Full Year Results

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

27 June 2011

MADAGASCAR OIL LIMITED

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

Full Year Results

Madagascar Oil today announces its full year results for the year ended 31 December, 2010.

Highlights

Financial Results:

Ø Net loss for the year was $11.6 million compared to a loss of $3.9 million in 2009

Ø Capital expenditure amounted to $12.4 million (2009: $4.3 million)

Ø The Group ended the year with $67.5 million of unrestricted cash and cash equivalents (2009: $2.9 million) and a further $1.8 million of restricted cash (2009: $3.5 million).

Ø MOIL has $59 million of unrestricted cash on hand in June 2011 to deliver the approved work plan, and has no debt (other than trade payables)

Operational:

Ø 18 successful wells out of 24 new wells drilled at Tsimiroro and the completion of 430km of Electrical Resistivity Tomography

Ø Installation of the Tsimiroro steam flood pilot facility expected in Q3 2012

Ø Netherland, Sewell & Associates Inc. is currently revising the 965 million barrels contingent original oil-in-place estimate for Tsimiroro with updated report expected in near future

Ø 86 core wells completed in Bemolanga 2010 drilling programme support the estimate that the MOIL share of the gross mine resources is 472 million barrels contingent petroleum-initially-in-place

Ø Shift in work programme at Bemolanga to focus on pursuit of conventional hydrocarbon potential on the block

Ø GORE micro-seepage survey collected across 880 km² on the exploration blocks is currently under detailed analysis and will lead to further analysis of at least three drilling leads

Ø Discussions with the Government of Madagascar regarding the approval of the 2011-2012 work programmes for exploration blocks and resolution of outstanding issues on these blocks are set to continue early July 2011

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

We are pleased to have recently reported that we have achieved resolution of the dispute on our Tsimiroro Block with the Government of Madagascar and believe that we can now proceed as contemplated at the date of our admission to trading on the AIM market.

The Company has recently resumed its planned development work and, with unrestricted cash balances of $59 million, has the funds in place to execute its work programmes and increase value for shareholders. The Company is planning to commence immediately the installation of a steam flood pilot facility at Tsimiroro, which is designed to obtain reservoir performance data and evaluate the potential for a commercial development. With 18 of the 24 wells drilled in 2010 discovering oil, an upgrade in the resource base by independent reservoir engineers NSAI is expected in the near future.

The Company remains committed to Madagascar and is looking forward to continuing its work programme, which is in the best interests of all shareholders and stakeholders, including the people of Madagascar."

Contact Information:

Pelham Bell Pottinger +44 (0)20 7861 3232

Mark Antelme / Jenny Renton

Strand Hanson Limited +44 (0)20 7409 3494

Simon Raggett / Angela Peace

A copy of the Company's annual report and accounts for 2010 will be posted to shareholders on or before 30 June 2011 and will be available on the Company's website.

Chairman and Chief Executive Officer's Statement

We are pleased to report, after several challenging months of efforts to engage with the Government of Madagascar to address uncertainty over the status of some of our Production Sharing Contracts ("PSCs"), that we have achieved resolution of the dispute on our Tsimiroro Block with the Government of Madagascar and believe that we can now proceed as contemplated at the date of our admission to trading on the AIM market.

Madagascar Oil was founded in 2004 to investigate the potential development of existing heavy oil resources, and to pursue further exploration and development opportunities of both heavy oil and conventional oil deposits, in Madagascar.

Having acquired five contiguous onshore blocks covering 29,500 km², the Group currently has the largest onshore exploration and development rights for both heavy oil and conventional oil and gas in Madagascar. The Group's two principal fields have, in the last five years, been demonstrated to have considerable resources in place, and field tests and studies undertaken suggest that a large portion of the Company's heavy oil assets have excellent potential for development.

The Tsimiroro field on Block 3104 has been independently attributed 'best estimate' gross original heavy oil-in-place of 965 million barrels (mmbbls) in known accumulations, with over 780 mmbbls potential in prospective, adjacent structures. Base case production from Tsimiroro, if planned testing verifies commercial economics, is estimated to reach 87,500 barrels of oil per day and to last for between 30 and 40 years. The Company has recently performed additional evaluation and delineation of this resource and is in the process of revising its previous estimates with the aim of reflecting an increase in gross oil-in-place.

The Bemolanga field on Block 3102 has been independently attributed 'best estimate' gross discovered bitumen-in-place of approximately 1.2 billion barrels, with over 1.0 billion barrels potential upside. Following the 2008 farm-out of a 60 per cent interest and assignment of operatorship in the field to Total, the Company and Total recently completed a two-year 160 well coring programme at Bemolanga to determine the viability of a mining project. Based on the results from those wells, the parties have elected not to proceed currently with the next phase of the mining campaign.  In May 2011, OMNIS (the state regulatory authority that is the counterparty to the Company's PSCs) agreed to an amendment to the PSC on Block 3102 (Bemolanga) that extended the current sub phase of the exploration period for an additional year and removed the obligation to fund our 40% share of a minimum work commitment of $100 million for the originally contemplated mining pilot. The revised PSC includes a modification of the work programme and this extension time will be utilized to conduct an aerial gravity survey to evaluate conventional hydrocarbon opportunities on this block. The work programme over the next twelve months will therefore shift to an evaluation of deeper potential by collecting reservoir and surface data on conventional hydrocarbon potential. We think this shift in focus at Bemolanga could be very exciting and we are pleased to continue our partnership with Total.

