Annual Financial Report

CADOGAN PETROLEUM PLC

ANNUAL FINANCIAL REPORT 2013

Key developments during 2013:

- In Pokrovskoe Field, new prospects have been identified in the
Permian formation and Upper Carboniferous

- Borynya 3 well re-entered and tested with promising results

- Significant, further reductions to the Company's cost base to
maintain financial strength pending results from operations

- Monastyretska production back up to previous levels and expected
to rise further

- $29.5 million received in full and final settlement of the GPS
litigation.

- Net cash and cash equivalents at year-end of $56.5 million 
(2012: $40.5 million) excluding $0.2 million (2012: $0.7 million) of Cadogan's share
of cash and cash equivalents in joint ventures. Cash and cash equivalents at
28 April of $47.8 million excluding $1.4 million of Cadogan's share of cash and
cash equivalents in joint ventures and excluding $5.3 million of
yield-generating fixed income investments.

Group Overview

The Group's assets are located in two of the three proven hydrocarbon basins
in Ukraine, the Dniper-Donets basin and the Carpathian basin.

Zagoryanska field

The Zagoryanska licence covers an area of 49.6 square kilometres.
Five wells have been drilled to date in the field. Wells in the field
encountered gas in the Upper and Lower Visean and Tournaisian reservoirs, and
in one well hydrocarbons have been encountered in the Devonian reservoir.
Reservoir depths vary from 4,500 to 5,500 metres.

On 6 July 2011 Eni S.p.A ("Eni"), the major Italian integrated
energy company acquired a 60% interest in the licence.

Following the mechanical failure in the Zag 3 production tubing a
work-over to open new intervals was completed but commercial production was
not achieved due to formation low permeability. A work-over activity on Zag 2
well started in November and is still continuing.

As at 31 December 2012 and 2013 the Group assessed the
recoverability of the carrying value of the development and production assets
related to the Zagoryanska licence. This has resulted in the impairment of the
mentioned assets to nil.

Pokrovskoe field

The Pokrovskoe licence area covers 49.5 square kilometres and is
located in the Dnieper-Donets basin. The Pokrovskoe field is approximately 
10 kilometres from the UkrTransGas system. On 6 July 2011 Eni acquired a 30%
interest in the licence. The work obligations on the licence have been
fulfilled.

Following the 3D seismic interpretation, new prospects have been
identified in the Permian formation and Upper Carboniferous.

Pirkovskoe field

Pirkovskoe is adjacent to the Group's Zagoryanska licence. The
exploration and appraisal licence covers 71.6 square kilometres and holds 
2.5 million barrels of oil equivalent (`mmboe') of Proved and Probable (`2P')
Reserves and 138.2 mmboe of 2C Contingent Resources. Cadogan owns the
Krasnozayarska gas treatment plant, on the Pirkovskoe licence area, which is
connected to the UkrTransGas system.

A work-over activity on Pirk 1 well started in October 2013 and is
still continuing. 3D seismic reinterpretation is ongoing.

Borynya and Bitlya fields

The Bitlyanska exploration and development licence covers an area
of 390 square kilometres, tectonically belonging to the Krosno zone of the
folded Carpathians and includes the Bitlya, Borynya and Vovchenska areas. The
Bitlya and Borynya areas are approximately 9 kilometres apart and both fields
are close to the UkrTransGas pipeline at Turka, approximately 15 kilometres
away. The Borynya and Bitlyanska fields hold 219.2 mmboe 
(100 per cent - 2012: 219.2 mmboe) and 117.3 mmboe (100 per cent - 2012: 117.3 mmboe)
of Contingent Resources respectively, while no Reserves and Resources have been attributed
to the depleted Vovchenska field.

Borynya 3 well was re-entered and tested in the Krasno 1 interval
with promising results. The decision was made to put the fracturing job on hold
due to lack of data from the previous drilling activity.

Minor fields

Cadogan owns exploration, development and production licences
either directly or through subsidiaries or joint ventures in several minor
fields, of which two are currently in commercial production (Debeslavetska and
Cheremkhivska) and one (Monastyretska) is in pilot commercial development.


Strategic Report

The Strategic Report has been prepared in accordance with Section
414A of the Companies Act 2006 (the "Act"). Its purpose is to inform members
of the Company and help them assess how the Directors have performed their
legal duty under Section 172 of the Act to promote the success of the Company.

