Placing and Open Offer

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A BREACH OF THE RELEVANT SECURITIES LAWS OF SUCH JURISDICTION.

This announcement does not constitute a prospectus or offering memorandum or an offer in respect of any securities and is not intended to provide the basis for any decision in respect of Madagascar Oil Limited or other evaluation of any securities of Madagascar Oil Limited or any other entity and should not be considered as a recommendation that any investor should subscribe for or purchase any such securities.

24 September 2014

MADAGASCAR OIL LIMITED

("Madagascar Oil" or the "Company")

Placing of approximately US$20.0m (gross) and Open Offer of up to US$6.4m (gross) and Board Appointment

HIGHLIGHTS:

Madagascar Oil is pleased to announce the following developments:

· Placing agreed to raise approximately US$20.0m (gross), by the issue of 119,191,205 Common Shares at 10.25p per share to three of the Company's largest shareholders, with shares expected to be admitted to trading on AIM on 26 September 2014.

· Open Offer to be made as soon as practicable to all Qualifying Shareholders to raise up to a further US$6.4m (gross) by the issue of up to 37,962,350 shares at 10.25p per share.

· Positive indication of support from the major shareholders who subscribed in the Placing to participate in an additional funding of up to US$50.0m, upon approval of the Block 3104 Tsimiroro Development Plan, the granting of the Exploitation Permit in respect of Block 3104 and satisfactory progress being made with the Company's operations and fieldwork. If the further fundraising were to be structured as a placing, the Board currently envisages that this further placing would be accompanied by a further open offer. It is anticipated that this further funding will take place within the next six months.

· On track for the submission of the Block 3104 Tsimiroro Development Plan to OMNIS, ahead of the PSC deadline of 4 November 2014.

· As part of the Placing, the Company has entered into a relationship agreement with Outrider (the "Outrider Relationship Agreement") and a deed of undertaking with Outrider and SEP (the "Deed of Undertaking") to address, amongst other things, the inter-relation of the Outrider Relationship Agreement and the Original Investors' Relationship Agreement. In connection with these agreements, the Company is pleased to announce that Steve Hope will be joining the Board as a representative of Outrider with immediate effect. Further details of the Outrider Relationship Agreement, the Deed of Undertaking and Steve Hope's appointment are set out in this announcement.

· In addition, as part of the Deed of Undertaking, the Company, SEP and Outrider have agreed, using reasonable endeavours, to seek to make, over the short term, a number of changes to the size and structure of the Board, further details of which are set out in the section entitled "Summary of Deed of Undertaking Including the Proposed Future Board Changes" in this announcement. Further announcements with regard to these proposed changes will be made as and when required.

Iain Patrick, the Senior Independent Director of Madagascar Oil, commented:

"The Company is pleased to have secured US$20m of funds from the Placing with three of its largest shareholders. All other Qualifying Shareholders will now have the opportunity to participate in the fundraising, at the same price, via the Open Offer. These funds will be used to de-risk and further evaluate Tsimiroro Block 3104, and will put the Company in a strong position for the months ahead.

"We would also like to thank those shareholders participating in the Placing for their support and for confirming their intention to participate in a future fundraising, once the TDP has been approved by our partner, OMNIS."

DETAILED INFORMATION

Madagascar Oil is pleased to announce a Placing to raise gross proceeds of approximately US$20.0m (approximately £12.2m) (the "Placing") and an Open Offer of up to US$6.4m (approximately £3.9m) (the "Open Offer"), (together the "Fundraising").

The existing significant shareholders that have participated in the Placing, together with the value of their participation, are Outrider (approximately US$11.0m), SEP (approximately US$7.1m) and the John Paul Dejoria Family Trust (approximately US$2.0m), (together, the "Placees").

The Placees have also all indicated their current intention to support the Company by participating in an additional fundraise of up to US$50.0m (approximately £30.5m, at current exchange rates) (the "Further Fundraising"), subject to approval of the Block 3104 Tsimiroro Development Plan by the Madagascar authorities which the Company's subsidiary, Madagascar Oil S.A. ("Madagascar Oil SA"), will submit to its partner, OMNIS, by 4 November 2014, and satisfactory progress being made with the Company's operations and fieldwork. 