In response to the statements made by the Minister of Mines and Hydrocarbons regarding Blocks 3104, 3105, 3106 and 3107, in December 2010 the Company took the decision to request that trading in its common shares on the AIM market be suspended pending resolution of these issues. As a precautionary measure we reluctantly declared force majeure on the four blocks in March 2011. The exercise of this contractual provision allows the Group to preserve time upon the occurrence of an event or action that impedes that party from meeting contractual deadlines. In April 2011 we were advised that it would be prudent to begin international arbitration proceedings under the PSCs in order to preserve the rights of the Company and its shareholders, should a resolution not be forthcoming. The Company is confident that it has complied fully with all contractual obligations and has provided extensive documentation to the Ministry of Mines and Hydrocarbons ("MMH") regarding activity on all of the blocks. In mid May 2011, the Government of Madagascar acknowledged the delays that had been imposed upon the Company and began the process of resolving them.

We are pleased to report that our efforts in resolving this dispute have been successful. The Company recently held its Management Committee Meeting for the Tsimiroro Block. In conjunction with that meeting, OMNIS has approved the 2011-2012 work programme and budget for Tsimiroro and has acknowledged that the Tsimiroro PSC is valid and its validity has never been in question. The MMH and OMNIS have also assured us that that there are no technical issues outstanding under this PSC. OMNIS has scheduled a Management Committee Meeting for the Exploration Blocks (Blocks 3105, 3106 and 3107) for July 6, 2011 to work on full resolution of the budgets for work on these blocks. Based on these events, trading has resumed in our common shares. With this recent milestone, we are now in a position to put the difficulties of the last six months behind us.

Madagascar Oil has invested heavily in the country since first obtaining its PSCs in 2004. To date the Company has spent in excess of US$210 million, which is more than any other oil company active in the region.

The Company has recently resumed its planned development work, and with unrestricted cash balances of $59 million as of June 2011, it has the funds in place to execute its work programmes and increase value for shareholders. With 18 of the Tsimiroro 24 wells drilled in 2010 discovering oil, an upgrade in the resource base by independent reservoir engineers NSAI is expected in the near future. The Company is also planning to commence immediately the installation of a steam flood pilot facility at Tsimiroro, which is designed to obtain reservoir performance data and evaluate the potential for a commercial development. Madagascar Oil will continue work on its exploration plays while it also continues to evaluate the mining options available at Bemolanga.

The last six months have highlighted risks associated with operating in frontier petroleum provinces, but we believe that our recent constructive dialogue with the Government of Madagascar has served to reaffirm our historical compliance under our contracts, the amount of work we have already completed to date, and our clear and well funded plans for future development to bring onstream the country's first commercial oil production.

The Company remains committed to Madagascar and is looking forward to continuing its work programme, which is in the best interests of all shareholders and stakeholders, including the people of Madagascar.

Operational Review

The Company conducted operations on all five of its blocks in 2010. In all, a total of 110 wells were drilled and 490 kilometres of Electrical Resistivity Tomography were acquired in the shallow sands, and 880 square kilometres of GORE micro seepage survey was performed on deeper sands on seven deep prospects.

Tsimiroro - Block 3104

The Tsimiroro block comprises 6,670 square kilometres, of which the northern portion contains an approximate 1,600 square kilometre area of formation, bearing heavy oil of an average 14o API, referred to as the Tsimiroro Field. The work to date has defined high confidence level oil-in-place volumes within the Amboloando sand. Drilling results have also found measurable oil in the more shallow Ankaramanabe sand and underlying Isalo sand. However, the potential in the Ankaramanabe and Isalo sands has not yet been quantified by third party experts.

A 44 well drilling programme was conducted in 2007 and 2008 on the Tsimiroro Field which led to a 2009 analysis that yielded a high estimate of 1.4 billion barrels of contingent oil-in-place plus 1.8 billion of prospective oil-in-place. The 2010 operations programme targeted further definition of the oil-in-place through a combination of surface investigation and drilling. Based on the fact that the definition of the shallow oil horizons was not conclusive utilizing a conventional seismic approach, the Company's geologic team developed a programme to test and subsequently utilize a surface process known as Electrical Resistivity Tomography ("ERT").

ERT utilizes an array of 18 inch long probes that are driven into the soil every 22.5 meters over a line that is 450 meters long. Electric current is applied to alternating pairs of probes and signal returns are measured at the other 18 probe sites on the line; penetrating to a depth of approximately 300 meters investigative depth. Following processing, an implied resistivity trace is developed that allows low resistive intervals like shale to be distinguished from sands. The ERT results were utilized to identify the 24 delineation well locations for the 2010 drilling programme. The results of the initial examination of the ERT results indicate that it is very effective for identifying structural areas. The drilling programme encountered 18 wells with good oil shows and six that were not oil bearing (three were drilled in fault zones and three found wet sand). Additional follow-up drilling locations have been identified for 2011 and ERT will be studied further for application in subsequent years.

