Interim Results

MAX PETROLEUM PLC

("MAX PETROLEUM", THE "COMPANY" AND TOGETHER WITH ITS SUBSIDIARIES, THE "GROUP")

[AIM: MXP]

2014 INTERIM RESULTS ANNOUNCEMENT

3 December 2014

Max Petroleum, an oil and gas exploration and production company focused on Kazakhstan, today announces its interim results for the six months ended 30 September 2014.

HIGHLIGHTS

Financial highlights:

· Agreed a conditional strategic investment with AGR Energy that would raise £37.1 million (approximately US$58 million) before expenses and result in AGR Energy holding 51% of the Company's share capital on completion. This investment remains subject to the approval of the Group's lender, Sberbank, and the Ministry of Energy of the Republic of Kazakhstan.

· The investment by AGR Energy will strengthen the Group's balance sheet and increase its financial resilience as well as enable the Group to fund its planned post-salt capital programme.

· Revenue of US$54.1 million during the six months ended 30 September 2014, up 17% compared to US$46.3 million during the six months ended 30 September 2013.

· Cost of sales of US$37.6 million during the six months ended 30 September 2014, compared to US$37.7 million during the six months ended 30 September 2013. Underlying operating costs2 were US$35.38 per bbl, down 15% from US$41.40 per bbl during the six months ended 30 September 2013.

· Administrative expenses of US$4.8 million during the six months ended 30 September 2014, down 37% from US$7.6 million during the six months ended 30 September 2013. Excluding share-based payment charges, administrative expenses were down 24%.

· Adjusted EBITDA was US$23.1 million for the six months ended 30 September 2014, up 67% compared to US$13.8 million for the six months ended 30 September 2013.

· Before movements in working capital (see note 19), cash generated from operations was US$20.9 million during the six months ended 30 September 2014, up 51% compared to US$13.8 million during the six months ended 30 September 2013. After movements in working capital, cash generated from operations was US$27.5 million, up 185% compared to US$9.6 million during the six months ended 30 September 2013.

· Capital expenditure of US$10.8 million during the six months ended 30 September 2014, down 68% compared to US$33.4 million during the six months ended 30 September 2013. Drilling operations have been suspended since June 2014 to preserve cash pending the arrangement of additional finances.

· Recognised provision for impairment of US$6.8 million in respect of VAT receivable in Kazakhstan.

· The Group is highly geared, with US$82.8 million outstanding under the Sberbank loan as at 30 September 2014, due to be repaid in quarterly instalments by November 2017. Since July 2014, Brent crude oil prices have fallen significantly, which has had an adverse effect on the Group's cash flows. If the receipt of proceeds from the investment by AGR Energy is delayed, assuming that Brent crude prices remain at or below current levels, the Group will not be able to continue servicing its interest and principal payments under the Sberbank loan as they fall due, starting with the US$6.8 million principal repayment due in March 2015.

· The Group is working closely with Sberbank on a loan restructuring and is seeking to agree a moratorium on principal payments due in 2015 and an extension of the maturity of the loan.

2 Underlying operating costs are defined as cost of sales less depreciation, depletion and amortisation (see note 6). Underlying operating costs comprise costs of production, mineral extraction tax, selling and transportation costs and export taxes.

Operational highlights:

· Average daily production of 4,239 barrels of oil per day ("bopd") during the six months ended 30 September 2014, up 17% compared to 3,630 bopd during the six months ended 30 September 2013 and up 2% compared to 4,170 bopd for the six months ended 31 March 2014.

· Drilled four post-salt wells, including two successful appraisal wells at East Kyzylzhar I and a successful development well at Zhana Makat.

· Commissioned a new oil pipeline and associated terminal facility in June 2014 that has resulted in a reduction of transport costs of approximately US$4.0 per bbl for production from the Zhana Makat, Borkyldakty, Sagiz West and East Kyzylzhar I fields.

· Implemented a cost-cutting initiative to reduce corporate overheads, including headcount reductions, closure of the Group's Houston office and relocation of the London office.

· The Asanketken field was granted full field development status in October 2014, allowing the Group to export 80% of the field's production.

· The Sagiz West, East Kyzylzhar I and Baichunas West fields are on track to gain trial production status by mid-2015, allowing for continuous production from all wells at those fields, which is expected to bring on stream in excess of 1,500 bopd of production.

Key Performance Indicators (KPIs)

The Group's key financial and performance indicators during the interim period were as follows:

1 Underlying operating cost is defined as cost of sales less depreciation, depletion and amortisation (see note 6 to the accompanying financial information).

2 Adjusted EBITDA is defined as profit/(loss) before finance costs, income tax expense, depreciation, depletion and amortisation, share-based payment expense, exploration and appraisal costs and impairment losses. Adjusted EBITDA is a non-IFRS performance measure with no standard meaning under IFRS, and is reconciled to the income statement in note 24 to the accompanying financial information.

Enquiries:

Kenneth Hopkins, Chief Operating Officer of Max Petroleum Plc, is the qualified person that has

reviewed and approved the technical information contained in this announcement. Mr Hopkins holds a

Bachelor of Science degree in Marine Sciences and a Master of Science degree in Geology from

Texas A&M University and is a certified petroleum geologist with 32 years of experience in the oil and

gas industry.

CHAIRMAN'S STATEMENT

Dear Shareholder,

Max Petroleum made positive operational progress but was faced with financing challenges and a deteriorating oil price environment during the six month interim period ended 30 September 2014.

Operational progress continued during the period despite the suspension of discretionary capital expenditure. The Asanketken field gained Full Field Development ("FFD") status in October 2014 and the Group is now able to export 80% of the field's continuous production, together with production from the Zhana Makat and Borkyldakty fields. The Group has continued to plan for and advance the procurement of the infrastructure which will be required for the commercial production of the Sagiz West and East Kyzylzhar I fields. These fields are expected to be approved for Trial Production Project ("TPP") status by mid-2015, enabling them to enter continuous production. The Group also achieved record half-year average production of 4,239 bopd during the interim period. Most recently, the Group achieved record monthly average production of 4,733 bopd during October 2014, including approximately 3,400 bopd from fields on continuous production, supplemented by test production from Sagiz West and East Kyzylzhar I, which is expected to decline and cease by the end of 2014.

