Interim Results

PetroNeft Resources plc

("PetroNeft" or the "Company")

2011 Interim Results 

PetroNeft Resources plc (AIM: PTR) owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to report its results for the 6 months ended 30 June 2011.

Highlights: 

·; Maiden pre-tax profit of US$3.8 million

·; H1 production of 399,327 barrels of oil for the period

·; Major exploration success at Sibkrayevskaya with potential to increase Group reserves by at least 50%

·; Extension of Lineynoye field to the north has significant implications for overall structure size

·; New tax law passed which will boost future cash flows

·; Improved debt facility for up to US$75 million agreed with Macquarie Bank

Dennis Francis, Chief Executive Officer of PetroNeft Resources plc, commented:

"The first part of 2011 has been very busy with the highlights being the major discovery at Sibkrayevskaya and the extension of the Lineynoye field to the North. The coming months will see results from the remaining high impact exploration wells together with increasing production as the hydraulic fracturing programme proceeds."

For further information, contact:

PetroNeft Resources Plc

 Chairman's Statement

Dear Shareholder,

To date, 2011 has seen further significant progress for PetroNeft. Our exploration programme has resulted in our largest discovery to date at Sibkrayevskaya and drilling results at two of our other targets are due in September. On the production well drilling, while we had a disappointing result at Pad 3 to the south, we have significantly extended the Lineynoye oil field beyond previous estimates to the north of Pad 2 where we continue to encounter encouraging net oil pays in the northern portion of the field. On balance, we expect the Lineynoye field reserves to remain about as predicted earlier, while very substantial reserves will be added at year-end as a result of our 2011 exploration drilling programme.

Production

Production in the six months to 30 June 2011 was 399,327 barrels of oil or an average of 2,182 bopd. During January and February most of the wells were offline in order for the hydraulic fracturing programme to be carried out. This programme achieved good results and provided essential information that will help us optimise the design of these programmes in the future to achieve even better results.

Beginning in October 2011, we plan to carry out a new fracture stimulation programme of about eight wells primarily focussed on new wells at Pad 2. In the first quarter of 2012 we will carry out a further fracture stimulation programme on the remaining wells drilled during 2011 and, depending on the results, we may also re-frac some of the Pad 1 wells that initially had smaller fracture stimulations carried out in early 2011.

Development drilling programme

At the beginning of 2011 we planned to drill 17 new production wells at the Lineynoye oil field, nine at Pad 2 and eight at Pad 3. We now expect to drill a total of 14 or 15 wells this year, all but two of which will be from Pad 2.

At Pad 2 we have now drilled ten wells and expect to drill two or three more before the year end. The principal reasons for adding wells at this location were the thicker than expected net pay encountered and discovering that the field extends further north than expected. At Pad 3 the first two wells encountered thinner net pays than anticipated and we took the decision to suspend drilling from this pad in order to test the two wells over the coming months and re-allocate technical and financial resources to drill additional wells north of Pad 2 where thicker pays have been encountered.

The results at Pad 3 led us to amend our near term production targets at the end of June 2011. While we will lose some reserves from the Pad 3 area when we compile our year end reserve report we are confident that this will be substantially offset by reserve additions north of Pad 2. The results we are achieving from the drilling at Pad 2, combined with updated seismic interpretations that incorporate the drilling results, also indicates that not only are the Lineynoye and West Lineynoye oil fields connected but that the overall Lineynoye field could extend significantly further north and be connected to the Emtorskaya high north of Lineynoye.

Exploration

Five exploration/delineation wells will be drilled in 2011, three at Licence 61 and two at Licence 67. Two have been drilled to date, one of which led to our largest discovery to date at Sibkrayevskaya. The third and fourth wells are in progress and their results should be available shortly.

Licence 61

The Kondrashevskoye No. 2 well was completed in June 2011 and encountered 2.3 m of net pay in the J1 interval, similar to the 2008 discovery well. The well tested high quality 41⁰ API gravity crude oil at a prorated inflow rate of 32 bopd on a short open hole test (without stimulation). As neither Kondrashevskoye well encountered the oil water contact for the field we sidetracked the No. 2 well down-dip to locate the oil water contact and determine the full reserve potential of the field. The reservoir interval of 3 metres in the sidetrack section was slightly thicker than in the vertical well with the top metre of the reservoir being oil bearing. Production casing has been run and cemented in the well so it can be used when the field is developed.

Based on these results, the well has most likely confirmed the existing independent Ryder Scott 2P reserves of 8.1 mmbo attributed to the field and we will now update the reserves with the Russian State Reserve committee in preparation for field development. The exact timing of development will depend upon how the economics of this field compares with other nearby fields, most notably Arbuzovskoye.

The second well in this year's programme was drilled at the Sibkrayevskaya prospect. The well was spudded in July and target depth was reached in early August.

The Sibkrayevskaya No. 372 well was a follow up to well No. 370 which was drilled in 1972. A comprehensive re-interpretation of the vintage well logs and drilling data from the 370 well using digitised logs and modern interpretation tools had indentified potential "missed pay" of 8.4 metres in the Upper Jurassic J1 interval. In the new well, the Upper Jurassic J1 oil reservoir horizon was intersected as expected and encountered 12.3 metres of net pay, exceeding pre-drill estimates. An open hole test was conducted over this interval and tested at a pro-rated inflow of 170 bopd unstimulated. The oil is of good quality with an API gravity of 37 degrees, which is consistent with other fields in Licence 61. The well has now been cased and a programme of drill stem testing is in progress.