At year-end the Tsimiroro nine pattern steam flood pilot project design phase was well underway, and the location preparation for the wells and facilities was approximately 30% completed. Engineering preparation and location work has progressed in early 2011; however, the uncertainties surrounding the block since December 2010 indicated in the Chairman/CEO Statement have resulted in delays in the procurement and estimated timing of the pilot production schedule. In June 2011 those delays were resolved and approval from OMNIS of our proposed steam flood project was confirmed. At the end of the contract term in August 2012, the Company's option to extend the term for two years beyond the end of Phase 3 has also been reaffirmed. This will provide the Company with three years prior to reaching the decision point required to make a declaration for commercial development. In addition, OMNIS and the MMH acknowledged the force majeure and the parties have agreed to address an extension to the Tsimiroro PSC should it be necessary at the end of the contract term.

The steam flood pilot will test the application of both cyclic and continuous injection of steam in a vertical steam flood configuration and it is presently projected that cyclic steam injection will begin in Q3 2012, and continuous steam injection in Q4 2012.

The cost for the drilling and ERT operation in 2010 was approximately $8 million. We estimate that the 2010 work will result in an increase in contingent and prospective resources oil-in-place volumes and that an independent report by Netherland, Sewell & Associates, Inc. will be issued shortly.

 Manambolo - Block 3105, Morondava - Block 3106, Manandaza - Block 3107

These three blocks, referenced collectively as the "Exploration Blocks", comprise 3,995, 6,825 and 6,580 square kilometres respectively. Manambolo had a gas well test in 1987 and Manandaza had a 41o API light oil test in 1991. Madagascar Oil has analyzed existing seismic in past years, and in 2009 designed a seismic acquisition programme that resulted in the identification of nine structural leads in seven areas. There were two areas on both Manambolo and Morondava and three areas on Manandaza that suggested potential for structures up-dip from hydrocarbon observations. To examine further the leads and attempt to de-risk the possibility for hydrocarbon capture in the structures; a team was contracted to install GORE Modules for geochemical testing of hydrocarbon micro-seepage to surface over a total of 880 square kilometres in 2010.

The GORE testing is conducted by installing sampling modules in a grid on the surface above an identified subsurface structural feature. The modules selectively capture minute carbon molecules from C2 to C20 in four groupings. Following a three week ground exposure, the modules are removed and sent to the laboratory for testing, with the goal of determining if any areas above the structures have micro-seepage of hydrocarbon at levels above the normal background level.

The Manambolo structures tested were east of the 1987 gas test in the centre of the block. The structure from the gas well was determined, following the 2009 seismic test, to have been very small and to have fully migrated to surface before encountering any structural trap up dip to the east. Two areas of 160 square kilometres each were sampled above the two newly projected Manambolo leads. The northern test area indicated very few GORE readings above background and initial judgment is that the identified structure does not contain hydrocarbon. The southern lead had several areas of elevated hydrocarbon signature, but lacks the seismic definition to fully determine the structural continuity.

The Morondava leads have very little data that suggest hydrocarbon presence from any wells drilled prior to Madagascar Oil's operation. The north Morondava lead was a 160 square kilometre area and, like Manambolo in the north, showed very little hydrocarbon activity. The southerly 160 square kilometre area, however, indicated at least two areas of elevated hydrocarbon that look like potential prospects, however, the shapes do not conform to the structural high that has been mapped below the survey area. There may be a correlation to Cretaceous channel sands in a slightly shallower horizon, but additional seismic will be required to obtain a more complete assessment.

There were three areas sampled with GORE on Manandaza. These were 146, 54 and 40 square kilometres in size respectively and all three had good signs of elevated hydrocarbon. The largest, most northerly area is the site of the Manandaza #1 well and 1991 drill stem test conducted by Shell, which recovered 10 barrels of 41o API light oil. The two smaller areas were similar in style, but exhibited considerably smaller areas of potential hydrocarbon capture. The larger area is currently being examined for stratigraphic features, as the largest areas of hydrocarbon response were not on the crest of the structure. It is likely additional seismic will also be required in this location.

The cost for GORE testing was approximately $2.2 million in 2010.

Work on these blocks was halted during the first half of 2011 pending resolution of Company's impasse with the Government of Madagascar. OMNIS has scheduled our Management Committee Meeting for these blocks on 6 July 2011. Each PSC requires either seismic work or the drilling of one well in 2011. We hope to enter into a negotiation with OMNIS to extend the term on these blocks to account for the 2011 delay and for the additional time required to conduct the assessment of prospective drilling locations identified in the work to date. It is expected that a combination of airborne gravimetric surveys (Full Tensor Gravity) and seismic will be required to define further the drilling prospects, and the addition of these items to the block work activity will be addressed at the upcoming Management Committee Meeting.

Bemolanga - Block 3102

The Bemolanga block is a 5,463 square kilometre area and contains the oldest known hydrocarbon deposit in Madagascar. The first wells were drilled 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 (60% working interest) and Madagascar Oil (40% working interest) and following the farm-in by Total in 2008, 72 core wells were drilled and cored in 2009 and an additional 86 wells were drilled and cored in 2010.