During the six months ended 30 September 2014, Max Petroleum has reduced its costs of production, marketing and transport and substantially cut administrative expenses. The Group has put into successful operation new pipeline and terminal facilities and drilled and completed three successful appraisal and development wells. Revenue and adjusted EBITDA for this interim period have both advanced strongly to US$54.1 million and US$23.1 million, respectively, up 17% and 67% respectively on the comparative period in 2013. During the period, the Group repaid US$5.1 million of the total owing under the credit facility with SB Sberbank JSC ("Sberbank"), leaving a balance of US$82.8 million outstanding at 30 September 2014 (the "Sberbank Loan").

The Group has made excellent progress towards closing the proposed £37.1 million subscription by AGR Energy Limited No. I (the "Subscription" and "AGR Energy", respectively), with overwhelming support given by the Group's shareholders at the General Meeting held on 1 December 2014. The Subscription is for 2,264,093,462 new ordinary shares, at a price of 1.64p per share, a 111.6% premium to the closing middle market price of an ordinary share of 0.775p on 11 November 2014, the last business day prior to the publication of the circular for the General Meeting. The Subscription is still subject to the approval of the Group's lender, Sberbank, and the Ministry of Energy of the Republic of Kazakhstan, which the Group anticipates will be received in due course.

Following the shareholder approval of the Subscription on 1 December 2014, the review of strategic options and the formal sale process announced on 22 July 2014 has come to an end after no deliverable proposal was put forward to the Board.

Against this robust underlying performance, the Group has had to weather a sudden plunge in Brent crude oil prices since July 2014, which has severely affected the Group's cash flows and impacted its expected ability to service principal payments on the Sberbank Loan due during 2015. In the short term, the directors are focused on managing the liquidity of the Group, including honouring the US$3.2 million principal payment due to Sberbank in December 2014, pending a comprehensive restructuring of the Sberbank Loan in due course, and the expected receipt of the Subscription proceeds.

The Group is focused on both managing its debt commitments and ensuring value is retained for shareholders. It is determined to maximise value from, and evaluate the upside potential of, its post-salt assets, as well as to preserve its option to re-enter and finish the NUR-1 pre-salt well.

Update on investment by AGR Energy

The proposed Subscription by AGR Energy to purchase a 51% stake in Max Petroleum for £37.1 million (approximately US$58 million) was approved by shareholders at a General Meeting on 1 December 2014. The final closing of the Subscription and the funding of the Group remains subject to the approval of Sberbank, including an acceptable revision of Max Petroleum's credit relationship with Sberbank, and receipt of regulatory approvals in Kazakhstan. The directors continue to work diligently on progressing the necessary approvals and closing the Subscription as quickly as possible.

When the Subscription is complete, the investment by AGR Energy should enable the Group to fund its planned capital programme to develop its post-salt fields and maximise reserves and production. In addition, Max Petroleum would be in a strengthened position to attract financial or industry partners to help finish its pre-salt NUR-1 well and to secure an extension of the exploration period of its Blocks A&E Licence in western Kazakhstan to enable it to have time to finish drilling NUR-1 and, if it is successful, the Kurzhem well. The Group would also be able to consider investment in other projects in Kazakhstan and across Central Asia that complement its existing activities.

Update on Sberbank Loan

The decline in Brent crude oil prices, which have fallen significantly since July 2014, has had an adverse effect on the Group's current cash flows and, if oil prices remain at or below current levels, will have an adverse effect on future cash flows. Assuming both that Brent crude oil prices remain at or below current levels and that the Group's capital programme remains suspended, the Group's current cash flow forecasts indicate that the Group will not be able to continue servicing its interest and principal payments under the Sberbank Loan as they fall due, starting with the US$6.8 million principal payment due in March 2015.

The Group is planning to make the principal payment due in December 2014, amounting to US$3.2 million, in full and on time.

The Group is working closely with Sberbank on a loan restructuring and is seeking to agree a moratorium on principal payments due in 2015 and an extension of the maturity of the loan. This would allow the Group to reinvest its cash flow from operations into its capital expenditure programme to develop its post-salt assets in the near term. Sberbank's consent is also required for the Subscription, which is conditional on a satisfactory loan restructuring.

If Sberbank and the Group agree a moratorium on principal payments due in 2015, any significant delays or underperformance of production or revenue targets or timing would require the Group to obtain additional debt or equity capital, such as through the Subscription by AGR Energy, to continue in operation. If the AGR Energy Subscription were not to proceed, due to an absence of regulatory approval or for any other reason, it is not certain that alternate additional debt or equity financing would be available.

The directors have concluded that the uncertainties that the Subscription does not complete or that additional debt or equity financing is not available and that the Group is unable to defer principal repayments under the Sberbank Loan represent material uncertainties that may cast significant doubt about the Group's ability to continue as a going concern. More information can be found in the liquidity and capital resources section of this announcement.

Production and operations

During the six months ended 30 September 2014, the Group has been able to produce from the Zhana Makat, Asanketken and Borkyldakty fields continuously, with these three fields generating average production of approximately 3,600 bopd. Additionally, the Group has tested appraisal wells at the Sagiz West and East Kyzylzhar I fields, generating a variable amount of Test Production. Cumulatively, the Group produced a total of 776,000 bbls during the interim period, or an average of 4,239 bopd, an increase of 17% from total production of 664,000 bbls, or 3,630 bopd, during the comparative period in 2013, and 2% higher than the 4,170 bopd produced during the six months ended 31 March 2014.

The Zhana Makat and Borkyldakty fields operated with FFD status for the whole interim period and could produce continuously, with 80% of the production from these fields eligible for export. The Asanketken field operated with TPP status and was therefore able to produce continuously during the interim period, but with the field's production only eligible for sale domestically within Kazakhstan. In October 2014, after the interim period, Asanketken was granted FFD status and therefore 80% of production from this field can now be exported, generating a higher selling price and an after tax netback that has historically been US$15 to 25 per bbl higher than that for domestic oil sales. Currently, the Zhana Makat, Borkyldakty and Asanketken fields are producing approximately 3,400 bopd, resulting in approximately 2,700 bopd available for export. Most recently, the Group achieved record average monthly production of 4,733 bopd during the month of October 2014, which included Test Production from the Sagiz West and East Kyzylzhar I fields.

