Half Yearly Report

Exillon Energy plc

Interim results for the first six months of 2012

31 August 2012

31 August 2012 - Exillon Energy plc (EXI.LN), a London Premium listed independent oil producer with assets in two oil-rich regions of Russia, Timan-Pechora ("Exillon TP") and West Siberia ("Exillon WS"), today issues its interim results for the first six months to 30 June 2012.

Highlights

Production Growth

·; Oil production increased 48% from 1.42 million to 2.1 million barrels. Production guidance of 17,000 bpd by end of 2012 reiterated

Financials

·; EBITDA increased 98% from US$7.8 million to US$15.5 million. Net profit fell from US$5.9 million to net loss of US$1.7 million. The fall in net profit arose primarily because of the absence of non-cash FX gains made in 2011, and a write-off of the up-front costs of increasing our debt facility

·; US$138.5 million of cash and cash equivalents as at 30 June 2012. Net cash position was US$38.3 million

Operations

·; Excellent drilling results in the first six months of the year:

o Drilling speeds in Exillon WS reduced to around 20 days per well

o New strategy of drilling wells at 60 degree angle doubles exposed net pay

o Lack of oil water contact in wells drilled to North East of the EWS I field suggests substantial reserves increase likely in this area of the field

o Improved completion and cementing procedures across portfolio

Infrastructure

·; Significant infrastructure progress:

o Completion of oil treatment and power generation facilities in both Exillon TP and Exillon WS

o Completion of Exillon's own entry point into Transneft pipeline network expected to improve EBITDA per barrel going forward

Mark Martin, Chief Executive Officer, commented:

"I am very pleased with the progress that Exillon has made in the first six months of the year. We have increased oil production by 48% and EBITDA by 98% compared to the same period in 2011.

 The completion of our oil treatment and power generation facilities combined with our new entry point into Transneft pipeline network is expected to further improve EBITDA per barrel going forward and our new strategy of drilling wells at a 60 degree angle has materially increased each well's exposure to net pay resulting in higher average production levels from these wells.

Our strong cash position leaves us ideally placed to progress our development plans and I look forward to meeting investors in September to detail our plans to continue to expand our production, drive up our EBITDA per barrel and increase our audited reserves."

Contact Details:

Tom Blackwell

Email: [email protected]

Tel: +44 207 920 2330

A conference call with the Exillon Energy management to discuss this announcement will be held on Monday 3rd September 2012, at 12:00 BST. In order to register for participation in this call and to receive dial-in details, please contact Chris McMahon at M: Communications on +44 20 7920 2358 or [email protected].

Production[1]

We publish monthly production data, and therefore have already announced details of our production for the period. For reference we summarise below the monthly data published during the six month period, and also for July. Our production data for August will be published by 5th September.

Drilling

We announce wells when completed and tested. During the reporting period we announced the following wells: North EWS I - 61, East EWS I-51, East EWS I - 52, East EWS I - 54 and East EWS I - 53.

In addition we have drilled but not yet completed or announced three wells in ETP (Well 7601 on ETP III, Wells 5 and 2003 on ETP IV). We will announce the results of these well once they have been completed.

 "Completion" of a well involves various procedures such as casing, cementation, perforation and testing.

Dear Shareholders,

Exillon has enjoyed a very successful first six months to 2012, increasing oil production by 48% to 2.1 million barrels. Based on our drilling results, we reiterate our previous guidance that we expect to reach a daily production rate of 17,000 barrels per day by the end of 2012.

During the reporting period, our revenue increased 58% from US$88.4 million to US$140.0 million. Mainly as a result of rising production and improved efficiency, our netback (which we define as revenue less Mineral Extraction Tax, Export Duty and Transneft charges) rose 55% from US$28.7 million to US$44.5 million.

EBITDA increased 98% from US$7.8 million to US$15.5 million, whilst net profit fell from US$5.9 million to net loss of US$1.7 million. The growth in EBITDA was a result of continuing investment in our surface infrastructure and the success of our drilling and workover programme. EBITDA was equivalent to US$7.4 per barrel, compared to our budgeted figure of US$7.8. The fall in net profit was due to the lack of foreign exchange gains made in 2011, increased depreciation charges and the amortisation of shares awards made in 2011. No share awards have been made in 2012.