There was considerable work done to define the mineable area and bitumen content based on the two drilling and coring programmes. The most significant finding is that the bitumen content ranges from about 3.5 weight percent to approximately 11.0 weight percent, with the effective mineable area at the level of an average of 5.5 weight percent bitumen in the ore. For reference, this bitumen content is approximately half of that found on the Canadian tar sands.

In addition to the coring, extraction testing and detailed cost estimates for mine and extraction plant design were conducted by both Total and Madagascar Oil. Removal of the bitumen from the ore was tested extensively with hot water extraction and subsequent froth treatment and the resulting production and sales streams were estimated. The sales stream is an approximate 10o API product that will require diluent blending, or upgrading, for subsequent pipelining to the west coast of Madagascar and delivery via offshore terminal to crude tankers. The shipping and handling were also estimated, along with the projected market value of the blended product. A key factor in the evaluation is that, with no current native oil or gas supply, the required diluent must be imported and the project power requirements will need to be fueled by either the bitumen production or the diluent import.

There is an estimated median volume of approximately 1.2 billion barrels of mineable bitumen present (Madagascar Oil share: 472 mmbbls). However, at an evaluation price range per barrel of $60-$100 Brent, the cost of handling the ore, the bitumen extraction, and the upgrading and shipping, does not presently support proceeding with the mine project. In June 2011 Total and Madagascar Oil received approval from OMNIS for a modification of the Bemolanga work plans to focus on deeper conventional plays on the block. An extension of one year was granted in June 2011 with the commitment to run airborne gravity surveys later this year over the entire block area to identify possible conventional hydrocarbon plays, with an option for a further two-year extension to drill a well. The mine will continue to be evaluated for potential improvements in extraction and upgrading technology.

The Bemolanga project spent approximately $28 million in 2010 and Madagascar Oil's 40% share of the costs was carried by Total as part of the farm-in transaction. Under the terms of the revised Joint Operating Agreement with Total, the Company is carried on the next $10 million of gross expenditures for the revised work programme.

Financial Review

Loss for the Financial Year

The net loss for the year ended 31 December, 2010 was $11.6 million, taking account of $7.9 million in IPO-related expenditures (of which $5.1 million of such expenses were netted against the share premium account with the balance included in the 2010 net loss calculation). This compares to a loss of $3.9 million in 2009.

Gross administrative costs, summarised in the table below, totaled $7.2 million (2009: $10.9 million). Employees and headcount-related contractor payments were $3.5 million (2009: $7.3 million), including $1.3 million (2009: $5.1 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 $1.1 million (2009: $1.3 million). Depreciation, IPO costs and losses associated with foreign currency exchange, asset disposal and impairments are not included in gross administrative costs listed below.

Statement of Financial Position

At 31 December, 2010 the Group had net assets of $174 million (2009: $98 million). The most significant balances are property, plant and equipment of $15.1 million (2009: $18.5 million), exploration and evaluation assets of $85.8 million (2009: $70.9 million) and cash of $69.2 million (2009: $6.4 million).

Capital Expenditures

The Company had $12.4 million of capital expenditures in 2010. This compares to $4.3 million in capital expenditures in 2009. The Company focused its capital expenditures as follows:

Cash Flow

The Group ended the year with $67.5 million of unrestricted cash and cash equivalents (2009: $2.9 million) and a further $1.8 million of restricted cash (2009: $3.5 million). The Group remains debt free, other than trade payables in the ordinary course of business, which ended the year at $2.8 million (2009: $0.7 million).

All of the Group's restricted cash at 31 December, 2010 supports $1.5 million of performance guarantees in favor of the Government of Madagascar under the Group's PCSs for Blocks 3105, 3106, and 3107. These guarantees will remain in effect through 31 December, 2011, which is the end of the current phase of each license.

At 31 December, 2010 approximately $69 million was held on deposit with Credit Suisse and earns a floating rate interest. Madagascar Oil has diversified its cash holdings amongst other significant financial institutions in 2011. At 31 December, 2010 over 95% of the Group's cash was held in US dollars.

On 29 November 2010, the Company's common shares were admitted to trade on the AIM market of the London Stock Exchange. The Company's common shares trade on the AIM through depository interests under the symbol "MOIL". In its initial public offering the Company issued 53,197,000 shares at 95 pence per share for total gross proceeds to the Company of $78.3 million. Net proceeds to the Company after payment of certain IPO expenses were $70.4 million. At the time of admission, the Company's total outstanding share capital was 192,365,157 shares. 

Consolidated Financial Statements

Years Ended December 31, 2010 and 2009

Madagascar Oil Limited

Independent Auditors' Report 3

Consolidated Financial Statements

Statements of Financial Position 4

Statements of Comprehensive Income 5

Statements of Cash Flows 6

Statements of Changes in Equity 7

Notes to Consolidated Financial Statements 9-40

Independent Auditor's Report

Board of Directors and shareholders of Madagascar Oil Limited

Madagascar Oil Limited

Houston, Texas

We have audited the accompanying consolidated statements of financial position of Madagascar Oil Limited and subsidiaries ("the Company") as of December 31, 2010 and 2009 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 35, uncertainty exists related to the status of certain of the Company's production sharing contracts in Madagascar.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Madagascar Oil Limited at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

June 25, 2011

Madagascar Oil Limited

See accompanying notes to consolidated financial statements.