Until TPP is granted, each productive zone within a well can be tested for up to 90 days ("Test Production"). Once all available zones have been evaluated, production from the well needs to be shut-in. The rate of production from fields on Test Production can be highly variable. It is estimated that Test Production from the Sagiz West and East Kyzylzhar I fields will decline from current levels and cease by the end of 2014 as a result of wells being shut-in once their 90 day production limits per zone are reached. These two fields, as well as the Baichunas West field, are expected to progress to TPP status by mid-2015 which will permit continuous production from all the wells in each field. When all the wells at the Sagiz West and East Kyzylzhar I fields are able to be produced under TPP, it is anticipated they will bring on stream in excess of 1,500 bopd of additional production.

Cost-cutting

Compared to the six months ended 30 September 2013, there have been substantial reductions in operating and administrative costs during the interim period following the corporate and management restructuring implemented earlier in 2014.

Average production costs during the six months ended 30 September 2014 were US$7.09 per bbl, down 24% compared to US$9.34 per bbl during the comparative period. A major contributor to this cost reduction has been the introduction of water re-injection facilities at Asanketken, which has reduced water haulage costs significantly by approximately US$3.5 million per annum. Additionally, as production levels have increased, on a per barrel basis, fixed field operating costs have reduced.

Average selling and transportation costs have reduced by 30% from US$11.74 per bbl during the prior interim period to US$8.26 per bbl during the six months ended 30 September 2014. There was a substantial reduction in oil trucking costs from Asanketken, with oil now being transported to a terminal located 40 km from the field rather than going to the Zhamansor and Kulsary terminals, leading to a saving of transportation costs of approximately US$4 per bbl on volumes produced from this field. Selling and transportation costs for production from the Group's other fields have also decreased since June 2014 by approximately US$4 per bbl as a result of the successful commissioning of the Group's pipeline and associated Makat oil terminal facility.

The 19% devaluation of the Kazakhstan tenge in February 2014 has also contributed to a reduction of tenge denominated operating costs, when measured in US dollars.

Excluding share-based payment expense, administrative expenses were also down 24% to US$4.6 million, compared to US$6.1 million during the equivalent six month period a year ago, as a result of the implementation of the Group's cost-cutting initiative announced in January 2014. During the interim period, the Houston office was closed and the London office has been downsized.

Post-salt drilling programme update

The Group's drilling programme remains focused on appraisal and development in order to advance its understanding of its discoveries, design field development plans and to produce the necessary data to advance each field through the regulatory process from Test Production to TPP and then FFD.

During the six months ended 30 September 2014, Max Petroleum drilled four post-salt wells, including two successful appraisal wells at East Kyzylzhar I and a successful development well at Zhana Makat. Since June 2014, the post-salt drilling programme has been suspended, pending additional financing.

The next well to be drilled, once there is available financing, is expected to be the ZMA-E8 appraisal well testing a possible extension of the Zhana Makat field, which, if successful, would require further drilling to appraise and develop this part of the field.

Ryder Scott Company, the Group's competent person, are in the process of preparing a reserve report for the Group's post-salt fields as of 30 September 2014, which will be released when it is complete, expected in early 2015.

Post-salt potential

In addition to the continuing appraisal of the fields discovered by the Group to date, which includes the potentially material extension to the Zhana Makat field targeted by the ZMA-E8 well, there are several potential new appraisal targets located within the Group's Blocks A&E Licence area, where data on reserves attributed to historic wells drilled in the Soviet era are being evaluated. Should this process conclude that there is potential to resume production from these wells or that potentially new wells could be drilled, then the Ministry of Energy will be approached to grant permission for the Group to undertake further appraisal work. Further work is necessary ahead of a decision as to whether to proceed with this appraisal work, which would also be subject to funding being available.

Pre-salt potential

The Board continues to believe in the substantial upside potential of the NUR prospect, targeting 467 mmboe of unrisked mean resources, but the Group requires additional financing of approximately US$20 to US$25 million to complete the drilling of the NUR-1 well. The Group is not currently engaged in active discussions to finance the re-entry of NUR-1.

Given the very large upside potential of a deep, pre-salt discovery, the Group continues to believe it has a realistic chance of attracting the necessary funding and securing the licence extension required to finish NUR-1. Securing a licence extension and the necessary funding in order to finish the well and evaluate this high potential target remain one of the primary objectives for the Group and the Subscription by AGR Energy is expected to provide additional funding and resources to support this objective.

Work programme shortfall

Under the terms of its Blocks A&E Licence, the Group is committed to certain future expenditures which include a work programme, agreed with the Ministry of Energy of the Republic of Kazakhstan (the "MOE") that covers future exploration and production activities in Blocks A&E. Qualifying exploration, development and operating expenditure incurred by the Group are deductible from these future commitments.

The Group's total commitment under the work programme for the calendar year ending 31 December 2014, as amended in October 2014, is US$99.8 million. As of 30 September 2014, the Group's actual expenditure under the work programme for the calendar year to date amounted to US$29.6 million. As discussed above, the Group has suspended its capital expenditure programme pending the completion of the Subscription or financing by alternative additional debt or equity. Although the Group will continue to incur qualifying operating expenditure between 30 September 2014 and 31 December 2014, given the suspension of its capital expenditure programme, the Group expects there will be a shortfall against its commitments under the current work programme for 2014. The MOE has the ability to impose a fine on the Group of up to 30% of this shortfall. The Group is working with the MOE to put in place the necessary regulatory approvals to defer the shortfall on the 2014 work programme to future years, and accordingly, the Group has not made any provision for potential fines in the financial statements for the six months ended 30 September 2014.

Liquidity and capital resources

The Group finances its appraisal and development activities using a combination of cash on hand, operating cash flow generated from the sale of crude oil production, borrowings under the Sberbank Loan and additional debt or equity, as required.

The Group has plans to develop its existing post-salt fields in order to maximise reserves, production and cash flow. However, in order to carry out the post-salt development programme, focused on the development of the Group's key fields, the directors have identified an additional capital requirement of up to US$20 million during calendar year 2015, in addition to funding required to make the principal payments required under the Sberbank Loan. The Group's capital expenditure programme is currently suspended pending additional debt or equity financing.

The Group is highly geared, with US$82.8 million outstanding under the Sberbank Loan as at 30 September 2014, due to be repaid in quarterly instalments by November 2017. The Group is currently in compliance with its covenants and has paid all interest and principal payments in full when due. The next principal payment of US$3.2 million is due in December 2014, followed by US$6.8 million in March 2015 and thereafter US$6.6 million per quarter through November 2017. The Group is planning to make the principal payment due to Sberbank in December 2014, amounting to US$3.2 million.

