Half Yearly Report

UMC ENERGY CORPORATION

Condensed consolidated interim financial statements

for the half-year ended 30 June 2014

REPORT OF THE DIRECTORS

FOR THE PERIOD ENDED 30 JUNE 2014

The Directors present their report together with the consolidated financial statements for the six months ended 30 June 2014 and the independent auditor's review report thereon.

The financial report has been presented in United States dollars which is the Group's functional currency.

Principal activities and review of business

The principal activity of the Group is investment directly and indirectly in, and operation of, resource exploration and development projects.

During the half-year the Group's main undertaking was the development of the Papua New Guinea petroleum project, in which the Group holds a 30% interest and a continuing interest in the Morondava uranium exploration project, based in Madagascar, in which the Company has an 80% interest.

Review of operations and state of affairs

Papua New Guinea

In September 2011, the Group acquired one on-shore (PPL 378) and two off-shore (PPLs 374 and 375) Petroleum Prospecting Licences (PPLs) in Papua New Guinea (PNG) through the acquisition of PNG Energy Limited (PNG Energy) and that company's wholly owned subsidiary Gini Energy Limited (Gini Energy). Subsequently, in May 2012, Gini Energy was awarded an additional on-shore licence, PPL 405, by the Government of PNG.

On 26 March 2012, the Group entered agreements with CNOOC Australia Limited (CNOOC), a subsidiary of CNOOC Limited, the Chinese multi-national oil and gas company, listed on the New York, Toronto and Hong Kong Stock Exchanges, whereby CNOOC subscribed for a 70% equity interest in PNG Energy and UMC Energy retained a 30% equity interest.

Pursuant to the agreements, and in consideration for the share subscription, CNOOC is responsible for funding all exploration and appraisal expenditure in respect of the four PNG PPLs, up to commercial development. Such expenditure will be repaid to CNOOC out of production revenues and off-take of oil and gas once the assets of Gini Energy enter production, should such production occur. If exploration and appraisal work indicates the probable existence of commercial reservoirs of oil or gas in any part of the PPLs at the end of the exploration phase, the parties must each finance their pro-rata share of all expenditure required in respect of the development plan, either themselves or by procuring sufficient finance from a third party.

PPL 378 onshore

The two blocks (western and eastern) of PPL 378 are located in the Central Highlands of the Papua Fold Belt. The Western Block is situated close to existing producing and processing facilities of the Moran and Agogo oil and gas fields. The main gas pipeline connecting Hides to ExxonMobil's newly operational LNG plant at Port Moresby transects the block.

The western block contains the Paua-1X oil discovery drilled by BP in 1996. Oil was recovered from RFT wireline tests from two sandstone reservoir sequences in the Iagifu Formation. Some 37 m of net oil pay is interpreted in 5 layers in separate Upper and Lower Iagifu reservoirs.

Contingent oil and gas resources in the Iagifu assessed by 3D-GEO Pty Limited (3D-GEO), and reported in their Competent Person's Report (CPR) on 5 August 2013 in accordance with the definitions and guidelines set out in the Petroleum Resources Management System (PRMS) are as follows:

*Note: MMbbls = million barrels of recoverable oil, Bcf = billion standard cubic feet of recoverable gas

The overlying Digimu and Toro sandstones were water-wet at Paua-1X (wireline log evaluation suggests the presence of residual hydrocarbon saturation at the well). Significant additional potential for oil and gas is present on the back-limb of the Paua Anticline within structural closure, up-dip from the well to the north-east, as previously reported in the CPR.

CNOOC has undertaken significant technical work during the half-year to better define the Paua structure. This work included additional reprocessing of the 2D seismic lines across the structure tying into wells on the Moran Field. Remapping of the new data indicates the presence of significant structural closure up-dip from Paua-1X to the NE. The structural high is co-incident with the surface anticline defined by surface geology and topography. This mapping supports volumetric oil and gas estimates made by 3D-GEO in the CPR and suggests that Paua is a robust structure of a sufficient size and commercial potential to warrant appraisal drilling. CNOOC's internal experts continue their well planning for Paua-2X, presently expected to be drilled in late 2015.

