Half Year Results

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

3 September 2013

MADAGASCAR OIL LIMITED

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

Half Year Results

Madagascar Oil today announces its half year results for the six month period ended 30 June 2013.

Highlights

Operations

· The Tsimiroro Steam Flood Pilot ("SFP") commenced steam injection on 8 April 2013 and continuous steam generation has been achieved throughout May, June, July and August. 

· Two steam generators out of the four at the Tsimiroro field are fully functioning and a third is expected to be commissioned soon.

· Steam generators are now being fuelled predominantly by Tsimiroro crude and current production levels are sufficient to satisfy current fuel needs.

· By end June, all 19 wells in the 6 initial patterns had been subjected to initial steam injection.

· 18 of the original 19 wells have been successfully cycled at least once. One well experienced steam and oil to surface due to apparent casing leaks and has been worked-over with a possible re-drill being considered.

· Additional wells in the remaining 3 patterns are being commissioned with this programme due for completion in early September.

· Average well production rates are relatively low. However, average total recovered volumes for the eight wells that have been subject to two "huff and puff" cycles have more than doubled between the first and second cycle. There are signs of improved individual well performance as the quantity and quality of steam injected is increased.

· On 28 August 2013, total crude production from the SFP exceeded 10,000 barrels of oil.

Outlook

· Continuous steam injection will now begin to be applied into the designated injection wells whilst continuing to cycle the designated production wells with a clear focus on quality data gathering.

· The operational and reservoir management team is actively being enhanced in Madagascar, with the recruitment of more managers with extensive steam flood experience.

· A Tsimororo Field Development Feasibility Study has been initiated with a remit to determine a Declaration of Commerciality early in 2014 and to submit a Development Plan within the next 12 months.

· Preparations are advanced to seek farm-in partners for the three exploration licences.

Financial

· Cash in hand at 30 June 2013 was US$45.2 million plus further restricted cash balances of US$1.1 million. This followed a financing of approximately US$78.4million (gross) in a Placing and Open Offer in February 2013.

· Capital expenditures for the period were US$13.5 million, compared to US$27.8 million during the comparable period in 2012.

· Loss for the six month period was US$4.9 million, compared to US$5.4 million during the comparable period in 2012.

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

"We are pleased to report that after a gradual start, good progress is now being made on the Steam Flood Pilot, which is showing encouraging results and is being continually optimised to deliver the information we need. Our key goal is to demonstrate commerciality and to move forward to a Development Plan. Our dedicated Development Planning Team will not leave a stone unturned in ensuring that all aspects of development are considered and that all stakeholders are considered in our integrated approach. The next six months promises to be a very exciting time for the Company."

Contact Information:

www.madagascaroil.com

Operational Update:

The predominant activity for the first half of 2013 has been focussed on the commissioning of the nine-pattern Tsimiroro Steam Flood Pilot ("SFP"), which commenced steam injection on 8 April 2013. The purpose of the SFP is to gather as much information as possible about how the reservoir is likely to respond under various development scenarios. Data collected will include steam injection rates, temperature gradients and oil production rates which will all be incorporated into an overall reservoir simulation model. Start-up of the operations was accelerated by prioritising commissioning of the wells in six of the nine pattern areas.

The initial phase of the SFP is a cyclic "huff and puff" phase applied to all wells in the pilot area. The objective of the cyclic process is to achieve well clean-up and mobilise the oil around the individual wellbore area in preparation for designating the well as a dedicated injection or production well during the continuous steam-flood phase. By the end of July, all 19 wells in the six initial patterns had been subjected to their initial steam injection. The Company now plans for the commissioning of the remaining 6 wells in the excluded three patterns to be advanced, bringing all 25 wells in to the pilot operation.

Start-up issues on our steam generators were experienced in the early facilities commissioning phase which have now been largely overcome. The problems typically related to the response of the instrumentation and control logic hardware. The SFP was commissioned with only one fully functioning steam generator but now two are available, both working on a full time basis and another is expected to be available in early September. The level of current activity requires only two of our four steam generators to be fully functional at any one time but, as the SFP progresses, it is anticipated that three generators will be required and we expect to commission the third generator soon. Work continues to seek to commission the fourth generator or find alternative steam sources as back-up and redundancy. Steam generators are fuelled by Tsimororo crude (in a 85:15 mix with diesel), a significant break-through for the project, and recent information suggests this mix is being improved to nearer 90:10. Continuous steam generation has been achieved throughout May, June, July and August.