Since July 2014, Brent crude oil prices have fallen significantly, which has had an adverse effect on the Group's current cash flows and, if oil prices remain at or below current levels, will have an adverse effect on future cash flows. Assuming both that Brent crude oil prices remain at or below current levels and that the Group's capital programme remains suspended, the Group's current cash flow forecasts indicate that the Group will not be able to continue servicing its interest and principal payments under the Sberbank Loan as they fall due, starting with the US$6.8 million principal payment due in March 2015. The directors have entered into discussions with Sberbank with a view to seeking to agree, as soon as possible, a moratorium on principal payments, including the US$6.8 million principal payment due in March 2015, and the restructuring of the Sberbank Loan.

Even if Sberbank and the Group agree a moratorium on principal payments under the Sberbank Loan, any significant delays or underperformance of production or revenue targets or timing would require the Group to obtain additional debt or equity capital, such as the funding from the Subscription by AGR Energy, to continue in operation.

On 1 December 2014, the Company's shareholders approved a conditional cash subscription by AGR Energy which would raise £37.1 million (approximately US$58 million) before expenses. The Subscription would enable the Group to meet its obligations under the Sberbank Loan pending the restructuring of the repayment schedule discussed above. The Subscription would also enable the Group to fund its planned capital programme to develop its post-salt fields and maximise reserves and production. The Subscription remains subject to the approval of the Group's lender, Sberbank, and the Ministry of Energy of the Republic of Kazakhstan. The Group expects to receive these required approvals in due course. The risk that the necessary approvals to complete the Subscription are not received creates an uncertainty about whether the Subscription proceeds of approximately US$58 million will be received by the Group. In the event that the necessary approvals are not received and the Subscription (or a similar infusion) does not proceed, there is an uncertainty whether additional debt or equity financing will be available.

Any delay in the closing of the Subscription and funding of the Group is likely to have a severely adverse effect on the Group's liquidity and solvency, especially in the context of the significant recent decline in Brent crude oil prices.

The directors have concluded that the uncertainties that the Subscription does not complete or that additional debt or equity financing is not available and that the Group is unable to defer principal repayments under the Sberbank Loan represent a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

However, the directors have a reasonable expectation that the Subscription will complete and therefore that the Group will be able meet its obligations under the Sberbank Loan and that it will continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing these financial statements. These financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

During the interim period, Max Petroleum's operations have demonstrated the Group's strengths in terms of production growth, cost control and the ability to progress assets through the regulatory process in Kazakhstan. This operational progress is testament to the skill and commitment of the Max Petroleum operational team. Recently the twin burdens of a rapid repayment schedule for a substantial amount of debt, combined with a deep reduction in oil prices have created a major financing challenge for the Group. However, the offer by AGR Energy to invest approximately US$58 million in the Group demonstrates the attractiveness of the Max Petroleum operating platform in Kazakhstan and the underlying value of the business. The work that is ongoing to restructure the debt repayment schedule with Sberbank promises, if it is successful, to provide the Group with the necessary time to generate cash from operations to manage the pay-down of the Sberbank Loan. Once again, I must convey to shareholders my thanks for their support and their patience as we work towards a positive resolution of the financing challenge we currently face.

James A Jeffs

Executive Chairman

Independent Review Report to Max Petroleum Plc

Introduction

We have been engaged by the Company to review the condensed consolidated financial information in the interim financial report for the six months ended 30 September 2014, which comprises the income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and related notes. We have read the other information contained in the interim 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 financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated financial information included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated financial information in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with 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 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 consolidated financial information in the interim financial report for the six months ended 30 September 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.

Emphasis of matter

In forming our conclusion on the condensed consolidated financial information, which is not modified, we have considered the adequacy of disclosures in Note 2 to the condensed consolidated financial information concerning the Company's ability to continue as a going concern which indicated that there are material uncertainties regarding the Company's ability to continue to borrow funds under the Sberbank Loan, including making principal repayments and the outcome of current and ongoing fundraising activities intended to support the Company's operations for the foreseeable future. Should the Sberbank Loan be withdrawn and/or the proposed subscription be unsuccessful, the Company may no longer be a going concern. These conditions, along with the other matters explained in note 2 to the financial statements, indicate the existence of material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern. The condensed consolidated financial information do not include the adjustments that would result if the Company was unable to continue as a going concern.

PricewaterhouseCoopers LLPChartered Accountants2 December 2014London

Notes:

The maintenance and integrity of the Group's website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

MAX PETROLEUM PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2014

(in thousands of US$)

The notes form an integral part of this condensed consolidated financial information.

MAX PETROLEUM PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 September 2014

(in thousands of US$)

The notes form an integral part of this condensed consolidated financial information.

MAX PETROLEUM PLC

CONDENSED CONSOLIDATED BALANCE SHEET

At 30 September 2014

(in thousands of US$)

The notes form an integral part of this condensed consolidated financial information.

MAX PETROLEUM PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 September 2014

(in thousands of US$)

The notes form an integral part of this condensed consolidated financial information.

MAX PETROLEUM PLC

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 September 2014

(in thousands of US$)

The notes form an integral part of this condensed consolidated financial information.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 September 2014

1. General information

Max Petroleum Plc ("Max Petroleum" or the "Company") and its subsidiaries (together the "Group") is in the business of exploration, development and production of oil and gas assets within the Republic of Kazakhstan. The Group owns the exploration and production rights to the Blocks A&E Licence (the "Licence"), which comprises two onshore blocks extending over 12,455 km2 in the Pre-Caspian Basin in Western Kazakhstan.

Max Petroleum is a public limited company incorporated and domiciled in the United Kingdom and quoted on AIM. The address of its registered office is Fourth Floor Ergon House, Dean Bradley Street, London, SW1P 2AL, United Kingdom.

The interim financial report for the six months ended 30 September 2014 was approved by the Board of Directors on 2 December 2014.

2. Basis of preparation and accounting policies

The annual financial statements of Max Petroleum are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The unaudited condensed consolidated financial information for the six months ended 30 September 2014 included in this interim financial report (the "interim financial report") has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union.