Our consistent business model

We aim to increase value through:

- Our unique expertise and knowledge of both the Ukrainian market and best
Western practices;

- Having very disciplined investment process with capital used as underwriting
capital to farm-out;

- Focusing our stand-alone drilling or workover activities to lower risk
initiatives with limited capital commitment until we obtain success in
generating new or increased production; and

- Obtaining a high return on cash to achieve material impact on the
company's profitability or cash flow focusing on yield-generating fixed income
investments, within the company's or its management's areas of expertise.

Principal activity and status of the Company

The Company is registered as a public limited company (registration
number 05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production.

The Company's shares have a standard listing on the Official List
of the UK Listing Authority and are traded on the main market of the London
Stock Exchange.

Chairman's Statement

2013 saw the continuation of operations as planned on the Company's
assets in the East and the West of the Country while significant, further
reductions have been made to the Company's cost base to maintain its financial
strength pending results from operations. Revenue, largely reflecting
production from the Group's Cheremkhivska and Debeslavetska fields and
services provided to third parties was stable at the level $3.8 million. The
loss before tax was $14.4 million (2012: $92.4 million).

At 31 December 2013 the Group had cash and cash equivalents of $56.5 million.

Operations

As anticipated, the principal focus for 2013 was to reduce the risk
of present and anticipated operations while maximising the potential existing
production potential. With workover activity on Zag 2 having commenced in
November 2013, new prospects having been identified in Pokrovskoe following 3D
seismic interpretation and continuing workover activity on Pirk 1 since
October 2013 with so far promising indications, the de-risking targets set for
our technical operations and sub-surface explorations teams have largely been
met. Borynya 3 has thus far proved disappointing with lack of data from
previous drilling activities having hampered our current efforts. However, we
remain confident in its potential value and our assessment work continues.
Production has increased moderately in Debeslavetska while potential gas
production from Cheremkhivska appears promising at this stage. In
Monastyretska production is now back up to 25 bopd and expected to rise
further. The re-evaluation of the Groups' assets continues and we remain
positive in our outlook.

The Board

There were no changes to the Board during the year, reflecting a
year of internal stability as we continue to reshape the Group. The presence
of a high-quality, experienced Board able and available to steer the Group
through challenging and occasionally volatile periods should not be taken
lightly and I wish to thank all the Board members for their continuing efforts
on behalf of the Company.

The Company is committed to acting professionally, fairly and with
integrity in all of its dealings and relationships wherever it operates, and
to implementing and enforcing effective systems to counter bribery and
corruption in all its forms. The Board recently undertook an update to all our
policies, statements and programmes entitled, "Working with Integrity". All
policies have been disseminated to staff and are available to view on the
Company's website. Our adherence to the principles contained in these policy
documents remains unshakeable and I would urge shareholders to review these.

Recent Political Developments

At the outset of this Report, I wish to state the great personal
pride I have taken in the performance and dedication of our employees and
senior management based in Kiev and across the regions, during this very
difficult period for Ukraine and its people. It is people, not bricks and
mortar, which make a company. The continuing bravery, honesty and commitment
of our employees in such turbulent times do them and, by extension, the
Company, great credit.

The Company is an apolitical organisation that will always support
the democratic process in the countries in which it operates. As stated in our
"Working with Integrity" policy documents, we stand for the principles of
greater transparency and the highest standards of corporate governance. These
overriding principles form the framework for our relations and relationships
with all governmental and non-governmental institutions both within Ukraine
and elsewhere.

Ukraine is and always has been, a bridge between East and West,
with a rich and diverse cultural history. It is now nine years since our
activities in Ukraine first began and the country continues to fascinate all
of us at the Company, driving us to continue to make a success of our
operations and forge closer relationships in Ukraine.

Strategy and Prospects

Following any period of uncertainty comes the certainty of
opportunity, and recent events in Ukraine have provided many opportunities for
the Company. While the Board continues to develop further relationships and
opportunities overseas, our established presence in Ukraine, our skilled staff
both in Kiev and also in the east and west of the country and our adherence to
the highest standards of corporate governance, give us the opportunity to act
as a beacon for western industrials and industry standards. We believe that
the Company is uniquely placed to afford such 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.

We look forward to an exciting and successful 2014 for both the
Company and the people of Ukraine.

Annual General Meeting

I look forward to meeting shareholders at the Company's Annual General Meeting
to be held at 10.30am on Thursday 26 June 2014 at Chandos House, 2 Queen Anne
Street, London W1G 9LQ.