Other operational aspects of the SFP Plant have performed well since start-up, including the water treatment train functioning efficiently. Integrity of the wells has been good with 18 of the original 19 wells being successfully cycled at least once. One well experienced steam and oil to surface due to apparent casing leaks and has been worked over with a possible re-drill being considered. All installed beam pumping units on the wells have been tested and are working well. Some components of the production train remain to be fully commissioned, and this will happen as necessary when greater throughput volumes are experienced as the SFP develops, including the continuous steam-flood phase.

Oil production from the first wells on cyclic stimulation commenced in May and has been continuous since that time. Cycle phases are staggered and therefore at any one time between eight and twelve of the wells are in their production phase. During July, an average of 9 wells were on production each day and between them they averaged total production of 121 barrels of oil per day ("BOPD"). Significantly, this meant that the SFP almost immediately produced enough crude oil to fuel the steam generators. In August, average total daily production has remained at a similar level with approximately 105 BOPD from an average 8 wells on line. Importantly, average total recovered volumes for the eight wells that have been subject to two "huff and puff" cycles have more than doubled between the first and second cycle. There are signs of improved individual well performance as the quantity and quality of steam injected is increased.

Cumulative production from the SFP exceeded 10,000 barrels of oil on 28 August 2013. All oil produced is stored for use as fuel in the on-going SFP operations.

While these rates are encouraging, they are still below those of the 3 well, 1 cycle 2008 cyclic pilot. One reason for this is that individual well steam injection rates have so far been lower than those achieved in the 2008 trial. This is partly due to steam generation issues which were experienced in the first few months of the SFP. Since having sufficient steam generating capacity, average injection rates per well in August have been 100 barrels of water equivalent per day ("BWEPD") with a range of 45 to 259 BWEPD. The average injection rate in the, albeit much smaller and more focused, 2008 operation was 310 BWEPD and the team continue to study the individual well response with a view to increasing steam injection rates. One significant impact of this lack of injection is that the initial flowback temperature is lower than in 2008 (ie. 110-120 °F compared to 180-250 °F in 2008). This indicates a lower heat transfer to the reservoir resulting in the lower oil production. There were positive signs in August with initial well flow-back temperatures on the second cycle reaching 220 °F in the wells placed on production during the month. This begins to suggest that heat transfer is improving with the higher steam injection rates and volumes and, if this is the case, then a significant benefit in reduced oil viscosity and increased production figures is expected to result.

With a focus on early results and quality data gathering, management have decided to move progressively to continuous steam injection at the designated injection wells whilst continuing to cycle all designated production wells. Continuous injection on the injector wells will allow heat to build-up in the reservoir which in turn will allow the response to be noted at the offset production and observation wells. Continuing to cycle the production wells will allow continuous oil production from the SFP area as a whole for fuel use and allow the individual well cyclic and continuous steam injection response to be understood for reservoir modelling. It is anticipated that eventually all 9 designated injectors will be continuously steamed to replicate full steam flooding performance.

An extensive data gathering system has been implemented including individual well steam injection parameters and flowing well production rates, pressures and temperatures. Routine temperature profiling of the three observation wells has yielded some encouraging signs of a developing temperature response in the mid-reservoir section which is a key success factor for the pilot. The reservoir engineering and modelling capability of the team continues to be enhanced, enabling this data to be analysed using state-of-the-art thermal reservoir simulation tools that can be used to simulate expected reservoir performance under various development scenarios.

In parallel to the SFP, a Tsimiroro Field Development Feasibility Study has been initiated. If indications are encouraging from the SFP and from other associated technical studies, a Declaration of Commerciality will be prepared leading to the possible submission of a Development Plan within the next 12 months. Under the Production Sharing Contract this will allow the Company to enter the 25 year production period and the Company will work with its partner, OMNIS, the Malagasy Agency for the development of petroleum and mineral resources, to co-develop this Field Development Plan. The Development Plan will bring together subsurface and production facilities definition along with the export, environmental, financial, logistical, commercial and social factors necessary to achieve a successful major field development.

The Houston office closed on 31 July and the Group now has offices in Antananarivo in Madagascar and at Rex House, 4-12 Lower Regent Street, London, SW1Y 4RG in the UK.

