Full Year Results

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

8 March 2012

MADAGASCAR OIL LIMITED

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

Full Year Results

Madagascar Oil today announces its full year results for the year ended 31 December, 2011.

Highlights

Financial Results:

Ø Net loss for the year was $13.2 million compared to a loss of $11.6 million in 2010

Ø Capital expenditure amounted to $16.8 million (2010: $12.4 million)

Ø The Group ended the year with $40.5 million of unrestricted cash and cash equivalents (2010: $67.5 million) and a further $2.6 million of restricted cash (2010: $1.8 million)

Ø The Group remains debt free, other than trade payables and accrued expenses in the ordinary course of business, which ended the year at $5.4 million (2010: $2.8 million)

Ø Post year end share placing in February 2012 raising gross proceeds of US$26.5 million

Operational:

Ø Dispute over Tsimiroro resolved in June 2011, with the Government of Madagascar acknowledging the validity of the Tsimiroro production sharing contract and approving the 2011-2012 budget

Ø Netherland, Sewell & Associates revised upwards the Best Estimate Contingent oil-in-place number for the Tsimiroro block by 75% to 1.7 billion barrels

Ø Construction of the Tsimiroro nine pattern steam flood pilot project began in July 2011

Ø First oil production from the Tsimiroro steam flood pilot project expected in the fourth quarter of 2012

Ø Granted a modification of our work programme at Bemolanga to shift the focus to exploration activity for one year, with an option to extend this exploration phase further by two years

Commenting on today's announcement, Laurie Hunter, Chairman and Chief Executive Officer, said:

"2011 was ultimately a year of great progress for Madagascar Oil, with the Company continuing to develop our principal asset, the Tsimiroro field in Madagascar. Tsimiroro will continue to occupy our operational focus in the near term, and we were delighted when Netherland, Sewell & Associates recently revised upwards the Best Estimate Contingent oil-in-place number for the block by 75% to 1.7 billion barrels.

"After a challenging year, we are poised to see first oil production in Madagascar in 2012. This will be an historic event in that it will represent the first sustained production in the country. We are delighted to be working with the Government to play a significant role in this potentially world class development."

Contact Information:

A copy of the Company's annual report and accounts for 2011 is being posted to shareholders today and is available for download via the Company's website at www.madagascaroil.com.

Chairman / CEO Statement

2011 was ultimately a year of great progress for Madagascar Oil, with the Company continuing to develop our principal asset, the Tsimiroro field in Madagascar.

Tsimiroro will continue to occupy our operational focus in the near term, and we were delighted when Netherland, Sewell & Associates recently revised upwards the Best Estimate Contingent oil-in-place number for the block by 75% to 1.7 billion barrels. This further reinforces our view that Tsimiroro is a truly world class asset, and with our work programme for 2012 having been approved by the Government we now expect first oil production from the Tsimiroro steam flood pilot project in the fourth quarter of 2012. We are currently installing the relevant infrastructure to achieve this goal, and have commenced drilling our 28 pilot wells.

We were very pleased to update the market with news of a successful share placing in February 2012, in which we raised gross proceeds of approximately US$26.5 million. This significant strengthening of our balance sheet affords us the ability to maximise the effectiveness of our work programmes in Madagascar and continue to invest in the communities in which we operate. In particular, the Company can extend the testing phase of the Tsimiroro steam flood pilot through August 2014, conduct additional development drilling, and undertake a Fugro Airborne Gravity Gradiometry ("AGG") survey, as well as acquire additional seismic on our Exploration Blocks.

At Bemolanga we were granted a modification of our work programme to shift the focus to exploration activity for one year, with an option to extend further this exploration phase by two years. In partnership with Total E&P, the work programme is now focused on the block's conventional hydrocarbon potential and we are currently processing data obtained from an 8,400km AGG survey. This cutting edge technology will allow us to understand better the field's deeper oil and gas potential. We intend to fund our initial cash requirements for the Bemolanga project with the $6 million gross carry, which remains under the terms of our agreement with Total E&P as of the end of 2011.