Zev Furst
Non-executive Chairman
28 April 2014



Chief Executive Officer's Report

2013 has been another challenging year for Cadogan. Results from
oil and gas operations and activities have so far not, in general, met
expectations. However, while this and the political events of the last few
months have added an unhelpful layer of complexity to the execution of our
strategy, these circumstances should not overshadow other, tremendous
achievements. In particular our continued balance sheet recoveries have
increased Cadogan's financial strength despite the negative cash flow of our
core business. This positions us to take full advantage of the unprecedented
opportunities in the following quarters that we believe will follow the
current political upheavals, as Ukraine gets an increased focus and support
from the international community.

Core Operations

This year's purposely limited workover activity in the Zagoryanska,
Bitlyanska and Monastyretska licenses has not yet delivered the expected
results despite some success in Blazh-1. This has led management to implement
further cuts to our cost base at the end of 2013 and beginning of 2014 that
should materially reduce the G&A figures in 2014. Our continuous efforts in
seismic acquisition and interpretation across all our licenses have allowed
Cadogan to achieve a more systematic understanding of the potential of its
resources, as well as identifying promising new horizons. The Company's
strategy of focusing its stand-alone drilling or workover activities to lower
risk initiatives with limited capital commitment will be intensified, until it
obtains success in generating new or increased production. The main, low-cost
project currently underway is the targeting of shallow horizons across several
of our Western licenses and drilling of the first well in Deb is expected this
summer. For this upcoming well, as well as future shallow wells, Cadogan's
ability to use its own rig will keep capital expenditures moderate. The
activities requiring larger risk or capital commitment in comparison with the
company's current financial resources will for now remain conditional on
farm-out agreements.

The shale gas project with WGI has been progressing and the
planning on the first exploratory well is now at an advanced stage, although
we may anticipate some delay to drilling operations as a consequence of the
unstable political situation.

Non-Core Business

While the company progresses carefully and assesses its options in
its core business, we have put an increased emphasis on non-core activities as
a means to stabilise the company's cash flows. The management has worked hard
to strike a balance between shrinking our costs and maintaining our presence
in and commitment to, Ukraine while finding alternative ways to compensate for
low oil and gas sales from production. After only two years since its launch
and without the need for any meaningful investment, our service subsidiary,
Astro Service, has produced more than a third of our revenues in 2013 and
should continue its progression in 2014. The company also commenced at the end
of 2013 a physical gas trading activity that has produced limited revenues so
far but opened up new horizons that we hope will enable us to exploit
significant market distortions in the future. Finally, Cadogan is increasingly
proactive in prudent management of its cash balance, given its size in
comparison with its current revenues and P&L and the skill-set of several
senior executives within the Group. Conservative use of this cash will
maximize its utility and availability for a significant period as the company
continues to explore its strategic options in oil and gas. Obtaining a proper
return on this cash should therefore be an important objective with material
impact on the company's profitability or cash flow. Management believes that
the main focus of this activity should be on yield-generating fixed income
investments, within the company's or its management's areas of expertise.

It is the management's goal to achieve a recurrent positive cash
flow in 2014 regardless of success in the core E&P activity thanks to the
contribution of non-core service, trading and investment activities in
addition to cost reduction initiatives. Management expects to monetize further
balance sheet recoveries in 2014 to complement the cash generation from core
and non-core activities, principally relating to existing, complex tax claims
receivables.

Outlook

Ukraine has never been more relevant on the world geopolitical map
and Cadogan management continues to believe that it is ideally placed, thanks
to its ongoing efforts to maximize its resources while minimizing costs, to
turn this opportunity into value for shareholders.

Bertrand des Pallieres
Chief Executive Officer
28 April 2014


Operations Review

In 2013 the Group held working interests in nine conventional
(2012: nine) gas, condensate and oil exploration and production licences in
the East and West of Ukraine. 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 2013 was on the four biggest licences in which the main
reserve and resource potential is located: Zagoryanska, Pokrovskoe, and
Pirkovskoe in the Dnieper-Donets basin of East Ukraine and Bitlyanska, in the
Carpathian Basin of West Ukraine.

Summary of the Group's licences (as at 31 December 2013)
   
Working         
interest(%)      Licence             Expiry                 Licence type(1)

Major licences

    40.0         Zagoryanska         April 2014(3)          E&D
    70.0         Pokrovskoe          August 2016            E&D
   100.0         Pirkovskoe          October 2015           E&D
    99.8         Bitlyanska          December 2014(3)       E&D

Minor licences

    99.2         Debeslavetska(2)    November 2026          Production
    99.2         Debeslavetska(2)    September 2016         E&D
    53.4         Cheremkhivska(2)    May 2018               Production
   100.0         Slobodo-Rungerska   April 2016             E&D
    99.2         Monastyretska       November 2014(3)       E&D
 
(1) E&D = Exploration and Development.