Madagascar Oil Limited

See accompanying notes to consolidated financial statements.

Madagascar Oil Limited

See accompanying notes to consolidated financial statements.

Madagascar Oil Limited

See accompanying notes to consolidated financial statements.

Madagascar Oil Limited

1. General Information

Madagascar Oil Limited (Bermuda) (the "Company") is an exempted limited liability company incorporated in Bermuda with registration number 37901. The address of its registered office is Canon's Court 22 Victoria Street - Hamilton HM12 Bermuda.

Madagascar Oil Limited and its affiliates (collectively, the "Group") commenced business in 2004 by entering into six production sharing contracts ("PSC's") for oil exploration and production in Madagascar with the Republic of Madagascar. The production sharing contracts are held in two wholly owned subsidiaries, Madagascar Oil SA ("MOSA") and Majunga Oil SARL ("Majunga") registered under the Laws of the Republic of Madagascar.

On March 17, 2006 an internal reorganization took place in order to improve the visibility of the structure of the Group: a share exchange agreement (the "Share Exchange Agreement") was entered into between all of the shareholders of Madagascar Oil Limited of Mauritius ("MOM") and the Company which was created for this purpose.

Under the Share Exchange Agreement all of the shareholders in MOM agreed to transfer their shares in MOM to the Company in exchange for Common Shares or Non-Voting Shares of the Company. Pursuant to the Share Exchange Agreement, among other things (a) each shareholder agreed to waive and/or to procure the waiver of all pre-emption and similar rights over the shares in MOM in relation to the sale and purchase contemplated by the Share Exchange Agreement; (b) each shareholder agreed to waive any and all provisions of any contract or arrangement under which it was required to give his consent for the transactions contemplated by the Share Exchange Agreement; (c) each shareholder agreed that any breach by MOM or another shareholder of the constitution of MOM as set out in the Second Schedule of the Companies Act of Mauritius 2001 (pre-emption on transfer) was ratified, and that it had no claim against MOM or any other shareholder for any such breach; (d) all existing shareholder agreements and contractual investor rights terminated; (e) relevant options issued by MOM converted into options over Common Shares in the capital of the Company or (in one instance) into options over Non-Voting Shares in the Company on the same terms; and (f) relevant warrants issued by MOM converted into warrants over Common Shares in the Company on the same terms.

The principal activities of the Group are described in Note 5.

MOSA holds Production Sharing Contracts for the onshore license blocks 3102, 3104, 3105, 3106 and 3107 all of which are geographically contiguous on the west part of the island:

·; Block 3102 Bemolanga is 7,175 km2 (2,770 sq. mi.) in size and hosts the Bemolanga ultra heavy oil field. It was granted on August 17, 2004.

·; Block 3104 Tsimiroro is 6,670 km2 (2,575 sq. mi.) in size and hosts the Tsimiroro heavy oil field. It was granted on August 17, 2004.

·; Block 3105 Manambolo is 5,325 km2 (2,056 sq. mi.) in size and was granted on December 14, 2004. Surrendered 25% to 3,994km2 on April 3, 2007.

·; Block 3106 Morondava is 9,100 km2 (3,514 sq. mi.) in size and was granted on December 14, 2004. Surrendered 25% to 6,825 km2 on April 3, 2007.

·; Block 3107 Manandaza is 8,775 km2 (3,388 sq. mi.) in size and was granted on December 14, 2004. Surrendered 25% to 6,581 km2 on April 3, 2007.

Majunga also held one production sharing contract for Block 2103 that was surrendered in 2009. Block 2103 Majunga was 11,930 km2 (4,606 sq. mi.) in size and was granted on December 14, 2004. It was surrendered to the Madagascar government effective July 27, 2009.

On September 17, 2008, the Malagasy government approved a 60% farm out and transfer of operatorship of Block 3102 Bemolanga to an affiliate of TOTAL S.A. ("TOTAL"). MOSA has also transferred to TOTAL the operatorship of the license.

In addition to the 4 blocks held 100% and operated by the Group and the 40% non-operated share in the 3102 Bemolanga block, the Group entered into an Agreement in December 2006 with Tullow Oil, Plc ("Tullow") for the exploration of the onshore block 3109 Mandabe (11,050 km² in size). The Office des Mines Nationales et des Industries Strategiques ("OMNIS") approved the transfer to Majunga on December 20, 2006 of a 50% interest in the block. Tullow is operating the block. In September 2008 Majunga withdrew from the Joint Operating Agreement and the Production Sharing Contract as of October 31, 2008. See Note 19.

The exploration period under the PSC's generally consist of 3 phases of 2 years, 2 years and 4 years respectively. An extension of 2 years maximum can also be granted by the OMNIS at the end of the 3rd phase of the Exploration Period specified in the PSC.