It is not yet certain what form the Further Fundraising will take and it could be equity, debt, or a hybrid of the two. However, if undertaken as an equity placing, it is anticipated that it will be accompanied by a further open offer (the "Second Open Offer"). The Further Fundraising is expected to take place within the next six months, although no firm assurance can be given at this point in time as to the size, form or timing of the Further Fundraising as the Company also continues to explore other funding options which may include the involvement of potential strategic partners.

The Board believes that good progress is continuing with the preparation of the Block 3104 Tsimiroro Development Plan ("TDP") and this has included regular working group meetings with OMNIS to discuss all aspects of the TDP since Madagascar Oil SA declared in early May 2014 that Block 3104 is a "Commercial Discovery" under the terms of the Block 3104 PSC. These meetings have been extremely beneficial to Madagascar Oil SA and are intended to ensure that the TDP complies with the regulatory framework, undertakes consultation with stakeholders and ensures that OMNIS is able to contribute towards the approach, structure and content of the TDP. 

It is the Board's intention that the net proceeds of the Placing (being approximately US$18.9m, after costs of approximately US$1.1m) and any funds raised from the Open Offer together with existing cash balances and net revenue received from the test sales of crude oil will be used to:

· continue preparations for the commencement of the first phase of development of Block 3104 before the end of 2014, ahead of seeking TDP approval from OMNIS and the Madagascar Governmental authorities and securing the 25-year Exploitation Permit for Block 3104;

· continue Steam Flood Pilot operations to obtain more data on the production performance and recovery potential of Tsimiroro Block 3104 under thermal recovery conditions;

· commence work on a development evaluation drilling campaign of up to 12 wells across Block 3104 to establish additional areas of thermally recoverable STOOIP for future development well drilling, improve the Company's technical understanding of Block 3104 through magnetometer surveys, and thus establish new data for a new competent persons report in the second half of 2015;

· undertake further road upgrades to the national highway between Block 3104 and Antananarivo to improve the road transportation network for sales oil and for delivery of the equipment and services required for development activities under the TDP; and

· provide general corporate and working capital for the group into 2015.

The Directors have given consideration as to the best way to structure the proposed equity fundraising, taking into account current market conditions, the composition of the Company's shareholder register, the level of the Company's share price and the Board's strong preference is to give shareholders the opportunity to limit dilution where practicable.

The Directors have concluded that the structure of the fundraising by way of the Placing and Open Offer is the most suitable option available to the Company and its shareholders as a whole. The Open Offer will provide an opportunity for all Qualifying Shareholders to participate in the fundraising by acquiring Open Offer Shares pro rata to their current holdings of Existing Ordinary Shares with the option to subscribe for more Open Offer Shares pursuant to an excess application facility (the "Excess Application Facility"). The Placing is not conditional upon the Open Offer. Further details of the Open Offer are be set out below and will be in the Open Offer Circular, which will be sent to shareholders as soon as practicable.

The Board currently anticipates that the net proceeds of the Further Fundraising and the Second Open Offer (or any alternative financing), if raised, would be used to commence the first phase of the TDP, including the immediate ordering of long-lead items to enable development drilling of new wells to start in mid-2015, undertake upgrades to the SFP facilities to enable production of up to 10,000 barrels/day of sales oil to be processed and commence further road upgrades to the main highways between Block 3104 and specific locations to be agreed. If the Company proceeds with a Further Fundraising and a Second Open Offer (or any alternative financing), additional information on the use of proceeds for such fundraising will be confirmed at that time. However, the Board would note that it is almost certain that additional funding, above that provided by the Further Fundraising (or alternative financing) and the Second Open Offer, will be required to complete the first phase of the TDP.

VSA Capital Limited ("VSA") is acting as Broker and Corporate Finance Adviser to the Company in connection with the Placing and Open Offer and Strand Hanson Limited ("Strand Hanson") is acting as Nominated Adviser and Financial Adviser to the Company in connection with the Placing and Open Offer.

The Placing

The Company has entered into agreements with three of its largest four shareholders to issue 119,191,205 new Common Shares at an issue price of 10.25p per Common Share, by means of the Placing by VSA. The Placing Price represents a discount of approximately 8.9% to the prevailing middle market closing price per Existing Common Share of 11.25p on 23 September 2014.

It is expected that Admission of the Placing Shares will become effective and that dealings will commence in the Placing Shares at 8.00 a.m. on 26 September 2014.