Our balance sheet is stronger than expected with US$138.5 million of cash and cash equivalents as at 30 June 2012, which is ahead of our originally budgeted cash balance. On 3rd February we increased our loan with Credit Suisse to US$100 million, at a reduced interest margin and with an extended maturity of 5 years. This 5 year facility is our only debt. As at 30 June 2012, debt was US$100.2 million, so our net cash position was US$38.3 million.

Operationally we have seen excellent results from our drilling programme this year. Drilling speeds in Exillon WS have been reduced to around 20 days per well. Our new strategy of drilling wells at a 60 degree angle has been successful, exposing double the net pay compared to vertical wells, and we have also begun to drill Exillon's first horizontal sidetrack wells. Our completion and cementing procedures have improved, and we have substantially increased our water injection rates to sustain the productivity of our fields.

In terms of infrastructure, we have completed our oil treatment and power generation facilities in both Exillon TP and Exillon WS, and in August we completed our own entry point into the Transneft pipeline network. The latter did not contribute to these 6 month results but will improve our EBITDA per barrel further in the second half of 2012, as well as guaranteeing our operational independence.

Drilling results in Exillon WS continue to exceed our expectations. The high natural flow rates, achieved without any well stimulation, demonstrate that the newly developed areas of our reservoir are thick and of high quality. The lack of any oil water contact to date in the North East of the EWS I field also indicates that a substantial increase in reserves in this area of the licence is likely when we conduct our annual reserves audit at the end of the year.

Strategically, on 12th January we announced the acquisition of the ETP VII licence in Timan Pechora, increasing our contiguous licence area at ETP by 61% to 344km2. We have completed our initial seismic exploration and modelling of these areas and are currently finalising our exploration plans for ETP VII and also for the ETP VI licence area that we acquired in 2011. We are also in the late stages of acquiring another substantial contiguous licence area for a modest acquisition cost which will increase our exploration potential further.

We have also made progress in controlling our central overhead costs. For example we have reduced our financial audit costs by 40%, and made a variety of other administrative savings.

We look forward to meeting investors and analysts on our forthcoming roadshow in September, during which we will set out our medium term plans in further detail. This will set out how we intend to continue to 1) expand our production 2) drive up our EBITDA per barrel and 3) increase our audited reserves.

Mark Martin

Chief Executive Officer

MATERIAL EVENTS AND TRANSACTIONS

Drilling Update

The following material events and transactions were announced relating to activity during the period:

Drilling Update - East EWS I - 51

Well East EWS I-51, which was spudded on 7 May 2012, was drilled in 20 days on the northern part of the East EWS I field. This was the first development well drilled from pad 5 following the success of exploration well 50 drilled last year.

The well flowed water-free oil naturally to the surface with a flow rate of 892 bbl/day on an 8 mm choke and 1,218 bbl/day on a 10 mm choke. The well encountered the Jurassic P reservoir at 1,861 meters, confirming 15.0 meters of effective vertical net pay within the Jurassic. Due to the trajectory of the well bore this exposed 30.7 meters of effective net oil pay for production.

Oil water contact in this area of the field was previously assumed at 1,872 meters, and well 51 was designed to test this assumption. The new well has not encountered an oil water transition zone and confirmed presence of oil at least 4 meters below the previously assumed oil water contact.

Drilling Update - North EWS I - 61

Well North EWS I - 61, which was spudded on 30 April 2012, was drilled in 31 days on the North EWS I field.

The well encountered the Jurassic P reservoir at 1,856m, confirming 9.5 meters of net oil pay. The well was drilled directionally with a high level of deviation (1.6km) to the north of Pad 6.

Drilling Update - East EWS I - 52

Well East EWS I - 52 was spudded on 18 June 2012 and drilled in 19 days on the northern part of the East EWS I field. The well flowed water-free oil naturally to the surface with a test flow rate of 692 bbl/day on an 8 mm choke. Only part of the net pay zone has so far been perforated. The well encountered the Jurassic P reservoir at 1,865 metres, confirming 21.7 metres of effective vertical net pay. Due to the angled trajectory of the well bore this exposed 40.6 metres of effective net oil pay for production.