Per amendments to the applicable PSC's in June 2009, the split of the different phases composing the exploration period has been modified for the licenses 3105, 3106, 3107. The total duration of the Exploration Period was not modified.

At December 31, 2010, the:

·; 3102 and 3104 blocks held by Madagascar Oil SA are in the 3rd of the 3 phases constituting the Exploration Period

·; 3105, 3106, 3107 blocks held by Madagascar Oil SA are in the 2nd of the 3 phases constituting the Exploration Period

2. Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied from those used in prior years, unless otherwise stated.

Standards, amendments and interpretations effective in 2009 and 2010

IFRS 8 'Operating Segments' - IFRS 8 sets out requirements for disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers.

IAS 27 'Consolidated and Separate Financial Statements (Amendment)' - The amendment affects the acquisition of subsidiaries achieved in stages and disposals of interests. Amendment does not require the restatement of previous transactions.

IFRS 2 'Share-Based Payments (Amendment)' - The amendment clarifies that where a parent (or another group entity) has an obligation to make a cash-settled share-based payment to another group entity's employees or suppliers, the entity receiving the goods or services should account for the transaction as equity-settled.

IAS 1 'Presentation of Financial Statements (Amendment)' - The amendment addresses the current/non-current classification of convertible instruments.

IAS 7 'Statement of Cash Flows (Amendment)' - The amendment addresses the classification of expenditures on unrecognized assets.

IAS 17 'Leases (Amendment)' - The amendment addresses the classification of leases of land and buildings.

IAS 18 'Revenue (Amendment)' - The amendment addresses the determination of whether an entity is acting as a principal or as an agent.

IAS 32 and 39 'Financial Investments (Amendments)' - The amendments clarified the principles for determining eligibility of hedged items.

IFRIC 18 'Transfers of Assets from Customers' - The interpretation clarifies the treatment of agreements in which an entity receives from a customer an item of property that it must use to provide the customer with an on-going access to goods or services.

IFRIC 17 'Distributions of Non-Cash Assets to Owners' - The interpretation clarifies the reporting, measurement and disclosures of non-cash assets distributed to owners.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group.

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after January 1, 2011 or later periods, but the Group has not early adopted them. The Company does not expect implementation of these statements to have a material impact on financial results.

·; IAS 24 Related Party Disclosures

·; IAS 27 Separate Financial Statements (as amended in 2011)

·; IAS 28 Investments in Associates and Joint Ventures (as amended in 2011)

·; IRFIC 19 Extinguishing Financial Liabilities with Equity Instruments

·; IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendment)

·; IFRS 9 Financial Instruments

·; FRS 10 Consolidated Financial Statements

·; IFRS 11 Joint Arrangements

·; IFRS 12 Disclosure of Interests in Other Entities

·; IFRS 13 Fair value measurement ( applied for annual periods beginning or after January 1, 2013

Basis of Preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). They have been prepared on the historical cost basis except for the revaluation of financial instruments and impairment of exploration and evaluation assets.

Management has concluded that the US dollar is the functional currency of each entity of the Group due mainly to the facts that the US dollar is the currency in which:

·; Most of the expenses of the entities of the Group are denominated in US dollars

·; Oil sales are always denominated in US dollars on the international markets and

·; Funds from financing activities (debt or equity instruments) are generated in US dollars, other than its November IPO, which was denominated in Great British pounds before subsequent conversion into US dollars.

The consolidated financial statements are presented in US dollars.

Basis of consolidation

Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and its wholly-owned subsidiaries. Subsidiaries are those entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The following companies have been consolidated within the Group financial statements:

Transactions eliminated upon consolidation

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. There is no non-controlling interest in any of the subsidiaries of the Group.

Joint venture operations

It is standard industry practice to conduct petroleum operations jointly with other exploration and production companies.

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control (venturers).

Where a group entity undertakes its activities under joint venture arrangements directly, the Group's share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognized in the financial statements of the relevant entity and classified according to their nature. Liabilities

and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group's share of the output of jointly controlled assets, and its share of joint venture expenses, are recognized when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Sale of goods

Since its creation, the Group has recognized no revenue due to the fact that the Group is in the exploration phase of its projects and has not reached commercial operations as of December 31, 2010.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are related to non-qualifying assets and charged directly to profit and loss. Contingent rentals are recognized as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

Foreign currencies

The individual financial statements of each entity of the Group are presented in the currency of the primary economic environment that the entity operates (its functional currency). On consolidation the results and financial position of each entity are expressed in US dollar (USD).

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the average of the official bid and offered exchange rates as published by the Central Bank of Madagascar on the first day of the month in which the expenses are recorded in order to comply with the regulation stated in the Production Sharing Contracts signed by the Group with Malagasy authorities. At each statement of financial position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the statement of financial position date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Actual exchange differences are recognized in profit or loss in the period in which they arise. Exchange differences resulting from the retranslation of monetary items at the rates prevailing at the statement of financial position date are recognized in profit or loss at each statement of financial position date.