The issue of Common Shares pursuant to the Placing is to be effected by way of cash box placing in order to shorten the timetable for receipt of funds and increase the certainty for the Company and the Placees, as this structure permits the Company to issue Common Shares free from pre-emption rights and has the advantage of allowing the Board to secure financing without the added time, expense and uncertainty of convening a general meeting for shareholder approval.

The Company will allot and issue the Placing Shares to the Placees in consideration for VSA transferring its holdings of redeemable preference shares in Lemur Funding Limited to the Company.

Accordingly, instead of receiving cash as consideration for the issue of Placing Shares, at the conclusion of the Placing, the Company will own the entire issued share capital of Lemur Funding Limited whose only asset will be its cash reserves in an amount approximately equal to the net proceeds of the Placing.

The Open Offer

In order to provide Qualifying Shareholders with an opportunity to participate in the Fundraising, the Company is proposing to launch a 1 for 14 Open Offer of up to 37,962,350 Open Offer Shares at an issue price of 10.25p per common share, being the same price as the Placing Price.

In order to maximise the shares available under the Open Offer, each of the Placees has provided an irrevocable undertaking not to take up its entitlements under the Open Offer as a condition of it participating in the Placing.

This gives Qualifying Shareholders the opportunity to apply for their basic entitlement (which is in excess of their pro rata entitlement since the basic entitlement assumes that the Placees will not participate in the Open Offer), as well as additional Open Offer Shares above their basic entitlement under the Excess Application Facility.

The timing for the Open Offer will be set out in the Open Offer Circular to all shareholders, which will be sent to Qualifying Shareholders as soon as practicable and will be available on the Company's website www.madagascaroil.com from the date this is issued.

The Open Offer will be limited to €5m (approximately US$6.4m at current exchange rates) in order to be exempt from the requirement to issue a prospectus in the UK which the Directors consider would otherwise be prohibitively expensive and time consuming. The combination of the Placing and the Open Offer gives the Company certainty of funds from the Placing element of the fundraising and, in requiring Placees to provide irrevocable undertakings not to participate in the Open Offer, allows for participating Qualifying Shareholders to maximise their investment and limit the dilutive effect of the Placing.

In the event that the Open Offer is not fully subscribed by Qualifying Shareholders, VSA will have the ability to place any remaining shares with other investors.

The Open Offer Shares and the Placing Shares will, upon issue, rank pari passu with the Company's Existing Common Shares.

Following the issue of the Placing Shares the enlarged ordinary share capital of the Company will be 650,664,114 Common Shares. Following the issue of the Open Offer Shares (assuming full take-up under the Open Offer including the Excess Application Facility), the enlarged ordinary share capital of the Company will be 688,626,464 Common Shares and assuming no take-up under the Open Offer would be 650,664,114 Common Shares.

Support for Future Funding Requirements by Placees

It is expected that the first phase of the work programme under the TDP will likely require a further US$50.0m in additional funds in order to commence development drilling and begin the upgrade of the SFP facilities to meet the expected increase in oil production.

The Placees have indicated their current intention to support the Company by participating in the Further Fundraising of up to US$50m in aggregate, subject to the approval of the TDP by the Company's state-owned partner, OMNIS, and satisfactory progress being made with the Company's operations and fieldwork. This letter of support has been given to the Company on a non-binding basis and represents the current intentions of the Placees. There can be no assurance that the Further Fundraising will take place as currently anticipated, or at all, nor that the Placees will actually participate in such a fundraising. However, the Company will have benefited from the continued support of the Placees in each of the last two follow-on fundraisings that the Company has carried out and takes comfort from this written indication of intent. The Company is also continuing to explore further funding options, in order to minimise dilution to shareholders, including ongoing discussions with potential strategic partners.

Use of Proceeds

It is currently intended that the net proceeds from the Placing, together with currently available funds and net revenues from crude oil sales, will be used as set out below:

The table set out above, in order to represent a conservative base case, excludes funds raised via the Open Offer. Should the Open Offer raise additional funds, as the Board expects, then these funds would be utilised to accelerate development planning activities, increase the number of wells to be drilled in the development evaluation drilling campaign from 12 wells to up to 30 wells in total and within general working capital.

Summary of the Outrider Relationship Agreement

On 24 September 2014, Outrider entered into the Outrider Relationship Agreement with the Company to regulate certain aspects of their relationship.

The Board's rationale for entering into the Outrider Relationship Agreement with Outrider, as a major shareholder, at this time, is substantially the same as for entering into the Original Investors' Relationship Agreement in December 2012.

