Full Year Results

7 April 2014

Matra Petroleum plc

("Matra" or the "Company")

Full Year Results

Matra Petroleum PLC today announces its results for the 12 month period ending 31 December 2013. 

Highlights

Corporate

· Disposal of Arkhangelovskoye Licence for a full consideration of up to US$35 million of which deferred consideration of US$10 million remains outstanding on the date of the report.

· Phased acquisition of oil and gas leases across the Anadarko Basin in the Texas Panhandle, with independently estimated 15,086 MBOE of net Proved and Probable Reserves.

· The Company brought 55 wells back to production on the date of the report.

Financial

· Cash or cash equivalents of US$20.96 million at year end

· No debt

Outlook

· Proposed Delisting from AIM to complete US acquisition

· Planned to drill 60 new wells and complete 70 workovers in 2014

· Strategy to build on existing acreage position through the active evaluation and selective targeting of further prospective acreage opportunities

Maxim Barskiy, Chief Executive of Matra, commented

"I am very pleased with the significant progress Matra made during 2013 towards becoming an independent of size and scale. Our acquisition in the US provides a springboard for future growth through increased production and targeted acquisitions."

For further information, please contact:

Matra Petroleum plc c/o Pelham Bell Pottinger

Henry Lerwill 020 7861 3169

Canaccord Genuity Limited

Henry Fitzgerald-O'Connor 0207 523 8000

Chairman's Statement

Dear Shareholder,

2013 has been a transformational year for Matra with the Company's successful disposal of the Arkhangelovskoye Licence in Russia and the successful entry into a highly prospective upstream oil and gas opportunity onshore in the United States.

In June, Matra agreed the disposal of its 100% interest in the Arkhangelovskoye Licence which includes the Sokolovskoe Field. The full consideration under the agreement (including a US$10 million contingent payment to which Matra became entitled on 1 April 2014) amounted to US$35 million see (note 7) in the financial statements, which the Board considered to be an excellent achievement for this legacy asset.

This disposal followed a seismic survey being conducted on the Sokolovskoe Field in early 2013 and an extensive review by the Board of the conceptual Field Development Plan and associated economic forecasts. As a result of this review, the Board concluded that the disposal of the licence at the terms agreed represented compelling value for shareholders.

Having completed the disposal of the Sokolovskoe Field, the Board moved forward with the Company's stated strategy to identify opportunities to invest in low risk, onshore oil and gas properties underpinned by proven hydrocarbon resources and with material business growth potential. This strategy came to fruition in October 2013, with Matra initiating a substantial strategic acquisition onshore in the United States, having reviewed (and rejected) a number of opportunities in other parts of the world.

The acquisition agreement provided Matra with the option of making a series of phased investments which have resulted in the acquisition of working interests in oil and gas leases across the Anadarko Basin located in the Texas Panhandle, encompassing Gray, Carson and Hutchinson counties, and which have been independently estimated to contain 15,086 MBOE of net Proved and Probable Reserves.

The Board has taken the view that the US conventional onshore oil and gas sector currently represents a compelling investment environment for a Company of Matra's size and niche capabilities. It offers access to low risk production and reserves at attractive valuations, in a benign operating environment, within a stable fiscal and legal regime. In addition, in provides, in the Board's view, material opportunities for growth within an active and liquid asset market, and plays to Matra's particular technical and operational competitive strengths.

Since Matra's entry into the US, the Company has made significant operational progress, including establishing an office in Houston which is now fully operational. An experienced executive and operating team have been put in place including a chief operations officer, geoscience and other technical personnel, a land manager and a financial controller. As at April 2014 Matra's well workover programme brought back to production 55 wells across existing leases.

In 2014, the Company aims to make further operational progress with the development of its Anadarko Basin acreage including increasing production and further evaluating the potential of their existing licenses. Subject to completion of the Acquisition, the Company plans to drill 60 new wells and complete 70 workovers on the leases in 2014. In addition, the Company will look to build on its existing acreage position through the active evaluation and selective targeting of further prospective acreage opportunities within the area.

