months.

In summary, following the intense construction and financial activities of recent months, my fellow directors and I have high expectations for 2013. The Company has positioned itself well to exploit its assets and is singularly focused on a work programme that I am confident will have a significant impact on our underlying asset value.

Andrew James Morris

Non-Executive Chairman

Chief Executive's Review of Operations

Summary

This is my first report as Chief Executive Officer of the Company. I joined the Board as a non-executive director in October 2012 and, upon the recent Board reorganisation, became Chief Executive Officer in December 2012.

The operational focus during the financial year under review was on the construction phase of the Tsimiroro Steam Flood Pilot. This has taken longer than originally planned but is now reaching completion with steam injection having commenced in Q2 2013.

In April 2012, the Company was pleased to announce the successful resolution of its force majeure issues with the Government of Madagascar with respect to its three Exploration Blocks, enabling the Company to recommence work on these blocks. The Company carried out an extensive AGG survey, the results of which are currently being integrated into an evaluation of the exploration potential of the blocks for light hydrocarbons.

We continue to discuss with the Madagascar Tax Administration the issues around charges, penalties and interest for VAT on foreign services. The original dispute relating to the assessment raised in 2010 for the years 2007 and 2008 remains unresolved and a recent tax audit for the years 2009-2011 is currently under discussion. We have therefore increased the reserve in our accounts for a potential tax settlement.

Further details of Madagascar Oil's field activities and associated community programmes during the reporting period are set out below.

Tsimiroro - Block 3104 (Madagascar Oil 100%)

The Tsimiroro heavy oil field covers approximately 1,600 km2 of the 6,670 km2 area of Block 3104. The best estimate contingent original oil in place is approximately 1.7 billion barrels, with further significant prospective oil in place in adjacent untested fault blocks. As the oil is heavy (14° API gravity) and has a high viscosity in the shallow sandstone reservoir, cold pumping only achieves flow rates of less than five barrels per day, which would not be a commercial proposition. For this reason, the Company has engineered and constructed a Steam Flood Pilot project that is designed to evaluate the potential production rates and recovery factor that could be achieved through thermal stimulation of the oil in situ. In analogous fields, recovery factors of 50% or more have been achieved through steam flooding. If this level of recovery can be demonstrated at Tsimiroro, commercial oil production from the field will become a realistic prospect.

During 2012 the Company drilled 28 wells in the Tsimiroro field: 16 production wells, nine steam injection wells and three observation wells. In addition several water wells and water disposal wells were drilled.

The Company installed the infield pipework and manifolds, twenty-five 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.

As previously noted, the construction phase has taken much longer than planned but, as of April 2013, the steam generators had been commissioned and steam injection into the first wells had commenced. The first phase of the Steam Flood Pilot will utilise Cyclic Steam Stimulation ("CSS") of the eight wells comprising two contiguous five-spot patterns. During this process, steam will be injected into both the injection wells and the production wells for a number of days, followed by a short "soak" period to allow heat to be transferred to the oil in place and then all of the wells will be put on production. When the production rate has declined, the CSS process will be repeated. It is expected that two or three CSS cycles will be required, with each cycle taking several weeks. This process creates some voidage in the reservoir that will allow continuous steam injection to be initiated more effectively. It also creates a heated area around each production well that reduces the oil viscosity and allows it to flow through the reservoir to the well more easily.

The second phase of the Steam Flood Pilot involves steam flooding of the first two patterns. During this phase, steam is injected into the injection well at the centre of each pattern and the surrounding production wells are pumped to produce oil and water.

Further patterns will then be thermally stimulated with CSS followed by steam flooding until all of the required patterns are being steam flooded. This sequential start-up process is necessary due to the steam requirement being much greater for CSS than for steam flooding.

The results of the Tsimiroro delineation wells drilled in 2011 and 2012, the 10,000 km2 AGG survey carried out in 2011 and the seismic data available over the field are now being integrated into a new comprehensive model of the field area. Once this work has been completed, an updated Tsimiroro oil in-place estimate will be prepared.

Bemolanga - Block 3102 (Madagascar Oil 40%)

The Bemolanga Block covers an area of approximately 5,463 km2 and is operated by Total E&P, which holds a 60% working interest. The block contains an extensive tar sand deposit that could be surface mined. The potential mining project was the subject of a detailed evaluation by Total including a two year 160 well coring programme in 2009/2010. 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 Blend, 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.

The Company 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 that 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 farm-in agreement. The amendment to the Bemolanga Production Sharing Contract is awaiting government approval.

Exploration blocks (Madagascar Oil 100%)

Manambolo - Bloc k 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 on 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 in the Exploration Blocks.

Following a seismic programme carried out by the Company 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 hydrocarbon micro-seepage survey over the identified leads but the results were inconclusive.

In 2012 the Company carried out a 24,000 line km AGG survey over the Exploration Blocks and these results are now being integrated with the 2009 and earlier seismic surveys, well data, surface geology and regional studies in order to produce a comprehensive prospect register. It is likely that some additional seismic data may be required prior to drilling and plans will be made to acquire any required data.

Once the evaluation has been completed, the Company expects to invite interested parties to make farm-in proposals for an exploration drilling programme, targeting light hydrocarbons, in 2014/2015.

Corporate Social Responsibility Programme

The Company has been operating in Madagascar for seven years and has an active and visible programme of support for the communities adjacent to our areas of operation. Our aim is to contribute to the economic and social well-being of those communities.

The Company conducts regular consultation to determine the needs of the local communities and the objectives of the programme, which include education, health and economic development to promote self-sufficiency and to improve standards of living. The Company also makes charitable donations for local causes and to national disaster funds.

During 2012 the Company carried out the following major projects:

Road Improvements

·; Construction of four Irish bridges on the road between Folokara and Ankondromena.

Water Supply

·; Drilling of water wells and installation of pumps for potable water supplies to the nearby villages of Ankisatra and Folokara, with consultant and sustainable technology partner BushProof.

·; Water supply study with Water Aid for the remote village of Beravina, which has no potable water supply. Project to be realised in 2013.

Education

·; Construction of a primary school at Ankisatra.

·; Provision of school equipment and materials in remote villages.

Health

·; Supply of medical equipment and medicines to the Ankisatra Health Centre.

Economic Development & Sustainability

·; Establishment of a tree nursery for re-forestation. A new forest of approximately 4,000 trees was planted in February 2013.

Paul William Ellis

Chief Executive Officer

Financial Review

Loss for the Financial Year

The net loss for the year ended 31 December 2012 was US$13.6 million. This compares to a loss of US$13.2 million in 2011.

Administrative costs, summarised in the table below, totalled US $10.6 million (2011: US $12.5 million). Employees and headcount-related contractor payments were US$5.5 million (2011: US$7.2 million), including US$1.9 million (2011: US$3.1 million) of IFRS charges related to restricted stock and share options granted to directors, staff and third parties. Production sharing contract-related fees and expenses were US$1.1 million (2011: US$1.1 million). Depreciation, losses associated with foreign currency exchange, and asset disposal and impairments are not included in administrative costs listed below.

Statement of Financial Position

At 31 December 2012 the Group had net assets of US$173.7 million (2011: US$160.4 million). The most significant balances are exploration and evaluation assets of US$168.0 million (2011: US$104.0 million), property, plant and equipment of US$20.1 million (2011: US$14.6 million), and cash of US$15.9 million, including restricted cash of US$1.1 million (2011: US$43.0 million, including restricted cash of US$2.6 million).

Link to Financial Statements:

http://www.rns-pdf.londonstockexchange.com/rns/6164E_-2013-5-13.pdf