PPL 405 onshore

PPL 405 is also located in the Central Highlands region of PNG east of PPL 378. Technical evaluation of the licence was completed in the first half of 2014. Owing to delays in collecting critical well and seismic data, the work program in this licence (requiring the drilling of one exploration well) was not completed by 8 May 2014, the end of the first two year licence term. The PNG Government has been approached by CNOOC, as the Operator, seeking a variation to the work program commitments for this licence, with the variation yet to be approved.

The technical study indicated low potential and high exploration risk across most of the licence. However significant potential was identified at Lead D, a large surface anticline situated in the westernmost part of the licence. Additional potential was seen across the more complicated Wara Deep in the same part of the licence. However both structures are presently defined by single 2D seismic lines and will require additional seismic prior to drilling. The country over both Leads is extremely rugged and will require a major operational effort for seismic acquisition.

PPL 374 and PPL 375 offshore

PPLs 374 and 375 are contiguous licences located offshore in deep water in the Gulf of Papua. CNOOC successfully completed seismic acquisition of some 3,015 line kilometres of 2D data in early January 2014. Processing of the 2D data has been completed and is currently undergoing final QC prior to acceptance.

Seismic data quality is reported to be very good and described as a significant improvement over earlier 2D survey data in the area.

The deep half-graben and adjacent horst structural geology of the region is particularly well defined. The presence of the half-grabens in the licence areas is particularly important as they are deep enough and large enough for significant source rock potential, for either or both gas and oil to be possibly present in commercial quantities.

Madagascar

Madagascar continues to experience a period of political upheaval and uncertainty. Despite the fact that the Company has not, in any way, been negatively affected by these events, it has resolved to take a cautious approach to exploration and accordingly has not conducted exploration activities during the current financial half-year. The Company continues to monitor the situation.

Financing

The Company remains dependent on loan funds being made available to it by Natasa Mining Ltd to meet its working capital and other requirements.

Corporate

During the second half of the 2013 financial year, the Company redomiciled from the United Kingdom to the Cayman Islands. The accounts presented are those of the Cayman Islands incorporated company. However, in order to present a true and fair comparison for shareholders the business has been treated as continuing despite the change in legal entity, and the comparative figures are those of the predecessor company domiciled in the United Kingdom. Further details are given in Notes 1 and 9 to the accounts.

C Kyriakou

Chairman

24 September 2014

UMC ENERGY CORPORATION

 CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the six months period ended 30 June 2014

The Group has no recognised gains or losses other than the results for the period as set out above 

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

These interim results were approved by the Board on 24 September 2014 and signed on their behalf by:

C Kyriakou, Chairman

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months period 30 June 2014

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

for the six months period 30 June 2014

UMC ENERGY CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the six months period 30 June 2014

1. General information

UMC Energy Corporation is a company incorporated in the Cayman Islands. The condensed consolidated interim financial statements of the Company as at and for the six months ended 30 June 2014 comprises the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in associates.

UMC Energy Corporation was incorporated and registered under the laws of the Cayman Islands on 10 October 2012 as an exempted company with limited liability and limited by shares under the Cayman Islands Companies Law with Cayman Islands company registered number MC-272327 with the name UMC Cayman Corporation. On 21 February 2013, the name of the company was changed to UMC Energy Corporation. The Company acquired all the assets and liabilities of UMC Energy PLC (incorporated in the United Kingdom ("PLC")). The acquisition of the assets and liabilities was met by the issue of 484,444,763 ordinary shares in the Company, which shares were distributed to the shareholders of PLC on a 1:1 basis such that the shareholders of PLC became the shareholders of the Company. The comparative information for the period ended to 30 June 2013 is that of the Group as if no capital reconstruction has taken place. See note 9 for additional detail.

The principal activity of the Group is the investment in, and exploration and development of natural resources projects, specifically in a petroleum exploration project in Papua New Guinea and a uranium exploration project in Madagascar.

The Group's principal activity is carried out in US dollars. The financial statements are presented in United States dollars which is the Group's functional currency. The 2013 comparative figures have been restated from sterling to US dollars.

The consolidated annual financial statements of the Group as at and for the year ended 31 December 2013 is available at www.umc-energy.com.

2. Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated annual financial statements of the Group as at and for the year ended 31 December 2013.

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

These condensed consolidated interim financial statements were approved by the Board of Directors on 24 September 2014.

3. Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2013.