Share-based payments

The Group issues equity-settled share-based payments to some of their employees through stock options plans or restricted shares. According to IFRS 2, these plans are measured at fair value on the grant date and are accounted for as an employee expense on a straight-line basis over the vesting period of the plans. The fair value of granted options is determined based on a lattice model in order to take into account all the characteristics of these instruments.

The Group issues equity-settled share-based payments to certain members of its Board through stock options plans or restricted shares or warrants. According to IFRS 2, these plans are measured at fair value on the grant date and are accounted for as a director fee expense on a graded vesting for each tranche over the vesting period of the plans. The fair value of granted options and warrants is determined based on a lattice model in order to take into account all the characteristics of these instruments.

The Group may also issue equity instruments as a counterpart of goods and services received from financial institutions and other intermediaries. According to IFRS 2, these instruments (warrants) are accounted for as an expense on the basis of the market value of goods and services received.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognized at the current fair value determined at each statement of financial position date.

The proceeds received net of any directly attributable costs are credited to share capital (nominal value) and share premium.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.

Deferred tax

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit and is accounted for using the statement of financial position liability method.

Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the statement of financial position date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or to settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in equity.

Property, plant and equipment

Fixtures and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Useful lives used by the Group are the following:

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Intangible assets

Intangible assets acquired separately are reported at cost less accumulated amortization and accumulated impairment losses. Amortization is charged on a straight-line basis over their estimated useful lives of 4 years and recorded in the statement of comprehensive income as depreciation and amortization expense. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Exploration and evaluation assets

The Group applies the full cost method of accounting for exploration and evaluation costs. Under the full cost method, costs directly associated with exploring for and evaluating oil and gas properties are accumulated and capitalized. However, they do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the income statement of operations as they are incurred. Once commercial reserves are found, exploration and evaluation assets are tested for impairment. Depreciation of property, plant and equipment assets utilized in exploration and evaluation activities is capitalized within exploration and evaluation costs. No amortization or depletion is charged during the Exploration and Evaluation Phase. Management believes that the carrying value of these costs will be recovered from future operations.

If the exploration and development is ceased or if it is determined that the carrying value cannot be supported by future production or sale, the excess of the carrying value above recoverable value will be charged against operations in the period that the determination of an impairment is made. Where an impairment subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

At the completion of the Exploration and Evaluation Phase, if technical feasibility is demonstrated and commercial reserves are discovered, then, following the decision to continue into the development phase, the carrying value of the relevant E&E asset will be reclassified as a Development and Production ("D&P") asset, but only after the carrying value of the asset has been assessed for impairment.

Impairment

Tangible and intangible assets excluding exploration and evaluation assets

At each statement of financial position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the statement of comprehensive income as non-current activities income.

Exploration and evaluation assets

Impairment tests are performed when the Group identifies facts or circumstances implying a possible impairment in accordance with IFRS 6.

Decommissioning costs

When the Group is legally, contractually or constructively required to restore a site, the estimated costs of site restoration are accrued. The estimated future costs for known restoration requirements are determined on a field by field basis and are calculated based on the present value of estimated future costs. When the Group does not have a reliable reversal time or when the effect of the passage of time is not material, the provision is calculated based on undiscounted cash flows.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Financial assets

Investments are recognized and derecognized on a trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Cash and cash equivalents

Cash and cash equivalents consist of cash and time deposits. Time deposits are used to guaranty the Bank Letters of Guarantee submitted to the Malagasy State as per Production Sharing Contracts' requirements during the Exploration Period.

Other financial assets

Other financial assets consist of deposits paid under lease agreements. These assets are stated at the carrying value, as it approximates fair-value due to the short-term maturity of these instruments.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each statement of financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account.

When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be rebated objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Financial liabilities and equity instruments issued by the Group

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

The Company has classified the convertible debt in issue as a compound financial instrument. Accordingly, the Company presents the liability and equity components separately on the balance sheet. The classification of the liability and equity components is not reversed as a result of a change in the likelihood that the conversion option will be exercised. No gain or loss arises from initially recognizing the components of the instrument separately. Interest on the debt element of the loan is accreted over the term of the loan. Costs associated with the raising of debt are set off against the gross value of monies received.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Trade payables

Trade payables are stated at their carrying value, as it approximates fair value due to the short-term maturity of these instruments.

Financial liabilities

Financial liabilities consist of trade and other payables and borrowings.

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The effective interest method is always considered but not applied when its impact is negligible.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

3. Prior Period Presentation

The Company made reclassifications to 2009 of $103K, increasing salaries expense and decreasing other expenses to better reflect operational comparisons. Drilling and exploration equipment totaling $18,084K as of December 31, 2009 has been reclassified to property, plant and equipment from exploration and evaluation assets. The corresponding adjustment at January 1, 2009 was $21,003K. Depreciation expense on equipment used in exploration and evaluation activities totaling $7.7 million is capitalized as of December 31, 2009 as exploration and evaluation assets. This adjustment has no effect on the reported net assets or results for the group at January 1, 2009 or December 31, 2009.

4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

In the application of the Group's accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Such disclosures are included in the relevant asset and liability notes or as part of the relevant accounting policy disclosures. The estimates used by management relate to the decommissioning costs, impairments and share-based transactions.