The onshore US conventional oil and gas play, and the material business opportunities that the Board believes are associated with this play, will represent the primary focus area for the Company in the near to medium term.

Finally, I would like to acknowledge the understandable concerns of some shareholders relating to the proposed delisting of the Company. After careful consideration, the Board has decided the delisting is in the best interests of the Shareholders' and the Company as a whole. Crucially, it will allow the Company to complete the acquisition of the remaining 50% interest in PG-M JV and therefore take operational control of the US assets to generate further value for shareholders. The Cancellation will not alter the Board's strategy for the Company which would be to continue the acquisition of mature oil and gas assets in proven hydrocarbon provinces.

I would like to conclude by thanking everyone in the Company for their enormously hard work in enabling the Company to re-direct itself into a new and exciting business area and I look forward to a successful and exciting year ahead for Matra Petroleum.

James William Guest

Chairman

7 April 2014

Strategic Report

1. Business overview and developments

Arkhangelovskoye license disposal

In May 2013, following the 3D seismic programme on the Arkhangelovskoye licence, the Management revised its estimate of 2P Recoverable Reserves on the licence to 13.5 mmbbls of oil. The Board conducted an extensive review of the conceptual Field Development Plan and associated economic forecasts, as well as investigating other options for maximising the value of the Sokolovskoe Field for shareholders, including a possible sale of the asset.

As a result of this review in July 2013 Matra announced the disposal of its 100 per cent interest in the Arkhangelovskoye Licence, which included the Sokolovskoe Field for an initial consideration of US$25 million with a further deferred contingent consideration of US$10 million payable within nine months from completion of the disposal unless a report from expert geophysics company mutually agree by the parties was provided confirming negative drilling results. The US$25 million initial consideration was received by the Company in July 2013. On 1 April 2014 the Company became entitled to the contingent consideration of US$10 million following the occurrence of the trigger event.

The Board believes that the disposal of the licence for a consideration of up to $35 million represented compelling value when compared to the capital costs required to develop the asset and the technical risks associated with the field.

The proposed monetisation of the Arkhangelovskoye Licence was consistent with the Company's growth strategy and provided the Company with increased flexibility to pursue new upstream investment opportunities, with the potential to create significant value for Shareholders.

Entering USA

The Company appraised and evaluated a number of opportunities in Russia and the CIS but concluded that the valuations expected by vendors were proving unattractive. The Board therefore decided to focus its efforts on pursuing opportunities in the United States of America given the favourable tax regime, extensive established infrastructure and a large number of independent players, all of which made the USA a very attractive place to pursue the implementation of its investment policy.

On 31 October 2013 the Company's wholly owned subsidiary, Matra Petroleum U.S.A., Inc. ("Matra USA"), entered into an agreement which allowed it to invest into the US onshore oil and gas sector. The agreement allowed Matra USA, through a series of investments, to acquire up to 38,746 net acres located in the Texas Panhandle for an aggregate consideration of up to US$28.2 million.

The first of the series of investments was Matra USA's acquisition of a 50 per cent interest in PG-M International LLC (PG-M JV) from PSOFEI, LLC ("PSOFEI") for US$1.5 million. PSOFEI is a holding Company owned by the entities of the selling Group namely Amiba Resources LLC, Galaga Resources LLC and Jenkins Oil & Gas LLC. The PG-M JV was a newly incorporated Company created to hold various oil and gas working interests in leases.

On 22 January 2014 the Company announced the transfer of additional oil and gas leases to PG-M JV by affiliates of PSOFEI. The consideration for this transfer was the payment of cash from Matra USA to PSOFEI in the amount of US$2.26 million and the provision of additional secured lending by Matra USA to PSOFEI in the amount of US$3.76 million.

In the course of conducting extensive due diligence prior to closing of Phase 2, the Company discovered certain title defects in six leases being acquired. On the date of the report PG-M JV purchased a further two cured leases for an amount of US$354,000.

Pursuing to the completion of the delisting procedures, Matra USA intends to cancel the debt funding of US$3.88 million provided by Matra USA to PSOFEI as of 4 April 2014 in consideration for Matra USA acquiring the remaining 50 per cent of PG-M JV it does not already own.