Financial Update:

Cash in hand at 30 June 2013 was US$45.2 million plus further restricted cash balances of US$1.1 million. This followed a financing of approximately US$78.4 million (gross) in a Placing and Open Offer in February 2013.

The total loss for the six month period was US$4.9 million, compared to US$5.4 million during the comparable period in 2012.

Capital expenditures for the period were US$13.5 million compared to US$27.8 million during the comparable period in 2012.

Close control is maintained of the Company's costs and variances from budgets have been greatly reduced with the introduction of new management reporting and control systems.

Current cash (at date of reporting) is approximately US$39.7 million plus further restricted cash balances of US$1.1 million and this is forecast to fund the Company's planned business activities until well into 2014, subject to there being no material exceptional costs.

Chairman's Statement

The first half of 2013 has been a time of great change at Madagascar Oil. In February, the Company secured financing of approximately $78.4million (gross) in a Placing and Open Offer in which virtually all institutional shareholders participated. This fund raising significantly strengthened the Company's Balance Sheet, enabling the Board to accelerate its operational progress towards unlocking the significant potential of the Tsimiroro heavy oil field and to maintain the exploration and appraisal progress on the Company's other blocks.

In connection with the financing, significant changes were made to the Board and management of the Company, as described in our Annual Report. As anticipated, since then additional changes have been made to ensure that the Company is appropriately resourced for the challenges ahead. Chief Operating Officer, Stewart Ahmed, who is resident in Madagascar, joined the team in March 2013. In June 2013 the senior management team was further reinforced by the addition of Gordon Stein who joined as Chief Financial Officer. The operational team in Madagascar continues to be strengthened with additional international steam flood expertise, diversifying our talent pool alongside an increasing number of skilled local employees. The new perspectives and experience that these new colleagues bring have contributed significantly to the quality of our work and progress being made in Madagascar.

Efforts at Tsimiroro continue to focus on operating and collecting and analysing data from the Steam Flood Pilot ("SFP"). Steam injection began in April, initially using just one steam generator, increasing to two in July and with a third nearing commissioning. Importantly, these steam generators are capable of being fueled by our own Tsimiroro production (when mixed with 10-15% diesel). The quality and quantity of steam has improved significantly in recent months, which has led to improved steam injectivity and production rates.

Reservoir and production data is an important input into our second priority at Tsimiroro: the preparation of a Declaration of Commerciality and a Tsimiroro Development Plan. We have initiated a Feasibility Study that will investigate and integrate all aspects of the development into one overall plan including environmental, financial, logistical, commercial and social factors, together with the subsurface and production information from the SFP. We look forward to working with our partners at OMNIS over the coming months to co-develop this into an approved Field Development Plan under our Production Sharing Contract.

Elsewhere, our team has been busy working to collate and integrate the extensive technical data available for our exploration blocks and we expect to begin a formal process to find partners to accelerate the work programmes in those assets in Q4 2013.

As can be seen above, Madagascar Oil is in the midst of a transformation from a turnaround situation at the end of 2012 into a company capable of undertaking a significant field development project and we are aware that we must continually adapt to prepare for each stage of the Company's development. As CEO, Mr. Paul Ellis played a leading role in the Company's refinancing and turnaround and helped bring the project to where it stands today. Mr. Ellis recently indicated that he wished to retire from full time employment and it was decided that it was the right time to commence the transition to a new CEO with the experience to take us to that next level of field development. The search for a new CEO is now underway. I would like to thank Mr. Ellis for his efforts since stepping up from the position of Non-Executive Director in December 2012 and taking a leading role in the turnaround of the Company. Mr. Ellis will not be standing for re-election to the Board at the AGM, but will remain available to the Company for advice as required under a pre-arranged consulting arrangement. In the meantime, the Board and I will be taking a more active role in supporting our senior management team during the transition to a new CEO.

Elsewhere on the Board, Mr. Richard Laing joined in June 2013, replacing Ian Barby. Until recently, Mr. Laing was CEO of CDC Group plc (formerly the Commonwealth Development Corporation), and brings extensive international financial and business experience especially in emerging markets, including Africa and Asia, with first-hand experience of financing significant projects, both directly and through collaboration with governments and international finance institutions. At the same time, Mr. Al Njoo and Dr. Madjedi Hasan joined the Board as Benchmark nominees, replacing Mr. Peter Kingston. Mr.Njoo and Dr. Hasan bring with them a wealth of experience of steam flood projects having been successfully involved in several projects around the globe in the past, and have also assisted the Company in opening up the Far Eastern eco-system of talent and services, providing a possible alternative to our traditional market for talent in North America.