The interim financial report does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the consolidated financial statements in the Max Petroleum Annual Report and Accounts for the year ended 31 March 2014. The accounting policies adopted in the preparation of the interim financial report, the significant judgements made by management in applying the Group's accounting policies, and the key sources of estimation uncertainty are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 March 2014, except for the adoption of the following standards and amendments:

The adoption of the above new and revised standards has had no effect on the reported financial results or the disclosures in this interim financial report.

The Group's interim financial report does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 were approved by the Board of Directors on 19 August 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. The auditors' report on the statutory accounts for the year ended 31 March 2014, while unqualified, contained an emphasis of matter which drew attention to the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.

Principal risks and uncertainties

The Group is subject to various risks relating to political, economic, legal, social, industry, business and financial conditions. The directors do not consider that the principal risks and uncertainties of the Group have changed since the publication of the Annual Report and Accounts for the year ended 31 March 2014. The principal risks and uncertainties are more fully disclosed in note 26 of this interim financial report.

In addition, the Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The interim financial report does not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's Annual Report and Accounts for the year ended 31 March 2014 and there have been no changes to these risks or to any risk management policies since 31 March 2014.

Going concern

The Group finances its appraisal and development activities using a combination of cash on hand, operating cash flow generated from the sale of crude oil production, borrowings under its loan from SB Sberbank JSC ("Sberbank" and the "Sberbank Loan") and additional debt or equity, as required.

The Group has plans to develop its existing post-salt fields in order to maximise reserves, production and cash flow. However, in order to carry out the post-salt development programme, focused on the development of the Group's key fields, the directors have identified an additional capital requirement of up to US$20 million during calendar year 2015, in addition to funding required to make the principal payments required under the Sberbank Loan. The Group's capital expenditure programme is currently suspended pending additional debt or equity financing.

The Group is highly geared, with US$82.8 million outstanding under the Sberbank Loan as at 30 September 2014, due to be repaid in quarterly instalments by November 2017. The Group is currently in compliance with its covenants and has paid all interest and principal payments in full when due. The next principal payment of US$3.2 million is due in December 2014, followed by US$6.8 million in March 2015 and thereafter US$6.6 million per quarter through November 2017. The Group is planning to make the principal payment due to Sberbank in December 2014, amounting to US$3.2 million.

Since July 2014, Brent crude oil prices have fallen significantly, which has had an adverse effect on the Group's current cash flows and, if oil prices remain at or below current levels, will have an adverse effect on future cash flows. Assuming both that Brent crude oil prices remain at or below current levels and that the Group's capital programme remains suspended, the Group's current cash flow forecasts indicate that the Group will not be able to continue servicing its interest and principal payments under the Sberbank Loan as they fall due, starting with the US$6.8 million principal payment due in March 2015. The directors have entered into discussions with Sberbank with a view to seeking to agree, as soon as possible, a moratorium on principal payments, including the US$6.8 million principal payment due in March 2015, and a restructuring of the Sberbank Loan.

Even if Sberbank and the Group agree a moratorium on principal payments under the Sberbank Loan, any significant delays or underperformance of production or revenue targets or timing would require the Group to obtain additional debt or equity capital to continue in operation, such as the funding from the Subscription by AGR Energy, to continue in operation.

On 1 December 2014, the Company's shareholders approved a conditional cash subscription by AGR Energy No. 1 Limited ("AGR Energy") which would raise £37.1 million (approximately US$58 million) before expenses (the "Subscription"). The Subscription would enable the Group to meet its obligations under the Sberbank Loan pending the restructuring of the repayment schedule discussed above. The Subscription would also enable the Group tofund its planned capital programme to develop its post-salt fields and maximise reserves and production. The Subscription remains subject to the approval of the Group's lender, Sberbank, and the Ministry of Energy of the Republic of Kazakhstan. The Group expects to receive these required approvals in due course. The risk that the necessary approvals to complete the Subscription are not received creates an uncertainty about whether the Subscription proceeds of approximately US$58 million will be received by the Group. In the event that the necessary approvals are not received and the Subscription (or a similar infusion) does not proceed, there is an uncertainty whether additional debt or equity financing will be available.

Any delay in the closing of the Subscription and funding of the Group is likely to have a severely adverse effect on the Group's liquidity and solvency, especially in the context of the significant recent decline in Brent crude oil prices.

The directors have concluded that the uncertainties that the Subscription does not complete or that additional debt or equity financing is not available and that the Group is unable to defer principal repayments under the Sberbank Loan represent a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.

However, the directors have a reasonable expectation that the Subscription will complete and therefore that the Group will be able meet its obligations under the Sberbank Loan and that it will continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing these financial statements. These financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

3. Loss per share

The calculation of basic and diluted earnings per share is based on the following data:

The Company's potentially dilutive securities, being the outstanding share options and warrants in issue, were anti-dilutive for the six month periods ended 30 September 2014 and 2013, respectively.

4. Dividends paid and proposed

No dividend was paid or is proposed for the six month periods ended 30 September 2014 and 2013, respectively.

5. Operating segments

Management has determined its operating segments based on the reports reviewed by the directors for the purposes of making decisions about allocating resources and assessing performance. In the opinion of the directors, the operations of the Group comprise one operating segment: oil and gas exploration and development and related activities. All of the Group's assets and liabilities, income and expense relate to this segment.

The Group's production and sale of hydrocarbons is not materially affected by seasonal factors or fluctuations.

Geographical information

The Group conducts business within two main geographical regions: the Group's operational activities are wholly focused in the Republic of Kazakhstan and the Group's head office is in London, United Kingdom.

6. Cost of sales

7. Operating profit

The following items of an unusual or significant nature have been charged to operating profit during the interim period:

Exploration and appraisal costs relate mainly to the cost of dry holes, including costs for plugging and abandonment.

8. Finance costs

9. Income taxes

The Group's principal business activities are in the Republic of Kazakhstan, where corporate income tax applies at a rate of 20% of taxable income. Mineral extraction tax, export rent tax and export customs duty are taxes relating to the production and sale of hydrocarbons and are accounted for as cost of sales (see note 6).

Where the realisation of deferred tax assets is dependent on future profits, the Group recognises losses carried forward and other deferred tax assets only to the extent that the realisation of the related tax benefit through future taxable profits is probable.