D&M appraisal of reserves

DeGolyer & MacNaughton ("D&M") conducted a review of all of the assets acquired and the results of the independent reserve audit. The Company has extracted from the D&M report the Reserves associated with those leases that are currently free and clear from title defects and the results of this analysis are as set out below:

*Net reserves are defined as that portion of the gross reserves attributable to the interests that PG-MI JV owns after deducting royalties and interests owned by others.

NB. Sums in the analysis above may not add up due to rounding.

Operations and outlook

As of 04 April 2014 Matra funded PG-M JV's work programme through secured lending to the joint venture Company in the amount of US$3.44 million. Pursuant to a joint operating agreement, Petrolia Group, LLC, an affiliate of PSOFEI, has to date been appointed as operator to service the properties owned by PG-M JV, and Matra USA and PSOFEI jointly agreed a work program.

Since Matra's entry into the US, the Company has made significant operational progress, including establishing an office in Houston which is now fully operational. An experienced executive and operating team has been put in place including a chief operations officer, geoscience and other technical personnel, a land manager and a financial controller.

As at 4 April 2014 Matra had 55 producing wells. During March - April 2014 PG-M JV mobilised 4 workover rigs to start execution of workover programme of 24-30 wells. Workovers will allow optimisation of operating cash flows as well as collection of additional technical information and acquisition of well test data.

In 2014 the Company aims to make further operational progress with the development of its assets including an extensive capital investment program to boost production and further evaluate the potential of our existing leases, subject to raising additional finance. Subject to completion of the acquisition, the Company plans to mobilise two drilling rigs and drill 60 new wells as well as to perform total of 70 workovers on the leases in 2014 In addition, the Company will look to build on its existing acreage position through the active evaluation and selective targeting of further prospective acreage opportunities within the area. The Company has commenced negotiations with various US financial institutions on raising the reserve based financing necessary for this ambitious development programme and expects to obtain such funding within next 6 months.

Strategy

Our strategy is to become mid-sized independent US oil and gas producer. Our goal is to maximize shareholders value through the acquisition of reserves at a price substantially below their NPV and grow production. Our financial strategy is to use equity capital for the acquisition of reserves and use debt for the development.

We will aim to reach this goal through acquisitions of assets located in proven oil and gas provinces with existing reserves in conventional petroleum reservoirs. Our focus is to identify remaining hydrocarbon potential in already producing and potentially partially depleted reservoirs assets through further exploration and appraisal and/or through the increase of the recovery factor by using different secondary enhancement techniques.

2. Principal risks and uncertainties

Managing the risks is essential to the long term success and sustainability of the Company. Following the sale of Arkhangelovskoye license and subsequently entering the USA oil and gas market, the strategy of targeting and realising value from existing production assets and new acquisitions has been articulated. In delivering this strategy, our business activities are subject to a variety of risks specific to the oil and gas business.

Our key risks to manage going forward are:

· Oil and gas price volatility - The economic viability of the Group's oil and gas assets is dependent on the underlying oil price. Management produce financial models of the assets based upon conservative long term oil prices and regularly revise these estimates.

· Availability and cost of rigs/reliability of service providers in the development area - Management actively monitor, set up and maintain good links to the local rig and other services market, supplemented by regular market enquiries.

· Experienced personnel recruitment and retention in the development area - The Company has put an experienced core local management team in place in Houston and Borger. To retain experienced personnel the Group adopted a long-term incentive award scheme.

· Lack of operational success - Operational risks include geological and reservoir uncertainties, drilling challenges, equipment failure, well control issues and the impact of hostile weather conditions. The Group takes responsibility to ensure all relevant legislation is met and that the Group and contractors have the relevant insurance in place.

· Preventing Health and Safety Executive (HSE) incidents - Management introduced a safety and health programme to identify and eliminate unsafe working conditions or practices which includes but not limited by providing mechanical and physical safeguards, conducting a series of inspections, training of all employees, providing personal protective equipment, developing and enforcing safety and health rules.

