Half Yearly Report

UMC ENERGY CORPORATION

Condensed consolidated interim financial statements

for the half-year ended 30 June 2015

REPORT OF THE DIRECTORS

FOR THE PERIOD ENDED 30 JUNE 2015

The Directors present their report together with the consolidated financial statements for the six months ended 30 June 2015.

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.

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 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 Papua New Guinea.

On 26 March 2012, the Group entered agreements with a subsidiary of CNOOC Limited (CNOOC), 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 the decision to move to commercial development and production.

To June 2015, approximately PGK42 million (~US$16 million) in costs incurred by PNG Energy in relation to the four PNG permits has been met by CNOOC. 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 to bring such field(s) into production, 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 metres 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.

To date, CNOOC as the Operator of the permit has undertaken significant technical work to better define the Paua structure. This work has included additional reprocessing of the 2D seismic lines across the structure tying into wells on the adjacent Moran Oil Field. Remapping of the data indicates the presence of significant structural closure up-dip from Paua-1X to the north-east. 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 technical team continue their well planning for Paua-2X, and subject to final approval of the location and drilling contractor, drilling is presently expected to commence in early 2017.

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. The initial technical study indicated low potential and high exploration risk across most of the licence. Significant potential was identified in some leads within the permit, however these structures are presently defined by single 2D seismic lines and will require acquisition of additional seismic data and interpretation in order to elevate the leads to prospect status prior to any consideration for exploration drilling.

CNOOC and UMC are assessing the economics and prospectivity of this permit.

PPL 374 and PPL 375 offshore

PPLs 374 and 375 are contiguous licences located offshore in deep water in the Gulf of Papua. To date, CNOOC has acquired 3,015 line kilometres of 2D seismic data and has undertaken data processing and interpretation activities, as well as a series of geophysical studies, including basin, source rock and reservoir modelling to help confirm the prospectivity of the permits. These studies indicate a high risk for both reservoir and trap formation, along with marginal generation and expulsion values. The high costs for drilling in the deeper waters of these permits requires robust economic thresholds to be met to justify exploration drilling.

CNOOC and UMC continue to assess the economics and prospectivity of these offshore permits.

The directors have resolved that it is not appropriate to capitalise any further exploration expenditure in relation to PPLs 374, 375 and 405. In addition they have, in the current period, resolved to impair exploration expenditure incurred to date in respect of these permit areas, totalling $11 million, of which the Company's share is $3.3 million.

Madagascar

Madagascar has experienced an extended period of political upheaval and uncertainty. As a result the Company has not conducted any exploration activities during the current financial period. The Company continues to monitor the situation. Given these circumstances, the Directors have resolved to fully impair the carrying value of this intangible asset.

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.

Given challenging equity market conditions, and in particular, the weak outlook for the oil and gas sector, the Directors continue to focus on the ongoing costs of the business, and areas in which cost savings may be achieved by the Company.

C Kyriakou

Chairman

24 September 2015

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the six months period ended 30 June 2015

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

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months period ended 30 June 2015

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

As at 30 June 2015

These interim results were approved by the Board on 24 September 2015 and signed on their behalf by:

C Kyriakou, Chairman

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

for the six months period 30 June 2015

UMC ENERGY CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

for the six months period 30 June 2015

UMC ENERGY CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the six months period 30 June 2015

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 2015 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.

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 consolidated annual financial statements of the Group as at and for the year ended 31 December 2014 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", as adopted by the European Union.

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 2014.

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 2015.

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 2014.

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 due to the loan facility the Company has secured from Natasa Mining Ltd (Natasa), and the confidence of the Directors that funds will continue to be made available to the Company under this facility. In addition, the Directors are of the view 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 period.

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 2015

Period ended 30 June 2014

Year ended 31 December 2014

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 $4,550,745 (30 June 2014: $1,261,122) by the weighted average number of shares in issue at the period end of 484,444,763 (30 June 2014: 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 $1,192,965 (30 June 2014: $1,253,533) by the weighted average number of shares in issue at the period end of 484,444,763 (30 June 2014: 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 2015.

8. Investments in associated undertakings

On 26 March 2012, the Company entered agreements with a subsidiary of CNOOC Limited (CNOOC), 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 these agreements, the Group 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 resolved that it is not appropriate to capitalise any further exploration expenditure in relation to PPLs 374, 375 and 405. In addition they have, in the current period, resolved to impair exploration expenditure incurred to date in respect of these permit areas, totalling $11 million, of which the Company's share is $3.3 million. The Directors have used their experience to conclude that no further impairment adjustment is required for the six months to 30 June 2015.

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

9. Post balance sheet events

Since 1 July 2015, the Company has advanced a further $840 (30 June 2014: $2,180) to Uramad SA.

Since 1 July 2015, the Company has borrowed a further $608,224 (30 June 2014: $609,835) from Natasa Mining Ltd, for working capital.

10. 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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