The movements in the Group's deferred tax assets and liabilities are as follows:

Transfer Pricing Tax Claims

The Kazakhstan tax authorities have carried out transfer pricing tax audits of Max Petroleum's subsidiary Samek International LLP for the tax years ended 31 December 2007 and 31 December 2008. Although the Group's oil sales were made on an arm's-length basis with unrelated third parties, the tax authorities have challenged the differential between the actual selling price the Group received and market prices at the time. This differential arises principally due to transportation costs which are paid for by the buyer, but suffered by the Group when the selling price is agreed. Following the tax audits, the Group received notifications (the "Transfer Pricing Claims") requesting the payment of approximately US$0.7 million and US$1.3 million for the 2007 and 2008 tax years, respectively. The Transfer Pricing Claims include corporate income tax, mineral extraction tax, penalties and interest.

The Group believes that the transportation costs deducted by the buyers are valid and within reasonable norms and that the Transfer Pricing Claims are without merit. The Group is in the process of appealing the Transfer Pricing Claims with the relevant tax authorities and through the courts. In accordance with the decisions of the courts to date, during the year ended 31 March 2014 the Group paid the 2007 claim in full and paid a portion of the 2008 claim. At 30 September 2014, the unpaid portion of the 2008 claim is US$1.1 million, comprising US$0.6 million of income tax and US$0.5 million of interest. Subsequent to 30 September 2014, the Group paid the remaining balance relating to the 2008 claim in full (see note 23). Nevertheless, the Group plans to continue its appeals against the Transfer Pricing Claims for both the 2007 and 2008 tax years.

10. Capital expenditure

Intangible assets - exploration and appraisal expenditure

The US$118.5 million carrying value of the intangible exploration and appraisal asset at 30 September 2014 is substantially dependent on the outcome of the Group's pre-salt exploration programme. The Group is required to assess at each reporting date whether there are any indications its exploration and appraisal assets are impaired. This assessment includes consideration of whether rights to explore in an area have expired, or will expire in the near future without renewal and whether further exploration and appraisal activities are planned or budgeted.

Due to financial constraints, the drilling of the NUR-1 pre-salt well has been suspended since July 2012 when the Group encountered anomalously high pressures drilling through a salt layer. During the year ended 31 March 2014, the Group has carried out a geomechanical study to examine how best to complete the NUR-1 well and overcome potential engineering challenges. The conclusion of the study is that the existing well bore can be used to complete drilling to target depth provided certain modifications are made to the well design.

Notwithstanding the Group's commitment to completing NUR-1, it remains subject to securing the US$20 to 25 million funding needed and successfully obtaining a licence extension when the current permission expires in March 2015. Even if the funding were arranged in the near future, given that the exploration portion of the licence is due to expire in March 2015, it is unrealistic to expect that the well could be completed by March 2015 given the lead time necessary to procure a suitable rig, as well as the time necessary to complete the drilling itself. There is also no guarantee that a licence extension to complete NUR-1 beyond March 2015 will be given to the Group.

In the event that the Subscription (see note 23) by AGR Energy did not close, because one or more necessary conditions were not met, and therefore the investment of £37.1 million was not made into the Group, the directors would have to make an evaluation about the possibility that the pre-salt assets were impaired as a result. Faced with the dual uncertainties of funding and a contingent licence extension in March 2015, the directors have concluded that the most prudent course of action would be to book a one-time accounting charge of approximately US$113 million to fully impair the carrying value of NUR-1 and associated pre-salt exploration costs. This charge would not affect the results for the six months ending 30 September 2014, but instead would be recognised in the financial statements for the year ending 31 March 2015. Therefore, the successful completion of the Subscription is a key assumption in continuing to recognise the costs associated with the pre-salt in the Group's balance sheet at 30 September 2014 and thereafter.

Oil and gas properties and property, plant and equipment

In assessing whether there were any indicators of impairment for oil and gas producing assets and associated property, plant and equipment, management considered the carrying value of the assets compared to their expected recoverable amounts. The expected recoverable amounts for the Group's producing fields were based on the competent person's report at 31 March 2014, adjusted for production and capital expenditure during the six months ended 30 September 2014. The results of the comparison indicate that the expected recoverable amount of each cash generating unit exceeds its net book value.

11. Trade and other receivables

Trade and other receivables include US$4.7 million of Kazakhstan VAT (31 March 2014: US$11.2 million), of which US$2.5 million is expected to be recovered after more than one year (31 March 2014: US$6.5 million).

Trade and other receivables are stated net of a provision for impairment of US$6.8 million in respect of Kazakhstan VAT (31 March 2014: US$nil). During the six months ended 30 September 2014, the Group recognised a provision of US$6.8 million in respect of VAT receivable which, based on current experience in Kazakhstan, the Group does not expect to recover by a cash refund. The Group expects to recover the balance of the VAT receivable of US$4.7 million through offset against VAT payable on future domestic sales.

12. Restricted cash

Restricted cash comprises US$3.3 million required to be deposited in an environmental restoration and rehabilitation fund under the terms of the Group's Blocks A&E Licence (31 March 2014: US$3.3 million).

13. Trade and other payables

Trade and other payables include US$27.5 million of prepayments from customers for crude oil sales (31 March 2014: US$19.7 million).

14. Borrowings

Bank borrowings

In December 2012, the Group closed a US$90 million credit facility with SB Sberbank JSC ("Sberbank") to refinance the previous credit facility with Macquarie Bank, fund the cash portion of a tender offer made to convertible bondholders, and fund capital expenditures on the Group's post-salt exploration, appraisal and development programme. US$90 million was borrowed under the facility (the "Sberbank Loan"), drawn down in instalments from December 2012 to October 2013.

 The material provisions of the Sberbank Loan are as follows:

- Interest rate of 11% per annum, payable monthly.

- Five-year term maturing in November 2017, with quarterly amortisation payments beginning in March 2014.

- Secured by pledges in favour of Sberbank over the Group's assets in Kazakhstan.

A reconciliation of the amounts outstanding under the Group's bank borrowings is as follows:

At 31 March 2014, the Group was in technical breach of certain banking covenants related to production and reserves and therefore the entire loan was classified within current liabilities in the Group balance sheet at that date. In September 2014, the Sberbank Loan was amended to reset the covenants in line with forecasts. At 30 September 2014, the Group was in compliance with covenants and therefore the carrying value of the loan has been allocated between current and non-current liabilities based on the contractual terms of the loan.