Before we look ahead to 2012, I want to briefly mention our status with the Government of Madagascar. The Company spent the first half of 2011 clarifying its ownership position with the Government so as to establish its right to proceed with operations under its production sharing contracts. The dispute over Tsimiroro was resolved in June 2011, with the Government of Madagascar acknowledging the validity of the Tsimiroro production sharing contract and approving the 2011-2012 budget. Trading in the Company's shares on AIM recommenced in June 2011 following an approximate six month suspension.

Throughout the process we were both co-operative and confident in achieving a favourable resolution to this matter. We engaged in a constructive dialogue with the Government of Madagascar and we were able to reach a solution on Tsimiroro by evidencing compliance with our contracts, demonstrating the amount of work that has been completed to date, and laying out clear plans for the future. While this was a difficult period in the Company's short history as a publicly listed company, we were always confident that our work exceeded the requirements in the agreements that we had signed, and that the rule of law would ultimately prevail. The Company's three Exploration Blocks are still awaiting the necessary approvals to restart operations. We continue to carry on discussions with the regulator to resolve the governmental delays on these blocks; however, there remains some lack of clarity over the oversight of the country's oil and gas operators following the current reorganisation within the Government following the October 2011 signing of the Southern Africa Development Community roadmap. Management believes that the Group will ultimately resolve the delays around the Exploration Blocks.

As mentioned in our December 2011 Annual General Meeting update, we continue to challenge the Madagascar Tax Administration's request for taxes on foreign services. We resolved the portion of the dispute related to income tax in our favour and continue to work through the appeals process on the request for VAT on foreign services. 

Looking ahead to 2012, notwithstanding the general political uncertainties in Madagascar, the Company can move forward with confidence now that a particularly turbulent period has passed. It is the Directors' belief that we have the operational team in place to realise the considerable value contained in our assets. We will continue to engage actively with our regulator and partner L'Office Des Mines Nationales et Des Industries Strategiques ("OMNIS"), with robust plans to build on the progress achieved last year at Tsimiroro and resolve the governmental delays in our exploration block operations. These efforts in turn will help continue to de-risk our assets, and give investors confidence.

We should also note that in conjunction with our increase in operations, we are ramping up implementation of a significant corporate social responsibility programme to increase our investment in the people and communities of Madagascar. This programme will further complement and build on our existing public and social works from which the country and its people are already receiving the clear benefits. To assist us in this effort, we have formed a relationship with the Forum for Former African heads of State and Government (www.africaforum.org), a non-governmental organisation designed to support the advancement of African development. We take our responsibilities seriously in this regard, and we will continue to commit to be a key participant in the future of Madagascar and its people.

On behalf of the Board, I would like to take this opportunity to thank our investors and employees for their continued support. After a challenging year, we are poised to see first oil production in Madagascar in 2012. This will be an historic event in that it will represent the first sustained production in the country. We are delighted to be working with the Government to play a significant role in this potentially world class development.

J. Laurie Hunter

Chairman of the Board and Chief Executive Officer

Operational Review

Tsimiroro - Block 3104

The Tsimiroro Block comprises 6,670 square kilometres, of which the northern portion comprises the approximate 1,600 squarekilometre Tsimiroro heavy oil field. The field has a current Best Estimate Contingent oil-in-place volume, within the Amboloando sand, of 1.7 billion barrels with an average 14o API oil and an estimated recoverable volume of 1.1 billion barrels.

The results from the 2010 work programmewere analysed by NSAI and the oil-in-place volumes were increased by 75% for Contingent resources and 178% for the Prospective resources. The 24 well delineation drillingprogramme, which found 18 wells with good oil shows, and the Electrical Resistivity Tomography data combined to increase the confidence level of oil-in-place estimates and better define the area of coverage of the reservoir areas in the Amboloando sand. The 2010 programme also found a potential new extension to the field to the south that appears to be a development in the slightly deeper Isalo sand.

Construction of the Tsimiroro nine pattern steam flood pilot project began in 2011. The location preparation for the wells and facilities was 98% completed and drilling commenced on the 28 pilot wells in early January 2012. All engineering and design work, which recommenced in July 2011 following resolution of the uncertainties surrounding the block and approval of the work programme by OMNIS, is moving ahead at a good pace for implementation of our steam flood project plans.