The Outrider Relationship Agreement includes a similar undertaking to that in the Original Investors' Relationship Agreement that the relevant shareholder (in this case, Outrider) will use its voting rights to procure that at least half of the Directors shall be Independent Directors. This means that a Board comprising two Directors appointed by the Benchmark Parties, one Director appointed by SEP and one Director appointed by Outrider (the "Four Investor Directors") must also include at least four Independent Directors.

However, under the terms of the Original Investors' Relationship Agreement, the Outrider Director will constitute an Independent Director. This means that, under the Original Investors' Relationship Agreement, the obligation on SEP and the Benchmark Parties to exercise voting rights to procure that at least half of the Directors shall be Independent Directors would be met by a Board comprising the Four Investor Directors and only two Independent Directors. The Deed of Undertaking (see summary below) is intended to address this issue by including undertakings from SEP which, when in force, will require it to exercise its voting rights to procure that the requirement set out in the Outrider Relationship Agreement (that is four Investor Directors and at least four Independent Directors) is retained.

As noted above, the Outrider Director will constitute an Independent Director under the Original Investors' Relationship Agreement. As a result, Outrider has given certain undertakings in relation to the Outrider Director (see paragraph 2 below).

The Outrider Relationship Agreement is on terms which include the following:

1 Appointment of Directors

With effect from the date of the Outrider Relationship Agreement, Outrider shall be entitled to appoint an Outrider Director, being Steve Hope as at the date of the Outrider Relationship Agreement, for such time as it (together with any member of its group) holds at least 10% of the Common Shares. Appointments will be subject to the due diligence of the Company's nominated adviser, from time to time, and the requirement that at least half the Board (at any time) be Independent Directors.

2 Outrider undertakings

Outrider has given various undertakings in respect of itself (and, in some cases, its associates and the Outrider Director). The undertakings will be effective for such time as Outrider, together with its associates, holds at least 10% of the Common Shares.

The undertakings can be grouped as follows:

General undertakings:

Outrider undertakers to the Company that it shall (and shall procure that its associates shall):

(i) to keep confidential all unpublished price-sensitive information (as defined in the AIM Rules for Companies) relating to the Company; and

(ii) acknowledge and agree that the Board (other than any Outrider Director and any Original Investor Director) alone shall determine the appropriate action the Board should take in relation to a conflict between Outrider and the Company.

Related party transactions: 

Related party transactions will be at arm's length and in accordance with the AIM Rules for Companies.

Undertakings as regards Investor Directors: 

To procure that the Outrider Director:

(i) will not vote in any meeting of the Board where conflicted;

(ii) will not, without the consent of the Independent Directors, participate in any committee or action taken in relation to the conflicts between any Original Investor, Original Investor Director or their associates and the Company; and

(iii) will act independently from the Investor and have due regard to his fiduciary duties.

Positive voting undertakings: 

To exercise its voting rights and procure that its associates and the Outrider Director exercise their voting rights so as to ensure that:

(i) the terms of the Outrider Relationship Agreement are implemented in full and complied with;

(ii) no variations are made to the Bye-laws or other constitutional documentation which would be contrary to the terms of the Outrider Relationship Agreement or in such manner which would restrict or adversely affect the Company's independence;

(iii) for so long as the Company is not subject to the City Code on Takeovers and Mergers, the bye-laws of the Company import equivalent protections to Rule 9 (mandatory offers), Rule 16 (special deals) and Rule 21 (frustrating actions) for shareholders of the Company;

(iv) any Independent Director recommended by the Nominations Committee to meet any new requirement of the Outrider Relationship Agreement is approved and appointed to the Board;

(v) save with the consent of the Independent Directors, once the Board has four Independent Directors, at least half of the Directors shall be Independent Directors from that point forward at all times;

(vi) the Chief Executive Officer of the Company is an Independent Director;

(vii) the chairman of the remuneration committee, the audit committee and, if established, any nomination or corporate governance committees, shall be an Independent Director at all times;

(viii) the Company is capable at all times of carrying on its business, and making decisions, independently of each Investor and its related parties; and

(ix) the Company adheres to its policies of corporate governance,

unless the Independent Directors agree otherwise.

Negative voting undertakings: 

Not to propose or vote in favour of, and procure that its associates and the Outrider Director do not propose or vote in favour of, any resolution or resolutions which would approve (unless recommended by the Independent Directors)the appointment of a majority of the Directors or the appointment of additional non-independent directors without the consent of the Independent Directors.