· Access to the capital for development of existing assets and future M&A - The Group may be unable to raise the required debt or equity to develop a full potential of existing assets and further growth of the Company via M&A. In order to mitigate this risk, Management produce financial forecasts and monitor closely the process of asset development to ensure that finance is used to develop economically viable assets only. The Company started negotiations with banks in the United States regarding reserve base lending for development of the assets, however no binding agreements were in place at the date of this report.

3. Financial position and performance of the business

The successful completion of disposal of Arkhangelovskoye license in July 2013 allowed the realization of value of the business built in Russia since 2007 and made it possible for the Company to start a new cycle of business development.

In 2013 the Company made a US$12.63 million gain on disposal of Sokolovskoe oil field.

The Company has used US$11.00 million for acquisition and financing of the work program of the PG-M JV to date.

The Group's total administrative expenditure from continuing operations in the year was US$6,241,000 (2012: US$3,437,000). A loss of US$429,000 is the Group's share of the workover and administrative expenditures in the PG-M JV in 2013 (2012: nil).

The US$1,587,000 increase in administrative expenditures was largely due to legal and professional costs and travel costs both related to the acquisition of the assets (note 5).

On 28 June 2013 the Company granted options to its management and employees and as a result a charge of US$427,000 (2012: US$599,000) lead to an increase in the administrative expenditures which was offset by a reverse of the share-based payment to Maxim Barskiy accrued in 2012 of US$599,000 (2012: nil) due to vesting conditions not being satisfied.

The Company maintains a strong liquidity position as of the end of 2013. At year end the Group had cash and cash equivalents totalling US$20,957,000 (2012: US$4,000,000). The funding position going forward will be supported by a combination of existing cash resources, cash flow generated from operations and external funding. The Company started negotiations with banks in the United States regarding reserve base lending for development of the assets, however no binding agreements were in place at the date of this report. In order to pursue its planned development strategy the Group will need to secure additional funding. The Directors are confident in the Company's ability to secure the funding when it is required for future capital programme.

5. Key Performance Indicators

With the change of focus Management are still in the process of setting KPIs however the main financial and non-financial KPI will be to deliver our operating program for 2014 successfully and safely, maintain balance sheet strength and enhance the reserves base to provide the funding for future growth and cash flow.

By order of the Board

Ekaterina Konshina (born Sapozhnikova)

CFO

7 April 2014

CONSOLIDATED STATEMENT OF PROFIT AND LOSS

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

*Items that may be reclassified to profit or loss.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

The financial statements were approved and authorised for issue by the Board on 7 April 2014 and were signed on its behalf by:

Maxim Barskiy

Chief Executive Officer

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

The financial statements were approved and authorised for issue by the Board on 7 April 2014 and were signed on its behalf by:

Maxim Barskiy

Chief Executive Officer

CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. Accounting policies

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by International Accounting Standards Board (IASB) as adopted by European Union.

These financial statements are presented in US Dollars and rounded to the nearest thousand (US$'000).

The principal accounting policies adopted in the preparation of these financial statements are set out below. The policies have been applied consistently to all the years presented, unless otherwise stated.

The financial information set out above for the years ended 31 December 2013 and 31 December 2012 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, but is derived from those accounts. A copy of the statutory accounts for 2012 has been delivered to the Registrar of Companies and those for 2013 will be submitted for approval by shareholders at the Annual General Meeting. The auditor has issued an unqualified opinion in respect of the financial statements which does not contain any statements under the Companies Act 2006, Section 498(2) or Section 498(3).

Going concern

For going concern purposes the Directors have prepared a cash flow forecast for the period until the end of 2015 that relies on the available cash resources and does not assume raising additional equity or debt finance. The Group's operations are forecast to be cash generative in 2014 and with the current cash position they consider that there will be sufficient cash resources to cover the Group's minimum uncommitted drilling and workover programme and administrative costs for the next 18 months.

To implement the Board's strategy of rapid development and further acquisition of assets, as described in the Chairman's statement and the Strategic Report, additional funding will be required. The Directors are looking to raise the required funding through reserve based financing and are confident that such funds will be available to the Group. However, at present there are no binding agreements in place and therefore should the additional funding not be secured this could result in delays to the planned development.