The steam flood pilot will test the application of both cyclic and continuous injection of steam in a vertical steam flood configuration. It is presently projected that cyclic steam injection will begin on the producers and injectors in Q3 2012 and continuous steam injection will commence at the end of Q4 2012. The decision to move ahead with commercial development is expected to be made prior to completion of the exploration phase of the production sharing contract ("PSC") in mid-2014.

Current projections for a full field development now indicate that the Best Case Contingent resource will yield a 150,000 barrel per day peak oil rate in approximately 10 years from the start of commercial operations. Full field development and expansion will take approximately 30 years and production will remain economic for over 50 years. In the cases where the Prospective resources are also considered, the peak production is estimated at 300,000 barrels per day and the field life is also calculated to be in excess of 50 years.

In an effort to continue to refine the resource estimates, an additional 13 delineation wells were drilled in 2011 and 12 of those wells showed good Amboloando sand development. These results will be incorporated into the resource analysis in the next few months. The Company also conducted a 10,000 square kilometre Airborne Gravity Gradiometry ("AGG" and also known as Full Tensor Gravity) survey over the entire Tsimiroro Block. We expect that this survey will assist us in defining the boundaries on the shallow oil deposits, however, the survey output should also highlight any potential deeper prospects on this block. We expect to complete this survey analysis during the second quarter of 2012.

Bemolanga - Block 3102

The Bemolanga Block is a 5,463 square kilometrearea and contains the oldest known hydrocarbon deposit in Madagascar. The first wells were drilled on the Bemolanga Block in the late 1800s and work has been conducted over the area of what has been determined to be a potential bitumen mining project. The Block is operated by Total E&P which holds a 60% working interest with the remaining 40% interest held by Madagascar Oil. Bemolanga contains multi-billion barrel Petroleum-Initially-in-Place volumes of bitumen, which was the original focus of the activities on the block. Detailed evaluation by Total E&P and Madagascar Oil indicates the projected recovery will not support proceeding with the mine project at the present time. The mine will continue to be evaluated for potential improvements in extraction and upgrading technology that would improve the economics.

In June 2011 Total E&P and Madagascar Oil received approval from OMNIS for a modification of the Bemolanga work programme to focus on deeper conventional plays on the block. An extension to the exploration phase of the PSC of one year was granted in June 2011, with the commitment to run an AGG survey over the entire block area to identify possible conventional hydrocarbon plays, followed by an option for a further two-year extension to drill a well. This airborne survey of 8,000 square kilometres was conducted in the third quarter 2011 and the results are currently being evaluated.

Approximately $4 million was spent on the Bemolanga project in 2011, and Madagascar Oil's 40% share of the costs was carried by Total E&P as part of the farm-in transaction. Under the terms of the Joint Operating Agreement with Total E&P, the Company will be carried on the next $6 million of gross expenditures for the revised work programme, which is expected to extend through to the end of 2012.

These three blocks, referenced collectively as the "Exploration Blocks", comprise areas of 3,995, 6,825 and 6,580 square kilometresrespectively. Madagascar Oil followed up on the successful 2009 seismic acquisition programme by running GORE® Sorber geochemical testing over nine structural leads in seven areas on the three blocks in 2010. The GORE micro-seepage testing indicated the presence of hydrocarbon signature on five of the leads. The GORE process is conducted by installing sampling modules in a grid on the surface above an identified subsurface structural feature, to determine which areas above the structures have micro-seepage of hydrocarbon at readings above the normal background level.

The northern lead at Manambolo (Block 3105) did not indicate elevated hydrocarbon; however, the southern lead contained several areas reflecting elevated hydrocarbon signature. These accumulations currently lack the seismic definition necessary to determine fully the structural continuity, but the micro-seeps suggest that hydrocarbons may be contained in shallower channel sands rather than the structural feature originally identified in the seismic analysis.