Voting Procedure:

Outrider has undertaken that if it or any of its associates are required under the Outrider Relationship Agreement to exercise voting rights it shall deliver or procure (in the case of the associates) a duly completed and executed proxy in favour of the resolutions, no less than 48 hours (or such other period as the Board may determine) prior to the relevant meeting.

3 Notification of interest

Outrider agrees that it will notify the Company promptly when the percentage of its voting rights in the Company reaches, exceeds or falls below 15% and each 5% threshold thereafter up to and including 30% and each 3% threshold thereafter in between 30% and 40% (inclusive).

Under the Bye-laws, Outrider is prohibited from acquiring an interest in Common Shares which taken together with persons acting in concert with Outrider would carry 30% or more of the voting rights in the Company except as a result of a "Permitted Acquisition" (as such term is defined in bye-Law 50.1.6 of the Bye-Laws).

4 Conflicts with Bye-Laws

In the event of any conflict or inconsistency between the Bye-laws and the provisions of the Outrider Relationship Agreement, the parties have agreed to use their reasonable endeavours to procure that the terms of the Bye-laws are amended so as to accord with the provisions of the Outrider Relationship Agreement.

5 Offer Event

The Company shall comply with Bye-law 51.15 and procure that the Board does not recommend any takeover offer or similar event without first providing Outrider with five business days' notice (setting out reasonable details of such offer) in which to confirm to the Company whether it wishes to match the terms of such offer.

Summary of Deed of Undertaking including the proposed future Board changes

On 24 September 2014, Outrider, SEP and the Company entered into the Deed of Undertaking in relation to, amongst other things, the composition of the Board.

6 Undertakings

SEP and Outrider have given various undertakings in respect of themselves and their associates and the Company has also given various undertakings. The undertakings shall apply to each of SEP and Outrider for as long as it together with its associates holds at least 10% of the Common Shares.

The undertakings can be grouped as follows:

Re-election of Independent Directors at AGMs:

Subject to certain conditions, from the earlier of the date that is six months from the date of the Deed of Undertaking and such time as the Board consists of eight Directors and following the appointment of one Independent Director who has bona fide thermal recovery cyclic steam/steam flood industry experience who is approved by SEP, to the extent that it is permitted under the Original Investors' Relationship Agreement, SEP may vote against a maximum of one Independent Director who is proposed by the Company for re-election at an AGM and Outrider may also (but is not obliged to) vote against the same Independent Director.

Re-election of Outrider Director/Original Investor Director appointed by SEP:

Each of SEP and Outrider have agreed that it will exercise its voting rights and procure that its Investor Director (subject to his fiduciary duties) exercises his vote on the Board in favour of the appointment of each other's Investor Director.

Board Composition:

Each party has undertaken to each other that it shall use all reasonable endeavours including, by exercise of its voting rights and its Investor Director's vote (where relevant) to procure that, as soon as practicable following the date of the Deed of Undertaking, the composition of the Board will become and remain, as follows:

(a) 2 directors nominated by the Benchmark Parties in accordance with the terms of the Original Investors' Relationship Agreement who as at the date of the Deed of Undertaking are Al Njoo and Teck Soon Kong;

(b) 1 director nominated by SEP in accordance with the terms of the Original Investors' Relationship Agreement who as at the date of the Deed of Undertaking is David Mahoney;

(c) 1 director nominated by Outrider in accordance with the terms of the Outrider Relationship Agreement who, as at the date of the Deed of Undertaking, is Steve Hope;

(d) 1 Executive Director, currently the CFO, but who will be the CEO (who it is expected will have bona fide thermal recovery cyclic steam/steam flood industry experience or bona fide heavy oil industry expertise) when appointed and who shall always be an Independent Director;

(e) 2 non-executive Independent Directors, one of whom will have bona fide thermal recovery cyclic steam/steam flood industry experience (and only for the purposes of the appointments required to first form an 8 man board, shall be appointed pursuant to the approval right of SEP pursuant to the terms of the Deed of Undertaking) and the other of whom will also have bona fide thermal recovery cyclic steam/steam flood industry experience; and

(f) 1 director with bona fide UK listed company experience,

This is subject to:

(i) any new Independent Directors being nominated for election by the Nominations Committee of the Company, acting reasonably;

(ii) at least three Directors being Independent Directors at all times until a fourth Independent Director is appointed and, thereafter, at least half of the Board being Independent Directors; and

(iii) the Original Investors and Outrider being permitted to exercise the right under the Original Investors' Relationship Agreement or the Outrider Relationship Agreement (as the case may be) to appoint Investor Directors, and if such rights are no longer exercisable, then Outrider or SEP (as the case may be) shall be under no obligation to support the appointment of or be restricted from voting in favour of the removal of the other's Investor Director.