Going Concern

The interim results have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

The Directors believe that it is appropriate to prepare the financial statements on a going concern basis principally as the Company has secured from Natasa Mining Ltd (Natasa) a loan facility whereby Natasa has agreed to make available to the Company an amount of not less than £1.7 million for the period up to 31 January 2015. The loan is repayable on 60 days notice provided that such notice cannot be given prior to 31 January 2015 except on the occurrence of an event of default (which would include Natasa not having two representatives on the Board of the Company) and the Directors do not believe an event of default will arise. In addition, the Directors are confident that the Company will be able to raise additional funds through further debt or equity raisings when required. The Directors are of the opinion that the Natasa loan facility, any proposed debt or equity raising measures and the existing cash resources of the Company will provide sufficient funds to enable the Company to continue its operations for at least the next twelve months.

4. Segmental analysis

The Group has one reportable segment which is that of the investment directly and indirectly in, and operation of, resource exploration and development projects. The Group's operational activities are wholly focused in Papua New Guinea and Madagascar. The Board of Directors review internal management reports at least monthly.

The Group has not yet commenced commercial resource production and has no turnover in the year.

Information regarding the results of the reportable segments is shown below. Performance is measured based on the segment profit before income tax as included in the internal management reports that are reviewed by the Board of Directors. There is no inter-segment pricing.

Information about reportable segments:

Period ended 30 June 2014

Year ended 31 December 2013

Geographical segments

In presenting information on the basis of geographical segments, segment assets are based on the geographical location of the assets.

Non-current assets by geographical area

5. Taxation

There is no corporation tax chargeable in the Cayman Islands.

6. Loss per share

Including share of associate's results

Loss per share has been calculated by dividing the loss for the period after taxation, including share of associate's results, attributable to the equity holders of the parent company of $1,261,122 (30 June 2013: $1,011,783) by the weighted average number of shares in issue at the period end of 484,444,763 (30 June 2013: 484,444,763).

Excluding share of associate's results

Loss per share has been calculated by dividing the loss for the period after taxation, excluding share of associate's results, attributable to the equity holders of the parent company of $1,253,533 (30 June 2013: $990,022) by the weighted average number of shares in issue at the period end of 484,444,763 (30 June 2013: 484,444,763).

7. Intangible assets

The development expenditure relates to development of the uranium exploration project in the Morondava basin of Madagascar.

The licences relate to uranium exploration licences in the Morondava basin.

The Morondava uranium project has yet to reach a stage of development where a determination of the technical feasibility or commercial viability can be assessed. In addition, as Madagascar is presently experiencing a period of political upheaval and uncertainty, the Company has resolved to take a cautious approach to exploration and accordingly has not conducted exploration activities during the current financial half-year and does not expect to undertake any material exploration activities in Madagascar whilst this period of uncertainty prevails. In these circumstances, whether there is any indication that the asset has been impaired is a matter of judgement, as is the determination of the quantum of any required impairment adjustment. The directors have resolved that it is not appropriate to capitalise any further expenditure on the intangible asset until circumstances change. The Directors have used their experience to conclude that no impairment adjustment is required for the six months to 30 June 2014.

8. Investments in associated undertakings

On 26 March 2012, the Company entered agreements with CNOOC Australia Limited (CNOOC), a subsidiary of CNOOC Limited, the Chinese multi-national oil and gas company listed on the New York, Toronto and Hong Kong Stock Exchanges, whereby CNOOC subscribed for a 70% equity interest in PNG Energy Limited with UMC Energy retaining a 30% equity interest.

As a result of this transaction, the PNG Energy group ceased to be controlled by the Company in March 2012 and became an associate.

The Company has an equity holding in the following associate undertaking:

The country of incorporation of the associate undertaking is the British Virgin Islands and the principal place of business is Papua New Guinea.

The Papua New Guinea petroleum project has yet to reach a stage of development where a determination of the technical feasibility or commercial viability can be assessed. In these circumstances, whether there is any indication that the asset has been impaired is a matter of judgment, as is the determination of the quantum of any required impairment adjustment. The Directors have used their experience to conclude that no impairment adjustment is required for the six months to 30 June 2014.