In due course, the new CEO will take the Board position vacated by Mr. Ellis, and an additional Independent Director is expected to be appointed. However, in the meantime the Board has decided to continue with the existing 5 person Board until suitable candidates are identified. The Directors, including the Independent Directors (as defined in the Relationship Agreement), intend to ensure that the composition of the Board continues to be consistent with the relationship agreement dated 18 December 2012, as amended on 24 January 2013, entered into between the Company, Benchmark Advantage Fund, Ltd., BMK Resources Limited and Persistency Private Equity Limited (the "Relationship Agreement"). The Directors are considering how best to ensure this, but relevant options may include: agreement with the Investors (as defined in the Relationship Agreement) as appropriate or, if a suitable candidate is identified, by appointing a new Independent Director (as defined in the Relationship Agreement). The Company will make further announcements as and when is appropriate.

I would also note that both COO Stewart Ahmed and CFO Gordon Stein are active non-voting participants in Board level discussions in order to ensure that the strategic objectives determined by the Board are able to be implemented by the Group. I expect this to continue even after a new CEO is identified.

Financially, the Company had US$45.2 million in cash at 30 June 2013 and as at the date of reporting has approximately US$39.7 million. It also holds a further US$1.1 million in restricted cash. Assuming no material exceptional items, the Board believes that this will be sufficient to fund the Company well into 2014, at which point the Company should be in a position to submit its Declaration of Commerciality and Tsimiroro Development Plan to the Madagascan authorities.

As previously reported, during the first half of the year the Conseil D'Etat declined to hear Madagascar Oil's appeal against tax assessments for 2007 and 2008. This means that the Company has now re-entered negotiations with the tax authorities with respect to these and subsequent years. This issue is one that many resource companies operating in Madagascar are facing in the country and therefore an industry-wide solution is being sought with the help of the Association of Upstream Oil Companies in Madagascar ("APPAM"). We are hopeful that a fair and equitable solution can be found that will continue to encourage foreign investment into the country of Madagascar.

I have to note that the Madagascan Presidential elections, originally due for 24 July 2013 did not take place as planned but I am pleased that a revised date of 25 October 2013 has recently been announced. With a run-off election, if required, slated for 20 December 2013, we are hopeful that political stability will return to the country in 2014. In the meantime our relationship with OMNIS remains strong as we work closely with them on all our projects. Special significance is given to environmental responsibility and to the continuous development of local relationships and we are focused on maintaining a strong culture of engagement with local communities and national environmental protection.

Finally, I would like to thank all our employees and advisers, especially those in Madagascar, who have shown consistent professionalism and dedication to ensuring that Madagascar Oil works diligently and professionally toward achieving the goal of creating the first world class oil development in Madagascar. The next 6 months promises to be as dynamic as the last as we move closer to that goal.

Andrew James Morris

Chairman

INDEPENDENT REVIEW REPORT TO Madagascar Oil Limited

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the Consolidated Statement of Financial Position, Consolidated Statement of Comprehensive Income, Consolidated Statement of Cash Flow, Consolidated Statement of Changes in Equity and the related explanatory notes 1 to 7.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with AU Section 722: Interim Financial Information issued by the American Institute of Certified Public Accountants (AICPA) and International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America and International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

BDO USA, LLP

Houston, Texas

September 2, 2013

UNAUDITED NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2013

1. Accounting policies

Basis of Preparation

The interim financial statements have been prepared using policies consistent with International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) as adopted for use in the European Union. The interim financial statements have been prepared using the accounting policies applied for the year ended 31 December 2012 and updated for those which are expected to be applied in the Group's statutory financial statements for the year ended 31 December 2013.

Future Operations

The interim financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Group will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities and commitments in the normal course of business.

The equity financing of approximately US$78.4million (gross), which was secured by the Group in early 2013, has enabled the Group to complete the majority of capital costs of the Tsimiroro Steam Flood Pilot (SFP) and commence operations on 8 April 2013. The Group maintains close control of its current spending levels and has managed to identify various operational savings as the SFP has progressed, largely through lower diesel running costs than budgeted and cost efficiencies elsewhere. Exploration licence expenditures in 2013 largely relate to technical and sub-surface studies and are not forecast to exceed US$1.7 million for the year. The Group had a cash in hand balance of US$45.2 million at 30 June 2013 and the Group's existing cash resources are now expected to fund expenditure well into 2014, subject to any unknown material exceptional costs.