Bye-law amendments:

The parties have also undertaken that they will procure that, so far as they are able, the Bye-laws are amended at the next AGM, or failing which, at each subsequent general meeting of the Company, to require that (a) all directors of the Company are submitted for re-election by the shareholders of the Company at each AGM and (b) the conflict provisions of the Original Investors' Relationship Agreement and the Outrider Relationship Agreement are incorporated into the Bye-laws.

Nominations Committee:

The parties have undertaken that they will procure that the Nominations Committee of the Company shall be comprised of all of the Directors.

Negative voting undertakings:

Save with the prior consent of the Independent Directors, each of SEP and Outrider have undertaken to the Company for a period of 6 months from the date of the Deed of Undertaking, that it shall not propose and shall vote against and it shall procure that its Associates and its Investor Director (subject to his fiduciary duties) shall not propose and shall vote against any resolution or resolutions which (directly or indirectly) has or cumulatively have the effect of approving the cancellation of the admission of the Company's Common Shares to trading on AIM, unless:

(a) recommended by the Independent Directors; or

(b) in connection with and subject to the completion of a takeover offer or similar event which has become wholly unconditional and has resulted in the offeror receiving valid acceptances of at least 75% of the Common Shares; or

(c) in connection with a counter offer made by SEP or Outrider following a takeover offer or similar event or other event triggering an offer period (as such term is defined in the UK City Code on Takeovers and Mergers), in each case involving a bona fide third party, which becomes wholly unconditional and has resulted in the offeror receiving valid acceptances of at least 75% of the Common Shares.

Voting Procedure:

Each of SEP and Outrider have undertaken to the Company to procure that its Investor Director (subject to his fiduciary duties) votes in favour of extending the time period for submission of forms of proxies under the Original Investors' Relationship Agreement and the Outrider Relationship Agreement to no less than 6 calendar days.

Acting in Concert:

SEP and Outrider have each confirmed and undertaken that they do not believe, having taken appropriate legal advice and having reviewed all relevant documentation, including the relevant provisions of the Bye-laws, that they are acting in concert with each other (or any other person) as a consequence only of entering into or exercising rights under the Deed of Undertaking. The Company has provided a similar confirmation based on SEP's and Outrider's confirmation.

Appointment of Outrider Representative to the Board

In accordance with the Outrider Relationship Agreement and the Deed of Undertaking, both summarised above, Steve Hope will be joining the Board as a representative of Outrider, with immediate effect.

Mr Hope is the founder and managing director of Outrider Management, LLC ("Outrider LLC"), a SEC-registered Investment Advisor based in California. Prior to forming Outrider LLC in January 2004, he was a portfolio manager with Dalton Investments, LLC. Mr Hope is a highly experienced investor in emerging markets, having been doing so for over 15 years. He is also a director of Jaguar Mining Inc., the TSX-V listed gold miner. Mr Hope holds an A.B. in Economics from Princeton University.

The following additional information is provided in accordance with paragraph (g) of Schedule Two to the AIM Rules for Companies:

Stephen McCaughan Hope (aged 43)

Directorships/partnerships:

Mr Hope, via Outrider, is currently interested in 121,377,028 Common Shares representing approximately 22.84% of the existing issued share capital of the Company. Outrider has agreed to subscribe for 65,453,204 Placing Shares and therefore, following the Placing, Mr Hope will be interested in 186,830,232 Common Shares, representing approximately 28.71% of the Company's issued share capital as enlarged by the Placing.

There is no other information that is required to be disclosed pursuant to paragraph (g) of Schedule Two to the AIM Rules for Companies.

Related Party Transaction

Outrider currently holds 121,377,028 Common Shares representing approximately 22.84% of the existing issued share capital of the Company. Outrider has agreed to subscribe for 65,453,204 Placing Shares with an aggregate value of US$11.0m at the Placing Price pursuant to the Placing. Immediately following the Placing, Outrider will hold approximately 28.71% of the Company's issued share capital as enlarged by the Placing.