Summarised results of the associate undertaking, PNG Energy Group, as translated into US dollars are as follows:

9. Corporate Restructure

UMC Energy Corporation (the Company) was incorporated and registered under the laws of the Cayman Islands on 10 October 2012 as an exempted company with limited liability and limited by shares under the Cayman Islands Companies Law with Cayman Islands company registered number MC-272327 with the name UMC Cayman Corporation. On 21 February 2013, the name of the company was changed to UMC Energy Corporation. The Company acquired all the assets and liabilities of UMC Energy PLC (incorporated in the United Kingdom (PLC)). The acquisition of the assets and liabilities was met by the issue of 484,444,763 ordinary shares in the Company, which shares were distributed to the shareholders of PLC on a 1:1 basis such that the shareholders of PLC became the shareholders of the Company with each shareholder holding the same number of shares in the Company, in both absolute and percentage terms, as they did in PLC, following which all the shares in PLC were cancelled.

The following agreements were entered into between the Company and PLC to give effect to the redomiciliation.

Agreements for Asset Sale and Assignment

In accordance with the terms of the Deed of Accession and Indemnity Agreement dated 4 December 2012, PLC sold to UMC Energy Ltd, 1,000,000 ordinary shares of no par value in PNG Energy Ltd. PLC also assigned and transferred to UMC Energy Ltd all intellectual property owned by PLC pertaining to the assets of PNG Energy Ltd and its wholly owned subsidiary Gini Energy Ltd. The consideration for the sale of these securities and the assignment of the intellectual property was in aggregate £16,351,282. In satisfaction of the consideration, UMC Energy Ltd issued 99 ordinary shares with a par value of US$1 each together with an aggregate share premium thereon so the aggregate of the nominal value and the share premium equalled $26,252,100 (being the US$ equivalent of £16,351,282 as of 4 December 2012). PLC directed UMC Energy Ltd to issue the 99 ordinary shares directly to China Pacific Petroleum Corporation in consideration of China Pacific Petroleum Corporation issuing and allotting to the Company 99,999 ordinary shares of no par value with an aggregate capital amount of US$26,252,100 in consideration of the Company issuing and allotting to PLC 434,145,000 ordinary shares of no par value with an aggregate capital amount of US$26,252,100.

In accordance with the terms of the Deed of Accession and Indemnity Agreement dated 18 December 2012 PLC sold to Uramad Ltd 398 ordinary shares with a par value of MGA 20,000.00 each in Uramad S.A. for a consideration of GBP1,890,898 ($3,057,908). PLC assigned to Uramad Ltd the entire balance of monies owed by Uramad S.A. to PLC, being a capital amount of $5,846,160, for a consideration of £1. In satisfaction of the consideration for the sale of the securities and the assignment of the debt, Uramad Ltd issued 99 ordinary shares with a par value of US$1 each together with an aggregate share premium thereon so the aggregate of the nominal value and the share premium equalled $3,057,910 (being the US$ equivalent of £1,890,899 as of 18 December 2012). PLC directed Uramad Ltd to issue the 99 ordinary shares directly to the Company in consideration of the Company issuing to PLC 50,204,999 ordinary shares of no par value with an aggregate capital amount of $3,057,910.

Transfer Agreement

On 2 August 2013, PLC and the Company entered into an asset sale and purchase agreement pursuant to which the Company acquired all of the remaining assets and assumed all of the liabilities of PLC. The acquisition was funded by the Company issuing 94,763 ordinary shares of no par value to PLC.

Subscription Agreement for One Share in UMC Energy PLC

On 2 August 2013, PLC and the Company entered into a subscription agreement whereby the Company subscribed for and PLC agreed to allot and issue one ordinary share of £0.005 in the capital of PLC for a subscription price of £1. As a result of this subscription PLC became a wholly-owned subsidiary of the Company, at which time PLC's name was changed to UMC Energy Ltd. This company was subsequently deregistered.

The Directors considered that the fair value of the net assets of PLC equalled that of their net book value of $17,242,517 and this value was attached to the 484,444,763 ordinary shares issued by the Company to acquire the assets and liabilities of PLC.

The assets and liabilities acquired were as follows:

10. Post balance sheet events

Since 1 July 2014, the Company has advanced a further $2,180 ($11,302) to Uramad SA.

Since 1 July 2014, the Company has borrowed a further $609,835 ($568,588) from Natasa Mining Ltd, for working capital.

11. Availability of accounts

 Copies of this interim financial information will be made available on the Company's website www.umc-energy.com.

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