(2) Debeslavetska and Cheremkhivska licences are held by WGI, in
which the Group has a 15% interest. The Group has 99.2% and 53.4% of economic
benefit in conventional activities in Debeslavetska and Cheremkhivska licences
respectively through Joint Activity Agreements ("JAA").

(3) License extension process is ongoing

In addition to above licences the Group has a 15% interest in
Westgasinvest LLC ("WGI"), which holds the Reklynetska, Zhuzhelianska,
Cheremkhivsko-Strupkivska, Debeslavetska Exploration, Debeslavetska
Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska
licences for unconventional activities.

Zagoryanska licence

The Group has a 40 per cent working interest in the Zagoryanska
licence area. The Zagoryanska licence previously reported 96.4 mmboe of
contingent resources but, in light of the 2012 drilling campaign and a recent
expert review carried out in Kiev by Brand Vick, the total contingent
resources (gas and condensate) (2C) have been reduced to 7.7 mmboe.

The exploration and development licence covers 49.6 square
kilometres and in 2009 the licence was extended until April 2014. The work
obligations have been fulfilled.

Following the joint venture ("JV") formed with Eni in July 2011,
under which Eni acquired a 60 per cent interest in the Zagoryanska licence, a
work-over and drilling plan was implemented to verify and exploit the
potentially productive intervals.

The work over in the wells Zag 1, 2, and 8 did not bring to commercial production.

The well Zag 3 was worked over after a mechanical failure, the V19
and V18 intervals were perforated, lifted and tested but no commercial
production was achieved.

The Zag 11 well drilling assessed and tested the V24, V23, V19, and
V18 intervals. Hydrocarbons were proven but with no commercial flow.

As at 31 December 2012 the Group assessed the recoverability of the 
carrying value of the development and production assets related to the 
Zagoryanska licence. This has resulted in the impairment of the mentioned
assets to nil (for details refer to Note 4(b) of the Consolidated
Financial Statements).

An extensive revision and reinterpretation of the 3D seismic and
Geological and Geophysical ("G&G") studies to value and price all the possible
reserves potential is still ongoing.

Zag 3 for V18 and V19 perforation and nitrogen lifting did not
bring to commercial production results.

Zag 2 for V17 perforation and nitrogen lifting did not bring to
commercial production results. A coiled tubing intervention is planned.

Zag 1 and Zag 11 wells are under evaluation for possible work-over
intervention.

Pokrovskoe licence

The Group holds a 70 per cent working interest in the Pokrovskoe
licence. Prospective resources reported by GCA at the end of December 2009
were 51.1 mmboe.

The exploration licence covers 49.5 square kilometres and the
initial licence was extended until August 2016.

After the JV with Eni, that acquired 30 per cent of the Group's
Pokrovskoe licence, the drilling of the Pokrovskoe 2a well indicated the
presence of hydrocarbons in the deeper Tournasian levels, beneath both the
Pokrovskoe 1 and Pokrovskoe 2 wells, but due to mechanical problems the well
was suspended with a future option of re-entry.

On 9 March 2012 the Group was advised by Eni that, following their
analysis of the results for the Pokrovskoe 1 and Pokrovskoe 2a wells, they did
not intend to exercise the option to acquire the additional 30 per cent.
Notwithstanding Eni's decision not to exercise the option, Eni continues to
hold a 30 per cent share in the Pokrovskoe licence.

On the basis of the previous results and the clear indication of
the presence of a positive hydrocarbons generation and migration system, it
was decided to continue the investigation of the area. The thorough 3D seismic
re-interpretation has been successfully concluded for the relative shallow
horizons. One drillable new prospect in the Permian formation 
(about 2.200m deep) and other two leads in the moderately deeper horizons have been
identified.

Pirkovskoe licence

The Group has a 100 per cent working interest in the Pirkovskoe
licence which holds 2.5 mmboe of 2P Proven and Probable Reserves 
(2012: 2.5 mmboe) and 138.2 mmboe of 2C Contingent Resources. This exploration and
appraisal licence covers 71.6 square kilometres and expires October 2015.

The remaining work programme includes: (a) the testing of
Pirkovskoe 1, which is ongoing; (b) deepening to 5,450 metres and testing of
the suspended Pirkovskoe 2 well; (c) the drilling of a new well; 
and (d) calculation of the potential hydrocarbon reserves.

The Pirkovskoe 2 well is currently suspended. The revision and
reinterpretation of the 3D seismic and G&G studies is still ongoing to value
and price all the possible reserves potential.