The oil water contact in this area of the field had originally been assumed to be at 1,872 metres. The new well has not encountered an oil water transition zone and has confirmed the presence of oil at least 21 metres below the originally assumed oil water contact.

Drilling Update - East EWS I - 54

Well East EWS I - 54 was spudded on 29 May 2012 and drilled in 18 days on the northern part of the East EWS I field. The well flowed water-free oil naturally to the surface with a combined test flow rate of 721 bbl/day on an 8 mm choke.

The well encountered the Jurassic P reservoir at -1,857 metres sub-sea, confirming 14.9 metres of effective vertical net pay and 30 metres of effective measured net pay for production due to the angled trajectory of the wellbore. In addition the well encountered 4.5 metres of effective vertical net pay of pre-Jurassic reservoir. This was tested separately, and resulted in the natural flow rate to surface of 263 bbl/day on an 8 mm choke.

The oil water contact in this area of the field had originally been assumed to be at -1,872 metres sub-sea. The new well has not encountered an oil water transition zone and has flowed oil from a zone that is 10 meters below previously assumed oil water contact.

Drilling Update - East EWS I - 53

Well East EWS I - 53 was spudded on 19th July 2012 and drilled and cemented in 24 days on the northern part of the East EWS I field. The well encountered the Jurassic P reservoir at 1,875 metres, confirming 20.3 metres of effective vertical net pay. Due to the angled trajectory of the well bore, this exposed 38.4 metres of effective net oil pay for production.

The combined well flowed water-free oil naturally to the surface with a test flow rate of 828 bbl/day on a 8mm choke.

Financial

On 3rd February 2012 our wholly owned subsidiary Exillon Finance Limited ("Exillon Finance") signed a new term loan with Credit Suisse. Further details are given in Note 19 of these financial statements.

Acquisition

On 30 December 2011, Exillon acquired the Sinatiyskoye exploration and production licence in a state auction for a total consideration of USD 1.3 million. The licence is valid until 30 December 2036, and has been designated "ETP VII".

ETP VII borders the southern boundary of the Group's existing ETP II field, with its existing oil production infrastructure. The licence covers an area of 130.4 km². For reference, our existing six Exillon TP fields cover an area of approximately 214 km².

ETP VII is already largely covered by 2D seismic data which has identified eight significant geological structures. Tectonically the eastern part of ETP VII is located in the Khoreiverskaya depression, and the western part is at the intersection of Khoreiverskaya depression and Kolvinskiy swell. The potential of the licence relates to sediments in the lower Silurian period.

FINANCIAL REVIEW

The interim condensed consolidated financial information of Exillon Energy plc for the six month period ended 30 June 2012 has been prepared in accordance with IAS 34 "Interim Financial Statements". The condensed consolidated financial information and notes on pages 8 through to 23 should be read in conjunction with this review which has been included to assist in the understanding of the Group's financial position at 30 June 2012.

Summary

EBITDA for the six months ended 30 June 2012 increased by 98% to US$15.5 million compared to US$7.8 million for the six months ended 30 June 2011.

Net loss for the period, which includes depreciation costs, foreign exchange loss and share-based compensation amounted to US$1.7 million compared to net profit of US$5.9 million for the six months ended 30 June 2011.

Revenue

Our revenue for the six months ended 30 June 2012 increased by 58% year-on-year, reaching US$140.0 million (2011: US$88.4 million), of which US$83.9 million or 60% came from export sales of crude oil and US$56.1 million or 40% came from domestic sales of crude oil. This increase in revenue is attributable to:

·; An increase in production leading to a 43% increase in sale volumes from 1,374,536 bbl in 2011 to 1,966,861 bbl; and

·; An increase in average commodity prices: we achieved an average oil price of US$113/bbl (2011: US$107/bbl) for export sales and US$46/bbl (2011: US$42/bbl) for domestic sales.

Our netbacks for domestic and export sales are similar because of the effect of Export Duty. The increase is 55% from US$28.7 million to US$44.5 million year-on-year.