New and revised standards and interpretations applied

A number of new standards and amendments to existing standards and interpretations were applicable from 1 January 2013. The adoption of these amendments did not have a material impact on the Group's financial statements for the year ended 31 December 2013.

The following standards, amendments and interpretations are not yet effective and have not been earlier adopted:

* Not yet endorsed by EU.

The Group is evaluating the impact of the above pronouncements but they are not expected to have a material impact on the Group's earnings or shareholders' funds.

Basis of consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Board.

Business combinations

The consolidated financial statements incorporate the results of business combinations using acquisition accounting. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of profit or loss from the date on which control is obtained.

Foreign currency translation

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of profit or loss.

The Company's functional currency is Pound sterling. Matra Petroleum USA and joint ventures' functional currency is US dollar. Matra Petroleum Cyprus (Alpha) ltd functional currency is Euro.

On consolidation, the results of overseas operations are translated into US Dollars (the presentational currency) at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Differences arising on retranslating the opening net assets and the results of operations are recognised directly in equity (the "foreign currency translation reserve").

Exchange differences recognised in the statement of profit or loss of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the foreign currency translation reserve on consolidation.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign currency translation reserve relating to that operation up to the date of disposal are transferred to the consolidated profit or loss statement as part of the profit or loss on disposal.

The following rates were used to translate these financial statements:

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation is provided at rates calculated to write off the cost of assets, less their estimated residual value, over their expected useful economic lives on the following basis:

Property, plant and equipment - 25% per annum straight line.

The useful lives and residual values of Property, plant and equipment are re-assessed annually and any revisions taken to the income statement in the current period.

Intangible oil exploration and evaluation assets

The Group applies the successful efforts method of accounting for exploration and appraisal costs. Under the successful efforts method of accounting, all licence acquisition, exploration and appraisal costs are initially capitalised in well, field or specific exploration well cost centres as appropriate, pending determination. Costs are capitalised until commercial reserves are established or the exploration site is deemed to have no commercial value. Costs incurred on areas of interest where exploration is completed without success are impaired to the income statement.  

Pre-licence costs: costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred.

Exploration and appraisal costs are initially capitalised as an intangible asset. Intangible assets are not amortised prior to the conclusion of appraisal activities and determination of commercial reserves.

Impairment of exploration and evaluation assets

All intangible assets are reviewed regularly for indications of impairment and costs are written off where circumstances indicate that the carrying value might not be recoverable. Any impairment is immediately written off to the statement profit or loss. The Group applies the successful efforts method of accounting where costs are capitalised in different cost centres for each well and the impairment review is carried out separately on each cost centre. An individual well is a cash generating unit.

Investments

In its separate financial statements the Company recognises its investments in subsidiaries and associates at cost less allowances for impairments in value.

Joint arrangements accounting policy

The Group is party to a joint arrangement where there is a contractual agreement that confers a joint control and it involves the establishment of a separate entity ('Joint Venture') in which each party has a jointly controlled interest.

The Group accounts for its interest in joint venture using equity method where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated profit or loss and other comprehensive income.

Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs included in bringing the inventories to their present location and condition.

Financial instruments

Financial assets and financial liabilities are recognised when the Group and the Company becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual right to the cash flow expires or when substantially all the risk and rewards of ownership are transferred. Financial liabilities are de-recognised when the obligations specified in the contract are either discharged or cancelled.

Financial assets

The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group does not have any held to maturity, available for sale or fair value through profit and loss assets.

Loans and receivables

Trade and other receivables are stated initially at fair value and subsequently at amortised cost (unless the effect of the time value of money is immaterial) less allowance for impairment in value.

Fair value through profit or loss

This category comprises the contingent consideration which arose on disposal of subsidiary (note 7) and is treated as a financial asset which is carried in the statement of financial position at fair value with changes in fair value recognised in the profit or loss.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short term highly liquid investments with an original maturity of 90 days or less.

Financial liabilities

The Group's financial liabilities consist of trade and other payables which are initially stated at fair value and subsequently at amortised cost. There are no liabilities recognised at fair value through profit or loss.