The estimates and underlying assumptions are based on the best possible review and interpretation of the petroleum and general regulations applicable to the Group in the countries where it operates in accordance with international industry standards.

Critical accounting judgements and key sources of estimation uncertainty:

In the process of applying the Group's accounting policies, which are described in Note 1, Management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:

Recoverability of exploration and evaluation costs - Under the full cost accounting method of accounting for exploration costs, such costs are capitalized as intangible assets and assessed for impairment on a cost pool basis when circumstances suggest that the carrying amount off the costs pool may exceed its recoverable value and, therefore, there is a potential risk of an impairment adjustment. This assessment involves judgement as to the likely future commerciality of the asset and when such commerciality should be determined based on future revenue and costs pertaining to any concession based on proved plus probable, prospective and contingent resources and the discount rate to be applied to such revenues and cost for the purpose of deriving a recoverable value. Management has reviewed the recoverability of the assets and consider this to be greater than the current net book value.

Share options - Provisions for share-based payment costs requires the selection of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the continuing participation of employees.

Fair value of exploration and evaluation assets - The fair value of exploration and evaluation assets is based on internal and third-party reports, further discounted to reflect future risks such as higher interest rates, smaller than expected reserves and variation to other critical assumptions.

Impairment review - While conducting an impairment review of its assets, the Group makes certain judgements in making assumptions about the likelihood of license conversion, the future prices, reserve levels and future development and production costs. Changes in the estimates used can result in significant charges to the statement of comprehensive income. This is performed solely for the purposes of considering the carrying value of the Group's assets.

Legal proceedings and commercial disputes - In accordance with IFRS, the Group only recognises a provision where there is a present obligation from a past event, a transfer of economic benefit is probable and the amount of cost of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to the financial statements. Realisation of any contingent liabilities not currently recognised or disclosed in the financial statements could have a material effect on the Group's financial position. Application of this accounting principle requires the Group's management to make determinations about various factual and legal matters beyond their control. Among the factors considered in making decisions on provisions are the nature of the disputes and litigations, the progress of the cases, the opinions of legal advisers, experience of similar cases and any decision of the Group's management as to how it will respond to any such claim or litigation.

5. Business and Geographical Segments

Business segment

The Group operated in one principle operating segment, the exploration for and production of oil and gas in the country of Madagascar. The Group is engaged in oil and gas exploration and production which represents its only activity as of December 31, 2010; all its operations are in the Exploration Period of the Production Sharing Contracts signed by its subsidiaries with the Republic of Madagascar.

No revenues have been generated by the Group. Non-current assets located in Madagascar total $102.9 million as of December 31, 2010.

Geographical segment

The Group only operates in Madagascar where it holds all its licenses. The primary segment of the Group is the business segment and its secondary segment is the geographical segment.

6. Net Foreign Exchange Losses

The net foreign exchange loss booked is not significant and mainly the consequence of the erratic movements of the Malagasy currency (MGA) as well as the ones of other currencies against the US dollar during the years 2009 and 2010. For information 1 USD = 2,146.12 MGA as of December 31, 2010 and 1 USD = 1,954.64 MGA as of December 31, 2009.

7. Finance Income (Expense)

8. Income Taxes

The tax expense for the Group is:

As of December 31, 2010 the Group has $9.7 million in operating losses in the Madagascar subsidiaries, MOSA and Majunga, which may be applied to future operating income for income tax purposes with no expiration date. The Group did not recognize any deferred tax in accordance with IAS 12 for 2009 or 2010.

9. Other Expenses

10. Consulting Expenses

The consulting expenses relate to the legal, fiscal and financial advices provided to the Group related to its activities in Bermuda, Madagascar and Mauritius. See Note 29 about legal advisors from related parties.

11. Production Sharing Contractual Fees

Amounts represent the contractual charges for all licenses under the Production Sharing Contracts signed with the Republic of Madagascar.

12. Salaries and Employee Benefits Expenses

See Note 28 Share-based payment for more details.

13. Depreciation and Amortization Expenses

14. (Loss)/Earnings per share (EPS)

Basic loss per share amounts are calculated by dividing the loss for the years attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year.

Diluted loss per share amounts are calculated by dividing the loss for the years attributable to ordinary holders by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. The effect of the warrants and options are anti-dilutive in 2009 and 2010.

15. Non-Current Tax Assets

The amount corresponds to the VAT receivable and shall be recovered when the Company begins collecting VAT on sales of crude oil.

16. Property, Plant and Equipment

(i) The Group recorded $105K as impairment of exploration works for the license 3104 Tsimiroro during 2010.

17. Exploration and Evaluation Assets

During the Exploration Period of the existing Production Sharing Contracts the Group considers as intangible assets:

·; The exploration works performed in the licenses 3102 Bemolanga, 3104 Tsimiroro, 3105 Manambolo, 3106 Morondava and 3107 Manandaza

·; The consumable costs included in the pilot project costs implemented in the license 3104 Tsimiroro

During the Exploration Period of the Production Sharing Contracts the Group considers as tangible assets the capital costs included in the licenses.