The ability of the Group to continue to operate as a going concern is dependent on the availability of additional financing, the timing and amount of expenditure necessary to achieve its work programmes, and the extent of potential revenues, if any, from future oil sales and farm-outs of some of its blocks. The current cash balance is forecast to be adequate to fund the Company's planned business activities until well into 2014, subject to there being no material exceptional costs. In order to progress any major development of the Tsimiroro field pursuant to the Development Plan, the Group will be required to seek additional financing at this juncture. The Board is currently assessing the most appropriate external financing options available to the Group.

The Group believes that the aforementioned courses of action and opportunities provide a reasonable expectation of mitigating the adverse conditions and events which may raise doubt as to the validity of the going concern assumption used in preparing these interim financial statements. Therefore these interim financial statements do not reflect the adjustments that would be necessary if the going concern assumption was not appropriate. If the going concern assumption was not appropriate for these interim financial statements, adjustments might be necessary to the carrying value of assets and liabilities, and the statement of financial position classifications used.

2. Financial reporting period

The interim financial statements for the periods 1 January 2013 to 30 June 2013 are unaudited. In the opinion of the Directors the interim financial statements for the period present fairly the financial position, and results from operations and cash flows for the periods and are in conformity with International Financial Reporting Standards as adopted by the European Union incorporated within the Group's accounting policies consistently applied. The interim financial statements incorporate comparative unaudited figures for the interim period 1 January 2012 to 30 June 2012 and the audited financial year ended 31 December 2012.

3. Exploration and Evaluation Assets

As of 30 June 2013, US$168.0 million of the Group's exploration and evaluation assets relate to Block 3104 Tsimiroro, US$4.1 million to Block 3105 Manambolo, US$4.8 million to Block 3106 Morondava and US$4.5 million to Block 3107 Manandaza.

The predominant activity for the first half of 2013 has been on the commissioning of the 9 pattern Block 3104 Tsimiroro SFP, which commenced steam injection on 8 April, 2013. The purpose of the SFP is to gather as much information as possible about how the reservoir is likely to respond in various development scenarios. Data collected will include steam injection rates, temperature gradients and oil production rates and these will all be incorporated into an overall reservoir simulation model. Start-up of the operations was accelerated by prioritising commissioning of the wells in 6 of the 9 pattern areas.

In parallel to the SFP, a Tsimiroro Field Development Feasibility Study has been initiated. If indications are encouraging from the SFP, a Declaration of Commerciality will be prepared leading to the possible submission of a Development Plan within the next 12 months. Under the Production Sharing Contract this will, if approved, allow the licence to be converted to a 25 year Development Licence. The Plan will bring together subsurface and production facilities definition along with the export, environmental, financial, logistical, commercial and social factors necessary to achieve a successful major field development.

The high density Airborne Gravity Gradiometry (AGG) Survey obtained in 2012 covering exploration licence blocks 3105, 3106 and 3107 has been processed and the dataset was delivered in March 2013. Madagascar Oil also initiated a project in March 2013 using international Oil and Gas Exploration Consultants ERCL, to complete Geological and Geophysical data consolidation and quality control. This has involved the incorporation of all existing seismic, exploration well, GORE, gravity, magnetic and AGG data into modern interpretation software. Previously unavailable legacy 2D seismic datasets totaling an additional 2,250 km have been obtained from OMNIS and after scanning and re-processing have now been added to the geophysical project. Geological field survey work is underway in all three licences, to gather outcrop samples for improved rock property definition which will be used to further improve the regional interpretation and modelling. The forward 2013 work programme is to re-interpret the basin structure across all licences and generate updated Prospect listing and risking for each Licence Block. A Farm-out exercise for the three licences is to be initiated in late 2013. A Management Committee Meeting held on 18 July 2013 with OMNIS confirmed the approval of the work programme and status of the licences.

4.  Loss per share (LPS)

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

Diluted loss per share amounts are calculated by dividing the loss for the periods attributable to ordinary holders by the weighted average number of ordinary shares outstanding during the period, 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 2013 and 2012.