Tax

Income tax on the profit or loss from ordinary activities includes current and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowed and is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Income tax is charged or credited to profit or loss, except where the tax relates to items credited or charged to other comprehensive income in which case the tax is also dealt with in other comprehensive income, or when the tax relates to items credited or charged directly to equity, in which case the tax is also dealt with in equity.

Deferred taxation

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets and current tax losses have not been recognised since it is uncertain that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable Group Company or different Group Entities which intend either to settle current tax assets and liabilities on a net basis or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Share capital

Issued and paid up share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

Share Based Payments

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated income statement over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received.

The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Carrying value of investments in joint ventures

The Group assesses at each reporting period whether there is any indication that the investments in joint ventures capitalised may be impaired, If such an indication exists, the Group estimates the recoverable amount of the asset. The assessment of recoverable amount judgement as to the likely future commerciality of the asset and when such commerciality should be determined as well as future revenues and costs pertaining to the utilisation of the exploration and production rights to which such capitalised costs relate and the discount rate to be applied to such future revenues and costs in order to determine a recoverable value.

Share based payments

The Company makes equity-settled share-based payments to certain Group employees. Equity-settled share-based payments are measured at fair value using a Black-Scholes valuation model at the date of grant based on certain assumptions. Those assumptions are described in the note 18 to these financial statements and include, among others, expected volatility, expected life of the options and number of options expected to vest. More details including carrying values are disclosed in the note to the accounts.

3. Loss per share

Loss per share from continuing operations of 0.34 cents (2012: 0.20 cents) is calculated by dividing the loss from continuing operations of US$6,641,000 (2012: US$3,421,000) by the weighted average number of ordinary shares outstanding during the year of 1,936,117,872 (2012: 1,717,649,244).

Profit per share from discontinued operations of 0.65 cents (2012: 0.08 cents loss per share) is calculated by dividing the profit from discontinued operations of US$12,630,000 (2012: loss of US$1,395,000) by the weighted average number of ordinary shares outstanding during the year of 1,936,117,872 (2012: 1,717,649,244).

The effect of all potential ordinary shares arising from the exercise of options going forward is considered to be anti-dilutive and therefore diluted earnings per share has not been calculated. At the reporting date there were 338,922,823 (2012: 53,672, 907) potentially dilutive ordinary shares.

4. Parent Company's income statement

The Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own income statement in these financial statements. The Company's (loss)/profit for the year after taxation was US$(9,835,000) (2012: US$10,267,000).

5. Loss from continuing operations

Loss from operations consist of administrative expenditure of Matra Petroleum plc and its subsidiaries Matra Petroleum U.S.A., Inc. and Matra Cyprus Petroleum (Alpha) Limited. Loss from operations of the disposed subsidiaries Matra Cyprus Petroleum Limited and OOO Arkhangelvoskoe is shown separately in the note 7.

Exchange loss

Unrealised foreign exchange loss represents a loss arising on retranslation of monetary items denominated in non-functional currency in accordance with IAS 21 "The Effects of Changes in Foreign Exchange Rates". This loss is an accounting adjustment and has no impact on cash available to spend.

The loss arose due to the fact that the exchange rate of US dollar to Pound sterling has fallen by 0.1278 from 1.5212 GBP/USD on 1 July to 1.649 GBP/USD on 31 December 2013. Whereas this movement in exchange rate did not affect the actual amount of cash held by the Company in US dollars, an accounting entry showing loss of US$1,988,000 was made in order to comply with the IFRS. In the event of the US dollar appreciation against Pound sterling, the Company will accrue an accounting gain which also will not have an impact on the actual cash held by the Company.

The management believes that given Company's extensive development programme, holding cash in US dollars is most beneficial for the Company as it protects Company against US dollar depreciation leaving the Company with the same amount of US dollars irrespective of movements in the exchange rate.

6. Staff costs

Total staff costs (including Directors) comprise:

Directors' emoluments

Directors emoluments includes US$325,000 (2012: US$277,000) related to discontinued operations and which are not included in the staff costs note above.