SEP currently holds 110,865,538 Common Shares representing approximately 20.86% of the existing issued share capital of the Company. SEP has agreed to subscribe for 42,083,196 Placing Shares with an aggregate value of US$7.1m at the Placing Price pursuant to the Placing. Immediately following the Placing, SEP will hold approximately 23.51% of the Company's issued share capital as enlarged by the Placing.

The participation of Outrider and SEP in the Placing at the Placing Price, and the entering into the Outrider Relationship Agreement and the Deed of Undertaking, are deemed to be related party transactions under the AIM Rules. Accordingly, the independent directors for these purposes (being Iain Patrick, Richard Laing, Gordon Stein, Al Njoo and Teck Soon Kong) consider, having consulted with Strand Hanson as the Company's Nominated Adviser, that the terms of their participation in the Placing, and the entering into the Outrider Relationship Agreement and the Deed of Undertaking, are fair and reasonable insofar as the Company's shareholders are concerned.

Contact Information: Madagascar Oil Limited

Appendix

Definitions

"AGM" means an annual general meeting of the Company;

"Benchmark Parties" means Benchmark Advantage Fund, Ltd. and BMK Resources Limited;

"Block 3104" means the contractual area covered by the Block 3104 PSC; 

"Block 3104 PSC" means the production sharing contract between Madagascar SA and OMNIS relating to Block 3104;

"Board" means the board of directors of the Company;

"Bye-laws" means the bye-laws of the Company;

"Common Shares" the common shares of US$0.001 each in the capital of the Company;

"Existing Common Shares" means the Common Shares in issue as at the date of this announcement;

"Exploitation Permit" has the meaning given to such term in the Block 3104 PSC;

"Director" means a director of the Company;

"Deed of Undertaking" means the agreement entered into between (1) Outrider; (2) SEP; and (3) the Company dated 24 September 2014;

"Independent Director" for the purposes of the Deed of Undertaking and the Outrider Relationship Agreement, means a director of the Company who is not the Outrider Director or an Original Investor Director and who is independent of (i) Outrider and its associates and (ii) the Original Investors and their associates;

"Independent Director" for the purposes of the Original Investors' Relationship Agreement, means a director of the Company who is not an Original Investor Director and who is determined by the Board to be independent of the Original Investors and their associates;

"Investor Director" means, in the case of SEP, the Original Investor Director appointed by SEP and, in the case of Outrider, the Outrider Director;

"Nominations Committee" means the nominations committee of the Board;

"OMNIS" means the Office des Mines Nationales et des Industries Strate´giques (the Office of National Mines and Strategic Industries), a Malagasy State Body located at BP Ibis, Antananarivo 101, Madagascar;

"Open Offer Circular" means the circular to be sent to shareholders in relation to the Open Offer;

''Open Offer Shares'' means the up to 37,962,350 Common Shares which are to be made available for subscription by Qualifying Shareholders under the Open Offer (and, where applicable, the equivalent number of depositary interests representing such Open Offer Shares);

"Original Investors" means the Benchmark Parties and SEP.

"Original Investor Director" means a non-executive director of the Company who has been appointed by or is a nominee of the Benchmark Parties or SEP pursuant to the terms of the Original Investors' Relationship Agreement or otherwise;

"Original Investors' Relationship Agreement" means the relationship agreement entered into between (1) the Benchmark Parties; (2) SEP; and (3) the Company dated 18 December 2012 as amended from time to time;

"Outrider" means Outrider Master Fund, L.P. acting by Outrider Management LLC, its manager;

"Outrider Director" means a non-executive director of the Company appointed by Outrider pursuant to the terms of the Outrider Relationship Agreement;

"Outrider Relationship Agreement" the agreement entered into between (1) Outrider Master Fund, L.P. by Outrider Management LLC, its manager; and (2) the Company dated 24 September 2014;

"Qualifying Shareholders" means existing shareholders of the Company who met the conditions (which will be set out in the Open Offer Circular) to participate in the Open Offer;

"SEP" means SEP African Ventures Limited (formerly Persistency Private Equity Limited);

"Steam Flood Pilot" or "SFP" means steam flood pilot project operated on Block 3104 by Madagascar Oil SA;

"STOOIP" means Stock Tank Oil Initially in Place; and

"TDP" or "Block 3104 Tsimiroro Development Plan" means the full field development plan to be submitted in respect of Block 3104.