5. Share-Based Payments and Equity Sales

The Company issued 8,370,000 options in the first half of 2013 to certain directors and employees. Share-based expense related to outstanding stock option plans and restricted shares totalled US$413,756 for the interim period 1 January 2013 to 30 June 2013. Share-based expenses of US$851,386 were recognised for the period 1 January 2012 to 30 June 2012 and US$1,908,462 for the year ending 31 December 2012.

In February 2013, the Company issued and sold 275,237,772 new common shares for gross proceeds of US$78.1 million.

6. Functional currency

All amounts have been prepared in US dollars, this being the Group's functional currency and its presentational currency.

7. Contingent Liabilities and Contingent Assets

In July 2010, assessments were received by the Company subsidiary for additional taxes of approximately US$9 million (at the current Ariary/US Dollar exchange rate) relating to the years 2007 and 2008. Of this amount, approximately US$3 million relates to a tax on ''foreign transfers'' from which the Board believes the Company is exempted in accordance with the terms of its Production Sharing Contracts, the Petroleum Tax Code and the General Tax Code. Such exemption was accepted in a non-binding minute of the appeals advisory panel of the Finance Ministry in September 2011, but the assessments have not yet been amended.

The balance of approximately US$6 million relates to notional value added tax (''VAT'') on services provided by foreign suppliers ("Foreign Services VAT") and includes an approximate 70 percent uplift in statutory penalties and interest. The Company continues to negotiate the assessment with the Madagascar Tax Administration. Under the Madagascar tax codes, the Company has the benefit of exemptions from VAT and customs duties on all tangible items imported into Madagascar for its exploration and production activities. However, a similar exemption does not currently exist in connection with VAT on services provided by foreign suppliers. The Company followed market practice in declaring the VAT due and the VAT paid on these services but the tax assessments were raised on a different basis.

The Company's tax returns for 2009, 2010 and 2011 are still undergoing a government audit and management believes it is likely that the Company will be subject to similar VAT assessments for these years and beyond until the government and the upstream oil and gas industry reach consensus on how to treat this issue. The Company has not yet received any tax notifications for the 2009-2012 tax years or for the period to 30 June 2013 but recognizes that the same issues are likely to prevail. While the results of these disputes cannot be ascertained at this time, the Company has made an accrual for VAT taxes due based on available information.

The Group believes it complied with the applicable regulations and the practice of all oil companies in Madagascar. The Group has challenged the proposed tax adjustment through the appeals process at the Malagasy tax administration without success. In May 2013, the Council of State held a hearing in which it refused to hear the merits of the Company's case on outstanding taxes due for 2007-2008 on the grounds that the Company's appeal was not made within the specified time frame. However, the Council of State also acknowledged that the Government did not provide adequate notification to the Company to file an appeal.

The Company is currently seeking to negotiate a settlement of the VAT claims from 2007 through to the current date and has held recent meetings with the relevant Madagascar tax authorities in this regard. In addition, the Company is working on this issue with the Association of Upstream Oil Companies in Madagascar ("APPAM") as most APPAM members are now subject to VAT tax adjustments on past years. APPAM has held recent discussions with the relevant Madagascar tax authorities in seeking to negotiate a settlement of historical VAT claims.

There can be no assurance that a settlement will be reached either by the Company individually or via APPAM, although all efforts are being made to seek a resolution which meets the needs of all interested parties.

Corporate Directory

Directors

Andrew Morris (Non-Executive Director)

Iain Patrick (Non-Executive Director)

Richard Laing (Non-Executive Director)

Al Njoo (Non-Executive Director)

Dr Madjedi Hasan (Non-Executive Director)

Paul Ellis (Director)

Company Secretary Company Advisers

Appleby Bermuda Nominated Adviser Strand Hanson Limited

Registered office 26 Mount Row

Canon's Court London W1K 3SQ

22 Victoria Street United Kingdom

PO Box HM 1179

Hamilton HM EX Broker

Bermuda Mirabaud Securities

33 Grosvenor Place

Company number London SW1X 7HY

Registered in Bermuda No. 37901 United Kingdom

Website Auditors

www.madagascaroil.com BDO USA LLP

333 Clay St., Ste. 4700

Houston, TX 77002

Registrars

Computershare Investor Services (Jersey) Limited

Queensway House

Hilgrove Street

St. Helier

Jersey JE 1ES