Sibkrayevskaya is a very large structure which will require additional seismic and well delineation. The 372 well was drilled in a flank position on the structure and current mapping shows an area of over 50 square kilometres up dip from the oil-down-to level defined in the well. Current indications are that the ultimate recoverable reserves in the field are likely to be significantly larger than the 44 million barrel pre-drill estimate defined by Ryder Scott and the field will certainly be an important commercial development project for PetroNeft. The discovery also extends the area of known oil to the northeast corner of the licence area and improves the prospectivity of other structures in this area.

The final well to be drilled at Licence 61 in 2011 is at North Varyakhskaya. This well was spudded in August and a result is expected in September.

Licence 67

Two exploration wells are planned at Licence 67 in 2011. The first well, at the large Cheremshanskaya prospect, was spudded in late August. The well is targeting three separate horizons at the Upper, Middle and Lower Jurassic zones. Each horizon will be cored, tested and logged separately and initial results are expected in late September with results of lower horizons coming in October.

The second well at Licence 67 is at the Ledovoye oil field to delineate the Upper Jurassic zone but also targeting the Lower Cretaceous horizon. This well will spud in November with results expected in December.

Successful debt refinancing

In March 2011 PetroNeft agreed a revised debt facility with Macquarie Bank. The new loan is a longer term scalable borrowing base facility with increased flexibility at lower cost. Under the three year loan the initial available amount will be US$30 million with potential to increase up to US$75 million through the addition of new discoveries and developments subject to credit approval. The borrowing base will be reviewed every six months. The first review was completed in July 2011 and re-confirmed the US$30 million availability.

Financial results for the period

The net profit after tax for the period was US$3,067,178 (June 2010 loss: US$(5,287,356)). The profit includes a foreign exchange gain of US$5,969,474 on loans denominated in US Dollars, Russian Roubles and Euro from PetroNeft to its Russian subsidiaries Stimul-T and Lineynoye whose functional currency is the Russian Rouble.

Tax changes in Russia

In July 2011 President Medvedev signed into law an amendment to the law governing Mineral Extraction Tax ("MET"). The amendment introduces discounted rates of MET for new oil fields with initial recoverable reserves of less than five million tonnes (about 37 million barrels). The standard rate of MET can be reduced by up to 50% depending on the size of the oil field. This new law will significantly enhance the value and cash generation potential of the Arbuzovskoye, Kondrashevskoye, Tungolskoye and Ledovoye oil fields once they are brought into production. For example, production from the Arbuzovskoye oil field will qualify for a 46% discount to the standard rate of MET.

Separately, recent media reports suggest that the highest rate of export duty on crude oil will be reduced from 65% to 60% possibly as early as 1 October 2011. Such a change would further improve the profitability and cash flows from all of our oil fields.

Conclusion

The first half of 2011 has been a busy period for PetroNeft in terms of both production and exploration. While the Lineynoye production rate build up has been slower than desired we have learned key lessons from the work carried out to date and the outlook for growing our production this year and in future years is very good. We are particularly pleased with the extension of the field to the north and the implications this has for the overall size of the field and its connection with other structures.

Now that we are getting in to the heart of our exploration programme for 2011, I look forward to bringing you further good news to supplement the major success already achieved at Sibkrayevskaya where it is likely we have increased Group reserves by at least 50%. On behalf of the Board I would like to thank the management and staff for their tremendous efforts in this period.

David Golder

Non-Executive Chairman

1. Corporate information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2011 were authorised for issue in accordance with a resolution of the Directors on 19 September 2011.

PetroNeft Resources plc ('the Company', or together with its subsidiaries, 'the Group') is a Company incorporated in Ireland. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland.

The principal activities of the Group are oil and gas exploration, development and production.

2. Accounting policies

2.1 Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2011 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2010 which are available on the Group's website - www.petroneft.com.

The annual financial statements as at 31 December 2010 were audited by Ernst and Young in accordance with section 193 of the Companies Act, 1990. The audit report issued by Ernst and Young was unqualified and did not include a reference to any matter to which the auditors drew attention by way of emphasis without qualifying their audit report.

The interim condensed consolidated financial statements are presented in US dollars ("US$").

2.2 Significant Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2010.

3. Segment information

At present the Group has one reportable operating segment, which is oil exploration and production. As a result, there are no further disclosures required in respect of the Group's reporting segment.

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations. This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

Management monitors and evaluates the operating results for the purpose of making decisions consistently with operating profit or loss in the consolidated financial statements.

Geographical segments

All of the Group's sales are in Russia. Substantially all of the Group's capital expenditures are in Russia.

During 2010 the Group paid a deposit of US$400,000 to Nord Imperial for the usage of their pipeline. This deposit will be returned at the end of the contract which is in 2033. In the interim consolidated financial statements this deposit has been discounted and the reversal of a discount of US$30,522 has been taken to finance costs in the current year.

The net book value at 30 June 2011 includes US$37,512,574 (31 December 2010: US$17,288,826) in respect of assets which are not yet being depreciated.

Additions are construction works mainly in relation to new production wells, the Central Processing Facility and oilfield infrastructure.