15. Provisions for liabilities and other charges

Analysis of total provisions:

16. Share capital

At 30 September 2014, the Company had in issue 2,175,305,483 allotted and fully paid ordinary shares of 0.01 pence each (31 March 2014: 2,175,305,483 ordinary shares).

At 30 September 2013, the Company had in issue 2,175,305,483 allotted and fully paid ordinary shares of 0.01 pence each (31 March 2013: 1,817,734,349 ordinary shares). In August 2013, the Company received written regulatory approval from the Ministry of Oil and Gas of the Republic of Kazakhstan permitting the conversion of the Company's outstanding convertible bonds (the "PIK Notes"), comprising US$28.6million in principal and accrued interest, into ordinary shares of the Company. The PIK Notes were mandatorily converted into 357,571,134 shares at a price of 5p per share.

17. Other reserves

18. Share-based payment

During the six months ended 30 September 2014, Max Petroleum granted 89,000,000 share options to officers and employees of the Group with an exercise price of 1.2p and term of 4 years. Also, 16,333,333 options were forfeited by leavers, 9,000,000 options granted to non-executive directors were not approved at the Company's AGM and were forfeited, 1,852,650 options expired and none were exercised. The total number of options outstanding at 30 September 2014 was 256,354,988 (31 March 2014: 194,540,971). The Group recorded a share-based payment charge of US$0.2 million for the six months ended 30 September 2014, which is included in the income statement within administrative expenses.

During the six months ended 30 September 2013, Max Petroleum granted 3,000,000 options to officers and employees of the Group with an exercise price of 5p and term of 4 years. Also, 7,500 options were forfeited by leavers, 4,861,501 expired and none were exercised. The total number of options outstanding at 30 September 2013 was 208,436,176 (31 March 2013: 210,305,177). The Group recorded a share-based payment charge of US$1.6 million for the six months ended 30 September 2013.

Further details of the Group's share option schemes are outlined on pages 85 to 86 of the Group's Annual Report and Accounts for the year ended 31 March 2014.

19. Notes to the cash flow statement

Cash generated from operations

Summary of significant non-cash items

20. Financial instruments' fair value disclosures

Except as detailed in the following table, the directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values:

The fair value of bank borrowings approximates to their gross carrying value.

21. Related party transactions

Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and therefore are not disclosed in this note.

22. Commitments and contingencies

Under its Licence the Group is committed to certain future expenditures which include a work programme, comprising firm and contingent investments, and the reimbursement of historical costs incurred by the Government of the Republic of Kazakhstan. Contingent investments include capital expenditures for wells that would be drilled following successful results from the drilling of wells specified as firm investments. Outstanding commitments were as follows:

The above work programme is agreed with the Ministry of Energy of the Republic of Kazakhstan (the "MOE") and covers exploration and production activities in Blocks A&E from 2014 to 2021. It also includes social infrastructure contributions and commitments for the training of local personnel. Qualifying exploration, development and operating expenditure incurred by the licence holder are deductible from these future commitments.

The total commitment at 30 September 2014 includes US$24.2 million of historical costs incurred by the Republic of Kazakhstan for the exploration of Blocks A&E prior to the Group's acquisition of the Licence (31 March 2014: US$24.2 million). Historical costs become payable from the date when a field is transferred to the production stage under FFD and the amount payable for each field is determined by the Government of the Republic of Kazakhstan.

Licence amendment

In October 2014, the Group and the MOE signed an amendment to the Licence which permitted the Asanketken field to move into FFD, enabling the Group to fully develop and produce from the field until 2027 and export up to 80% of the field's production (see note 23). The amendment extends the Group's work programme from 2021 to 2027 and increases its outstanding firm investments commitment from US$71.4 million to US$105.9 million. The Group's outstanding commitments, as revised by this amendment, are as follows:

Work programme shortfall

The Group's total commitment under the work programme for the calendar year ending 31 December 2014, as revised by the amendment in October 2014, is US$99.8 million. As of 30 September 2014, the actual expenditure under the work programme by the Group amounted to US$29.6 million. As previously discussed in note 2, the Group has suspended its capital expenditure programme pending the closing of the Subscription or financing by alternative additional debt or equity capital. Although the Group will continue to incur qualifying operating expenditure between 30 September 2014 and 31 December 2014, given the suspension of its capital expenditure programme, the Group expects there will be a shortfall against its commitments under the current work programme for 2014. The MOE has the ability to impose a fine on the Group of up to 30% of this shortfall. The Group is working with the MOE to put in place the necessary regulatory approvals to defer the shortfall on the 2014 work programme to future years, and accordingly, the Group has not made any provision in these financial statements as at 30 September 2014.

23. Post balance sheet events

Strategic partner investment by AGR Energy

On 1 December 2014, the Company's shareholders approved a conditional cash subscription by AGR Energy which would raise £37.1 million (approximately US$58 million) before expenses. The Subscription would enable the Group to meet its obligations under the Sberbank Loan and fund its planned capital programme to develop its post-salt fields and maximise reserves and production. The Subscription remains subject to the approval of the Group's lender, Sberbank, and the Ministry of Energy of the Republic of Kazakhstan. The Group expects to receive these required approvals in due course.

Amendment to the Blocks A&E Licence

In October 2014, the Group and the MOE signed an amendment to the Licence which permitted the Asanketken field to move into FFD, enabling the Group to fully develop and produce from the field until 2027 and export up to 80% of the field's production (see note 22). The amendment extends the Group's work programme from 2021 to 2027 and increases its outstanding firm investments commitment from US$71.4 million to US$105.9 million.

Payment in respect of 2008 tax claim

In November 2014, the Group paid US$1.1 million in relation to the transfer pricing tax claim for the tax year ended December 2008 (see note 9). This payment comprised US$0.6 million of taxes and US$0.5 million of interest in full settlement of the outstanding balance claimed by the tax authorities. The Group is continuing to appeal through the courts against the payments made in respect of the Transfer Pricing Tax Claims.

24. Non-IFRS measures

The Group presents "Adjusted EBITDA" as a non-IFRS earnings measure to provide additional information to investors in order to allow an alternative method for assessing the Group's financial results. Adjusted EBITDA is defined as profit/(loss) before finance costs, income tax expense, depreciation, depletion and amortisation, share-based payment expense, exploration and appraisal costs and impairment losses. Adjusted EBITDA is a key performance indicator used by the Board to measure underlying operating profitability.

