Cadogan Petroleum Plc – Half-Yearly Report

Cadogan Petroleum plc, an independent oil and gas exploration, development and production company with onshore gas, condensate and oil assets in Ukraine, announces its unaudited results for the six months ended 30 June 2014.

– Significant, further reductions to the Company’s cost base to maintain financial strength pending results from operations.

– Cadogan’s shale gas joint venture Westgasinvest (“WGI”) is implementing the procurement and permitting with a view to field activity in 2015.

– Monastyretska production surpassed previous levels and continued to rise further.

– Continued production from the Debeslavetska and Cheremkivska licences at a combined rate of about 14 mcm/day of gas and on Blazhiv field of the Bitlyanska licence about 45-50 bopd of oil.

– Coordinates for drilling in Debeslavetska have been determined ahead of drilling, which is expected to commence November 2014, with a further two wells to be drilled thereafter.

– Ukrainian Hryvnia, functional currency of the Group’s Ukrainian subsidiaries, depreciated against the USD, reporting currency of the Group, by around 40%, resulting in significant decrease of USD reported values of Exploration and Evaluation assets (“E&E”) and Property Plant and Equipment (“PPE”).

– Net cash and cash equivalents at 30 June 2014 of $47.9 million(31 December 2013: $56.5 million) excluding $1.0 million (31 December 2013: $0.2 million) of Cadogan’s share of cash and cash equivalents in joint ventures and excluding $5.0 million of yield generating investment.

Introduction

During the first half of 2014 the Group continued to focus on developing and reassessing its assets in Ukraine, while remaining vigilant to the continuing political uncertainty. Significant, further reductions were made to the Company’s cost base to maintain its financial strength pending results from operations. Pursuant to management’s focus on production initiatives, the significant re-evaluation and re-assessment of our assets by the Group’s technical team has resulted in the identification of new prospects and horizons in existing licences.

LLC Westgasinvest, a joint venture with Eni S.p.A. (“Eni”) and NAK Nadra (“Nadra”) in which Cadogan has a 15% shareholding, currently holds subsoil rights to nine unconventional (shale) gas licence areas in the Lviv Basin of Ukraine, which cover approximately 3,800 square kilometres of acreage. The Lviv Basin is considered to be one of the most attractive basins in Europe for the exploration of unconventional gas. Procurement and permitting activity continues in line with the agreed programme of activity and drilling activity start-up is expected by mid 2015.

Cadogan remains the operator for its existing conventional activities at Debeslavetska and Cheremkhivska and will retain the economic benefit from the conventional activities on these two licences.

Operations

The Company is pleased to reiterate that there have been no disruptions to its operations or to the effective management of its licences during the recent period of instability. Recent changes to the fiscal regime in Ukraine will not have any material impact on the Group’s financial position, operations or work programme.

The Company’s eastern licences analysis showed great promise in the upper intervals, in particular in Pirkovskoe. Following a thorough study of Direct Hydrocarbon Indicators (DHI) and 3D Amplitude Versus Offset (AVO) reconnaissance, a new lead has been identified and its characterization to a drillable prospect is currently underway, showing good prospectivity and significant potential size.

In the Pirkovskoe licence, following an initial period of rig-less testing on Pirk 1, work-over activity – comprising deep, high pressure and temperature testing, logging and shooting of intervals in the upper Tournaisian interval down to 5,100m – commenced on 20th May 2014. Work-over activity is expected to conclude in September 2014.

Over in the west of the country in Debeslavetska, all the updated DHI reconnaissance technologies were similarly applied with interesting results. Following minor delays due to instability in the region, planned 2D seismic acquisition was completed at the end of March 2014. Four new drillable prospects were identified with the best of these, comprising 3 different levels down to a depth of approximately 350m, targeted for drilling to commence in November 2014.

A second prospect was already selected and permitting for rig site preparation is ongoing in parallel. If drilling on the first drillable prospect proves successful, the Company anticipates drilling to commence before the end of 2014. Analysis continues on the remaining 2 identified prospects.

Some relatively deeper (circa. 600m) potential horizons also appear likely and if the Company’s analysis proves correct, these will significantly improve potential resources in the area.

In Monastyretska the planned formation light stimulation was successfully completed in mid March 2014, immediately increasing production from 20 to 30 bopd. Installation of a sucker rod pump on 13 May 2014 resulted in a further increase in production to 40-45 bopd. Stable production subsequently increased further to approximately 50 bopd. Performance tests continue and options to further optimise production are being investigated.

Negotiations with local operators for the acquisition of two additional, existing wells, are continuing with the intention being to bring them back to production. Performance monitoring of these three wells is expected to give the Company a better understanding of the reservoir characteristics and behaviour, allowing it to formulate future plans to further increase production.

Financial position

At the date of this report, the Group had cash and cash equivalents of approximately $46.8 million excluding $0.9 million of Cadogan’s share of cash and cash equivalents in the joint ventures and excluding $5.0 million of
yield generating investment. The Directors believe that the capital available at the date of this report is sufficient for the Company and the Group to continue operations for the foreseeable future.

Outlook

Following extensive re-evaluation and de-risking of current assets and work programmes allied to significant reductions to its cost base, the Company maintains its strong financial position while Ukraine continues to provide many opportunities for the Company to put its capital and expertise to work. The Board remains confident that the democratic process in Ukraine will overcome any short term obstacles and believes that the Group’s established presence in Ukraine, its skilled staff and its adherence to transparency and the highest standards of corporate governance, leave it ideally positioned to make full use of its existing human and financial resources. The Company remains uniquely placed to afford international oil companies an opportunity to commence or expand their presence in Ukraine in a secure environment working alongside people who know and understand the country, its people and its culture. At the same time the Company continues to leverage on its expanding, international relationships and remains responsive to new opportunities that continue to arise inside and outside of Ukraine.

At 30 June 2014 the Group held working interests in eight(2013: nine) gas, condensate and oil exploration and production licences in the East and West of Ukraine; out of those, Zagoryanska expired in April 2014 and the
Group is assessing possibilities to renew this licence. All these assets are operated by the Group and are located in either the Carpathian basin or the Dnieper-Donets basin, in close proximity to the Ukrainian gas distribution
infrastructures. The Group’s primary focus during the period continued to be on the re-evaluation of the existing assets to define the best drillable prospects.