Operating Results

Operating costs excluding depreciation, depletion and amortisation increased to US$58.4 million (2011: US$35.5 million) following an increase in production of 48% to 2,100,162 bbl (2011: 1,423,276 bbl). The difference between the production volumes and sales volumes is due to the change in the oil inventory balance during the year. The increase in production costs is mainly related to the growth of mineral extraction tax from US$28.1 million in 2011 to US$45.0 million in 2012, as a result of both higher production volumes and increased average commodity prices in 2012 used in the calculation of the tax.

Depreciation, depletion and amortisation costs primarily relate to the depreciation of proven and probable reserves and other production and non-production assets. These costs totalled US$8.2 million (2011: US$5.8 million). The increase in DD&A costs is driven by higher production volumes and our increasing asset base.

Selling expenses for the six months ended 30 June 2012 of US$55.7 million (2011: US$36.5 million) is comprised of export duties of US$44.1 million (2011: US$27.5 million), transportation services of US$10.8 million (2011: US$8.1 million) and other selling expenses of US$0.8 million (2011: US$0.9 million). Transportation services include services provided by Transneft and transportation services from oil field to oil filling station. Export duty rates increased from the beginning of the period by 13%, from US$397.5 per tonne to US$448.6 per tonne reflecting the increase in crude oil prices. Export duty is reviewed by the Russian government on a monthly basis and is based on a formula that takes into account the average Urals price prevailing in the market between the 15th and 15th of the two months prior to the month of delivering the crude.

Administrative expenses (excluding share-based compensation expenses and share issuance costs) totalled US$10.7 million (2011: US$8.0 million). This is explained by an increase in headcount leading to an ensuing increase in salaries.

In 2012, interest income increased to US$1.6 million (2011: US$0.2 million) resulting from surplus cash being held on short-term deposits and VTB credit-linked deposits.

It should be noted that - in accordance with IFRS - a foreign exchange loss of US$0.04 million has been included in our net expense arising from the revaluation of foreign currency monetary items (cash and cash equivalents, accounts receivable and payable, other assets) using the closing rate at the reporting date. A larger foreign exchange loss of US$10.1 million has been applied directly to the consolidated statement of financial position as the part of translation reserve being the result of the translation of our net investment in our foreign operations.

As a result of the above, the Group reported a net loss after tax of US$1.7 million compared to a profit of US$5.9 million for the six months ended 30 June 2011.

Financial position

In February 2012 we received proceeds of US$14.3 million comprising the nominal value and accrued interest in relation to Eurobonds issued by EBRD.

In March 2012 we replaced our existing US$50 million loan facility by US$100 million facility with a LIBOR plus 6% interest rate and a term of 5 years. The previous loan had an interest rate of LIBOR plus 7% and a term of 3.5 years.

We ended the period in a strong financial position with US$138.5 million of cash and cash equivalents (2011: US$117.6 million) with outstanding borrowings of US$100.2 million, equivalent to a net cash position of US$38.3 million.

The increase in the cost of property, plant and equipment has been driven by the drilling of wells and further development of field infrastructure in Exillon WS and the launch of extensive field development in Exillon TP.

Principal risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group are set out on pages 18 to 19 of the Directors' Report section of the Annual Report for the year ended 31 December 2011, a copy of which is available on the Company's website at www.exillonenergy.com. The Board continually assesses and monitors the key risks of the business. The principal risks and uncertainties that could have a material impact on the Group's performance over the remainder of the financial year have not changed from those which are set out in the Group's 2011 Annual Report.

In accordance with DRT 4.2.7, we summarise below the principal risks that could have a material impact on our business for the remaining six months of the year:

Directors

A full list of Directors is maintained on the Group's website: exillonenergy.com.

Related parties

Related party transactions are given in note 24.

Statement of directors' responsibilities

The Directors of the Company hereby confirm that to the best of their knowledge:

(a) the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group as required by DTR 4.2.10(4); and

(b) the interim management report includes a fair review of the information required by DTR 4.2.7 (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year) and DTR 4.2.8 (being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period).

On behalf of the board of directors of Exillon Energy plc.

Mark Martin

Chief Executive Officer

Disclaimer

This statement may contain forward-looking statements concerning the financial condition and results of operations of the Group. Forward-looking statements are statements of future expectations that are based on the management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. The Company does not undertake any obligation to update publicly or revise any forward-looking statement as a result of new information, future events or other information.