Similarly, Morondava (Block 3106) leads in the north of the block indicate very little data suggesting hydrocarbon presence, however the southerly 160 squarekilometre area indicated two or three areas of elevated hydrocarbon that do not conform to the shape of the structural high mapped below the survey area. These hydrocarbon readings may also correlate to channel sands in a slightly shallower horizon like those seen on Block 3105.

On both Block 3105 and 3106, there is a need for a more comprehensive survey to tie the data together. Madagascar Oil is proposing to run AGG surveys over these leads in 2012. Preliminary plans for this activity have been reviewed and agreed to by the OMNIS technical team. Commencement of work will depend on approval by the Management Committee. It is also expected that the acquisition of additional seismic will be required in the following year to obtain a more complete assessment.

There were three structural areas sampled with GORE on Manandaza (Block 3107). All three leads generated strong signs of elevated hydrocarbon, with the largest most northerly area being the site of the 1991 Manandaza #1 well that recovered 10 barrels of 41o API light oil on a drill stem test. The Company anticipates undertaking an AGG survey on this area followed by the acquisition of additional seismic to clarify the nature of the accumulation.

Work on these blocks was halted in December 2010 and plans for future work have been formulated in anticipation of the requisite approvals being granted by the Government of Madagascar and OMNIS. The date for the Management Committee Meeting has not yet been set and the blocks remain under force majeure pending a renegotiation of the work requirements and timing. Each of these three Exploration Block PSCs will require modifications to the work programme to allow for the planned airborne surveys and the necessary additional seismic work. These will then be followed by an election to proceed with drilling leads on each block. All of the prior results and future block plans have been reviewed and discussed at Technical Committee Meetings with OMNIS, and full agreement has been reached on the need for a combination of AGG surveys and the acquisition of additional seismic to further define and de-risk any potential drilling prospects.

Financial Review

Loss for the Financial Year

The net loss for the year ended 31 December 2011 was $13.2 million. This compares to a loss of $11.6 million in 2010, taking account of $2.8 million of expensed costs associated with the Company's admission to trading on the AIM Market of the London Stock Exchange Plc.

Administrative costs,summarised in the table below, totaled $12.5 million (2010: $7.2 million). Employees and headcount-related contractor payments were $7.2 million (2010: $3.5 million), including $3.1 million (2010: $1.3 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 $1.1 million (2010: $1.1 million). Depreciation, costs of admission to trading on the AIM Market and losses associated with foreign currency exchange, asset disposal and impairments are not included in administrative costs listed below.

Statement of Financial Position

At 31 December 2011 the Group had net assets of $167 million (2010: $174 million). The most significant balances are property, plant and equipment of $14.6 million (2010: $15.1 million), exploration and evaluation assets of $104.0 million (2010: $85.8 million) and cash of $43.0 million, including restricted cash of $2.6 million (2010: $69.2 million, including restricted cash of $1.8 million).

Capital Expenditures

The Company incurred exploration and evaluation related capital expenditures of $16.8 million in 2011. This compares to $12.4 million in capital expenditures in 2010. The Company focused its capital expenditures as follows:

Cash Flow

The Group ended the year with $40.5 million of unrestricted cash and cash equivalents (2010: $67.5 million) and a further $2.6 million of restricted cash (2010: $1.8 million). The Group remains debt free, other than trade payables and accrued expenses in the ordinary course of business, which ended the year at $5.4 million (2010: $2.8 million).

The Group's restricted cash at 31 December 2011 supports $1.5 million of performance guarantees in favor of the Government of Madagascar under the Group's PSCs for Blocks 3105, 3106, and 3107. The guarantees must be renewed through 31 December 2012, which is the end of the current phase of each license. In 2011 the Group set aside $0.8 million in a restricted account in order to continue the appeals process on disputed VAT payments on foreign services.

Madagascar Oil has diversified its cash holdings amongst several significant financial institutions in 2011. At 31 December 2011, approximately $15.8 million was held on deposit with Credit Suisse, $9.8 million was held on deposit with HSBC, and $16.5 million was held on deposit with Chase. At 31 December 2011, over 95% of the Group's cash was held in US dollars.

Link to Financial Statements:

 http://www.rns-pdf.londonstockexchange.com/rns/9287Y_-2012-3-8.pdf