A reconciliation of profit/(loss) to Adjusted EBITDA is shown below:

25. Publication of the interim financial report

Copies of the interim financial report are available on the Company's website, www.maxpetroleum.com.

26. Risk factors

The Group is subject to various risks relating to political, economic, legal, social, industry, business and financial conditions. The following risk factors, which are not exhaustive, are particularly relevant to the Group's business activities:

Volatility of prices for oil and gas

The supply, demand and prices for oil and gas are volatile and are influenced by factors beyond the Group's control. These factors include global demand and supply, exchange rates, interest and inflation rates and political events. A significant prolonged decline in oil and gas prices could impact the viability of the Group's capital expenditure programme, including its exploration, appraisal and development activities. Additionally, production from geographically isolated countries may be sold at a discount to current market prices.

Substantially all of the Group's revenues and cash flows will come from the sale of oil and gas. If oil and gas prices should fall below and remain below the Group's cost of production for any sustained period, the Group may experience losses and may be forced to curtail or suspend some or all of its production, at the time such conditions exist. In addition, the Group would also have to assess the economic impact of low oil and gas prices on its ability to recover any losses it may incur during that period and on its ability to maintain adequate reserves.

As the Group does not currently hedge its crude oil production it is exposed to the risk of oil price movements. As more fields enter FFD and daily production sold into the export market increases, management may reassess whether it should enter into price hedging contracts in order to achieve more predictable cash flows from its future crude oil production.

Exploration risk

The exploration for, and the development of, hydrocarbons is speculative and involves a high degree of risk. These risks include the uncertainty that the Group will discover sufficient oil or gas resources to exploit economically or that the Group will be able to exploit the discovered resource as intended. Drilling may not result in the discovery of economically viable hydrocarbon resources either due to insufficient resources being discovered, the resources not being of sufficient quality to be developed economically or the cost of any development being in excess of that required for an economic project.

Environmental risk

The oil and gas industry is subject to environmental hazards, such as oil spills, gas leaks, ruptures and discharges of petroleum products and hazardous substances. These environmental hazards could expose the Group to material liabilities for property damages, personal injuries, or other environmental harm, including costs of investigating and remediating contaminated properties. The Group is subject to stringent environmental laws in Kazakhstan with regard to its oil and gas operations. Failure to comply with such laws and regulations could subject the Group to material administrative, civil, or criminal penalties or other liabilities. Additionally, compliance with these laws may, from time to time, result in increased costs to the Group's operations, impact production, or increase the costs of potential acquisitions. The Group was compliant with all material environmental and health and safety laws during the period.

Risk of operating oil and gas properties

The oil and gas business involves certain operating hazards, such as well blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, and releases of toxic substances. Any of these operating hazards could cause serious injuries, fatalities, or property damage, which could expose the Group to liabilities. The settlement of these liabilities could materially impact the funds available for the exploration and development of the Group's oil and gas properties. The Group maintains insurance against many potential losses and liabilities arising from its operations in accordance with customary industry practices, but the Group's insurance coverage cannot protect it against all operational risks.

Foreign currency risk

The Group's operating costs, export revenues, and debt financing facilities are principally denominated in US dollars. The Group's UK Plc office costs and share consideration are in British pounds. Also, some costs are incurred and settled in tenge, the local currency of Kazakhstan. Any changes in the relative exchange rates among US dollars, tenge and British pounds could positively or negatively affect the Group's results.

Business in Kazakhstan

Amongst the risks that face the Group in conducting business and operations in Kazakhstan are:

· Economic instability, including in other countries or the global economy that could lead to consequences such as hyperinflation, currency fluctuations and a decline in per capita income in the Kazakhstan economy.

· Insufficient or underdeveloped physical infrastructure.

· Governmental and political instability that could disrupt, delay or curtail economic and regulatory reform, increase centralised authority or result in nationalisation.

· Social instability from any ethnic, religious, historical or other divisions that could lead to a rise in nationalism, social disturbances or conflict.

· Uncertainties in the developing legal and regulatory environment, including, but not limited to, conflicting laws, decrees and regulations applicable to the oil and gas industry and foreign investment.

· Unlawful or arbitrary action against the Group and its interests by the regulatory authorities, including the suspension or revocation of its Licence or failure to approve extensions or other permits necessary for the Group to continue operating its assets.

· Lack of independence and experience of the judiciary, difficulty in enforcing court or arbitration decisions and governmental discretion in enforcing claims.

· Laws restricting foreign investment in the oil and gas industry.

· Regulations which include pre-approval from the National Bank of Kazakhstan for the issuance of equity, as well as obtaining a pre-emption waiver from the Ministry of Energy of the Republic of Kazakhstan (previously the Ministry of Oil and Gas).

Taxation

The tax environment in Kazakhstan is subject to regular change and varying interpretations. As the tax law evolves, instances of inconsistent opinions between local, regional and national tax authorities are not unusual. Non-compliance with laws and regulations in Kazakhstan, as interpreted by the Kazakhstan authorities, may lead to severe penalties and interest which can amount to multiples of any assessed taxes. The uncertainty of interpretation and application of tax laws, which are subject to regular change, creates a risk that the ultimate amount of taxes, penalties and interest, if any, may be in excess of the amounts recognised to date, which could have a material adverse impact on the Group's cash flows, results and financial position. Management believes that it is in compliance with the relevant legislation affecting its operations, and that its tax affairs are appropriately accounted for in these financial statements.

Legal systems

Kazakhstan, and other countries in which the Group may transact business in the future, have or may have legal systems that are less well developed than in the United Kingdom. This could result in risks such as:

· Potential difficulties in obtaining effective legal redress in the courts of such jurisdictions, whether in respect of a breach of contract, law or regulation, including an ownership dispute.

· A higher degree of discretion on the part of government authorities.

· The lack of judicial or administrative guidance on interpreting applicable rules and regulations.

· Inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions.

· Relative inexperience of the judiciary and courts in such matters.

In certain jurisdictions, the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licences and agreements for business. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licences, licence applications or other legal arrangements will not be adversely affected by the jurisdictions in which the Group operates.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing its liquidity is to ensure, as far as possible, that it will always have sufficient liquid funds and available debt and equity capital to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group carefully monitors and manages its liquidity with regular cash forecasting. Further details of the Group's liquidity position are set out in the liquidity and capital resources section of the Chairman's Statement and in note 2.