Report on Review of Interim Condensed Consolidated Financial Statements

Exillon Energy Plc

Introduction

We have reviewed the accompanying interim condensed consolidated financial statements of Exillon Energy Plc, comprising the interim consolidated statement of financial position as of 30 June 2012 and the related interim consolidated statements of comprehensive income, changes in equity and cash flows for the six-month period then ended, and explanatory notes. Management is responsible for the preparation of these interim condensed consolidated financial statements in accordance with International Accounting Standard 34, "Interim Financial Reporting." Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim condensed consolidated financial statements consists of making inquiries, 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 International Standards on Auditing 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 accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with Accounting Standard 34, "Interim Financial Reporting."

[ ] August 2012

Address

EXILLON ENERGY PLC

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The notes on pages 12 to 24 are an integral part of this interim consolidated financial information.

EXILLON ENERGY PLC

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The notes on pages 12 to 24 are an integral part of this interim consolidated financial information.

EXILLON ENERGY PLC

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The notes on pages 12 to 23 form an integral part of this interim consolidated financial information.

EXILLON ENERGY PLC

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The notes on pages 12 to 23 form an integral part of this interim consolidated financial information.

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Background

The principal activity of Exillon Energy plc (the "Company" or the "Parent") and its subsidiaries (together "the Group") is exploration, development and production of oil. The Group's production facilities are based in the Republic of Komi and the Khanty-Mansiysk Region of the Russian Federation. The Group's structure is provided in Note 24.

Exillon Energy plc is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the Isle of Man. The Company was formed on 27 March 2008. Its registered address is Fort Anne, South Quay, Douglas, Isle of Man, IM1 5PD.

As at 30 June 2012, the largest shareholder has 30.2% (2011: 30.2%) in the Company's outstanding issued share capital.

The Group's operations are conducted primarily through its subsidiaries, Exillon TP and Exillon WS.

2. basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2012 has been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim financial reporting". The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs"). The operations carried out by the Group are not subjected to the seasonality or cyclicality factors.

3. going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position including financial risk factors are set out on pages 5 and 6. In carrying out their assessment, the Directors have considered the Company and the Group budgets, the cash flow forecasts, trading estimates, contractual arrangements, committed financing and exposure to contingent liabilities. The Directors believe that the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is adequately financed and the Group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

4. Retrospective restatement of errors

Foreign exchange gain of US$5,318 thousand for the six months ended 30 June 2011 attributable to the loans issued to the foreign subsidiaries of the Company the settlement of which is neither planned nor likely to occur in the foreseeable future, was reclassified from profit or loss to other comprehensive income through the retrospective restatement in accordance with IAS 8, "Accounting Policies, Changes in Accounting Estimates and Errors."

5. ACCOUNTING POLICIES

Accounting policies - the accounting policies applied are consistent with those of the annual consolidated financial statements for the year ended 31 December 2011.

The following amendments to the standards did not have any impact on the accounting policies, financial

position or performance of the Group:

·; IFRS 7, "Financial instruments: Disclosures" (amendment, effective on or after 1 July 2011);

·; IFRS 1, "Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters" (amendment, effective on or after 1 July 2011).

During the six months ended 30 June 2012 the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Critical accounting judgements and key sources of estimation uncertainty:

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2011.

6. OPERATING SEGMENTS

Management has determined the operating segments based on the reports reviewed by Directors that are used to make strategic decisions, who are deemed to be the chief operating decision maker ("CODM").

The Company manages its business as three operating segments, Exillon TP, Exillon WS andRegional Resources.

·; Exillon TP is an oil company based in the Timan-Pechora basin in the Komi Republic in the Russian Federation. The revenue is derived from extraction and sale of crude oil.

·; Exillon WS is an oil company based in Western Siberia in the Russian Federation. The revenue is derived from extraction and sale of crude oil.

·; Regional Resources is an oil trading company based in Moscow in the Russian Federation.

Segmental information for the Group for the six months ended 30 June 2012 is presented below:

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Segmental information for the Group for the six months ended 30 June 2011 is presented below (as restated):

Unallocated category represents costs of corporate companies that are managed at the Group level.