Key management personnel include all parent Company Directors and senior management in the UK, Russia and Cyprus. The highest paid director in 2013 received US$542,000).

7. Discontinued operations

On 28 June 2013 the Company disposed of its 100% interest in Matra Cyprus Petroleum Limited which owns 100% of the share capital in OOO Arkhangelovskoye for a potential total consideration of US$35 million of which US$25 million was received on 1 of July 2013 with the remaining US$10 million receivable on or after 4 April 2014 conditional upon the outcome of the drilling works to be carried out by the buyer by 1 April 2014. Due to high degree of uncertainty of the outcome of the drilling results the contingent consideration was valued at US$1 on the date of disposal and the reporting date.

Subsequently, on 1 April 2014 the Company became entitled to the deferred consideration of US$10 million as a negative report on the outcome of the drilling works was not provided to the Company by the buyer (note 23). This is considered a non-adjusting subsequent event and the changes in the fair value of the contingent consideration have not been recognised at the reporting date.

The post-tax gain on discontinued operation has been determined as follows:

* The US$1.9 million release of cumulative translation reserves represents the previously capitalised translation gains and losses attributed to the interest sold.

** Company qualified for the substantial shareholdings exemption and the gain is exempt from the tax in the UK.

8. Investment in equity accounted joint ventures

On 31 October 2013, the Company announced that its wholly owned subsidiary, Matra Petroleum U.S.A. ("Matra USA"), has entered into agreement which allows it to make a series of investments into the US onshore oil and gas sector. On the same date Matra USA has acquired a 50% interest in a joint venture vehicle, PG-M International, LLC ("PG-M-JV"), a Texas limited liability Company with certain oil and gas leasehold interests in the Texas Panhandle region of the USA, from PSOFEI, LLC for a consideration of US$1.5m.

On 29 October 2013, Matra USA has acquired a 50% in another joint venture vehicle, PG-M International Operating, LLC ("PGMIO"), a Texas limited liability Company, for a consideration of US$500.

In addition, the Company has entered into an option agreement with PSOFEI, LLC pursuant to which the Company has granted to PSOFEI, LLC options to subscribe for 150,000,000 ordinary shares in the Company at a price of 2.24 pence per ordinary share (note 18).

Summarised information in relation to the joint ventures is presented below:

The above information relates to both PG-M-JV and PGMIO on a combined basis. PGMI was incorporated on 28 September 2013 with a purpose to hold certain oil and gas assets. PGMIO was incorporated on 30 September 2013 with a purpose of providing operator's services to the PG-M-JV's properties and will take over this service from Petrolia Group, LLC which is operator at the moment.

9. Taxation

Below is a reconciliation of the theoretical income tax rate to the actual effective tax rate in the Group's income statement:

Total tax losses of US$4,034,000 (2012: US$3,004,000) are carried forward to future periods for which no deferred tax asset has been recognised as the recoverability of such asset is uncertain at this stage.

10. Segmental reporting

Prior to disposal of OOO Arkhangelovskoye (note 7) the Group's operations were entirely focused on oil and gas exploration and development within Russian Federation. Following the subsequent acquisition of 50% interest in joint venture vehicles in USA (note 8) the Group has changed its operating focus and is now entirely focused on oil & gas development and production in the US onshore oil and gas sector with its corporate head office in the UK.

The operating segment has been identified on the basis of internal reports about the components of the Group. The Group has one reportable segment, being operations in the USA. The operating results of this segment are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and to assess their performance. The operating results of the segment are disclosed in note 8.

The operating results of the disposed segment are disclosed in note 7.

11. Finance income

12. Property, plant and equipment

Property, plant and equipment is comprised of office and computer equipment.

13. Intangible assets

14. Investment in subsidiaries

15. Inventories

16. Receivables

The fair value of receivables is not significantly different from the carrying value.

Loans to related parties represent a funding note of up to US$16,500,000 to PG-M JV repayable in May 2014 with an annual interest rate of 6%.

Inter-Company loans represent a short-term loan to Matra USA with an annual interest rate of 5.5% repayable on demand.

17. Trade and other payables