Management assesses performance of the operating segments based on EBITDA (Earnings before interest, tax, depreciation and depletion and exploration expenses) which is calculated as operating result plus depletion and depreciation, exploration and evaluation expenses.

Net back is defined as revenue less direct and indirect government taxation. The indicator calculated as revenue less Mineral Extraction Tax, Export Duty and Transneft transportation services.

Reconciliation of operating profit/(loss) to EBITDA for the six months ended 30 June 2012 is presented below:

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Reconciliation of operating profit/(loss) to EBITDA for the six months ended 30 June 2011 (as restated) is presented below:

7. revenue

8. cost of sales

9. selling expenses

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10. administrative expenses

11. Other income, net

12. earnings per share

Basic earnings per share ("EPS") is calculated by dividing net profit for the period attributable to owners of the Parent by weighted average number of ordinary shares outstanding during the period.

The following reflects the income and adjusted share data used in the EPS computations:

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. Property, plant and equipment

Decommissioning costs of US$3,514 thousand and US$3,747 thousand were included within oil and gas properties as of 30 June 2012 and 31 December 2011, respectively.

Cumulative capitalized borrowing costs of US$7,331thousand and US$4,432 thousand were included within oil and gas properties as of 30 June 2012 and 31 December 2011, respectively. Total borrowing costs incurred during the six months ended 30 June 2012 period amounted to US$3,079thousand and were capitalized in full.

Exploration and evaluation assets as of 30 June 2012 and 31 December 2011 comprise the ETP VI licence acquired in February 2010 and the ETP VII licence acquired in December 2011. Construction in progress relates to the construction of in-field infrastructure and drilling of oil wells commenced in 2011.

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14. Inventories

15. trade and other receivables

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base. Accordingly, the management of the Group believes that there is no further credit provision required in excess of the allowance for doubtful debts.

16. other assets

On 6 May 2011, the Group purchased Eurobonds issued by EBRD for the total consideration of $15,399 thousand. The financial instruments were denominated in RUR with the fixed interest rate of 6% and matured in February 2012 (Note 21).

EXILLON ENERGY PLC

NOTES OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

17. provision for decommissioning

In accordance with the licence agreements the Group is liable for site restoration, clean up and abandonment of the wells upon completion of their production cycle. The provision for future site restoration relates to obligations to restore the oilfields after use. All of these costs are expected to be incurred at the end of the life of wells after 2027. They depend on the estimated lives of the wells, the scale of any possible contamination and the timing and extent of corrective actions.

The unwinding of the discount related to future site restoration and abandonment reserve is included within finance costs. The management believes that this estimate of the future liability is appropriate to the size of the fields.

18. trade and other payables

19. borrowings

There is no material difference between the carrying amount and fair value of borrowings.

Credit Suisse - On 10 September 2010, the Group agreed a loan facility of US$50 million with a term of 3.5 years. Interest was charged at LIBOR plus 7%.

The first repayment of principal was made in January 2012 in compliance with the repayment schedule.

EXILLON ENERGY PLC

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In March 2012 the existing loan facility was replaced by a US$100 million loan facility with a term of 5 years. The loan bears an interest rate at LIBOR plus 6% and is repayable in equal quarterly instalments beginning from March 2014. The interest is payable quarterly with the first payment made in June 2012.

Unamortised borrowing costs of US$1,514 thousand incurred in relation to the previous loan facility of $50 million were written off to the statement of comprehensive income in March 2012.

Borrowing costs of US$2,160 thousand directly attributable to the extension of loan facility were immediately recognised in the statement of comprehensive income.

The loan is secured by a pledge of the 100% shares of certain Group's subsidiaries (Note 24): Exillon TP, Exillon WS, Regional Resources LLC, Ucatex Oil LLC, Kayumneft CJSC, Nem Oil CJSC, Komi Resources CJSC, Actionbrook Limited, Claybrook Limited, Diamondbridge Limited, Lanarch Limited, Halescope Limited, Vitalaction Limited, Corewell Limited, Touchskope Limited, Silo Holdings Limited and Exillon Finance Limited.

The loan is also secured with future revenue under export contracts and cash balances from a bank account opened in CJSC Bank Credit Suisse (Moscow).