The Group owns the Krasnozayarska gas treatment plant located in
the Pirkovskoe licence area, which is connected to the UkrTransGas system and
is continuing the service contract with a nearby local operator.

The work-over in Pirk 1 started in October 2013 with the objective
to perforate V17 interval, lifting and testing. Results were encouraging but
no sustainable production with gas and liquid hydrocarbon was achieved.
Operations are still ongoing.

Bitlyanska licence area

The Bitlyanska exploration and development licence covers an area
of 390 square kilometres with the Group's interest at 99.8 per cent. There are
three hydrocarbon discoveries in this licence area, namely Bitlyanska, Borynya
and Vovchenska. The Borynya and Bitlyanska fields hold 219.2 mmboe (gross)
(2012: 219.2 mmboe) and 117.3 mmboe (gross) (2012: 117.3 mmboe) of Contingent
Resources respectively, while no Reserves and Resources have been attributed
to the depleted Vovchenska field.

In the 1970s drilling of the Borynya 1 resulted in a blow out and
Borynya 2 reportedly tested gas at very high rates. In 2009 Cadogan drilled
the Borynya 3 well down to 5,325m, proximal to these two Soviet era wells,
suspended due to very highly pressured gas bearing zones. Several intervals
showed very interesting evidence of gas during drilling, confirmed by logging.
Due to the difficult operations' conditions, three very limited open hole
drill stem tests were run. In particular, from one of the secondary reservoir
targets at around 3,600m gas was tested at a maximum flow rate of 128,000
cubic metres per day.

In 1994 the Bitlya 1 well tested non-commercial gas from several
zones down to 3,200 metres. Although, at that time, the presence of an active
hydrocarbon system was established, the recent 2D seismic data interpretation
demonstrates that the well was poorly located in relation to any structural
closure.

In 2010 a 2D survey was completed in the southern part of the
licence area to complement the Soviet era 2D seismic data that had been
reprocessed by Cadogan. This integrated data set has been interpreted with the
benefit of recent surface geological mapping and balanced section generation,
and a series of prospects for future exploration drilling have been
identified.

Based on the new prospect structures model, and internal
re-evaluation, 430 mmboe of contingent resources have been estimated (p50) in
house.

Borynya 3 well has been re-entered and tested in two Krosno 1
intervals (2685-2745m and 2890m- 2935m) with interesting flows of gas,
condensate and oil. The planned fracturing job remains on hold because the
engineering study was inconclusive due to essential information not being
available from the previous drilling data collection; a way forward is under
evaluation and the deeper horizons will be considered.

The planned vintage seismic lines in the Vovchenska area were
purchased and interpreted; a new additional seismic program has been prepared
to define possible prospective areas.

The remaining work obligations for this licence are under re-negotiation.

Minor fields

The Group has a number of minor licence areas located in Western
Ukraine. These include the following:

- Debeslavetska Production licence area

A production licence containing 0.860 mmboe of Proved Reserves
(2012: 0.845 mmboe). The field is currently producing 95.0 boepd 
(2012: 84.0 boepd). Newcompressor unit and dehydration facilities for production
optimisation have been installed as per the programme and are contributing to
energy and emissions saving in 2013.

- Debeslavetska Exploration licence area

An exploration licence surrounding the Debeslavetska Production
licence area which is considered quite promising in shallow gas production
potential following the positive preliminary results of Amplitude versus
Offset ("AVO") and Inversion Analysis. The purchase of vintage seismic data
was completed in 2013. The acquisition of 100 linear kilometres of 2D seismic
lines is in progress, expected to be completed by April 2014. One shallow well
is approved for drilling from July 2014, a second one is contingent. A
geomechanical model from satellite data, using the "InSar" technologies, will
be applied to understand and predict the gas depletion in the area for better
wells location identification.

- Cheremkhivska Production licence area

A production licence containing 0.038 mmboe of proved reserves
(2012: 0.029 mmboe). This licence is currently producing 23.9 boepd 
(2012: 32.8 boepd).

Potential gas production from shallow intervals seems to be
promising from this licence. Preliminary studies have not yet been conclusive.
Vintage seismic data were purchased. Acquisition of 30 linear kilometres of 2D
seismic lines to assess and estimate the reserves will be considered in 2014.

- Slobodo-Rungerska licence area

An exploration and development licence, with no booked Reserves and
Resources (2012: nil). Seismic data for this area was reprocessed in 2010 and
the results indicate a deeper structure underlying the depleted and abandoned
Slobodo-Rungerska Field. The ongoing re-evaluation of the block has identified
6.7 mmboe of oil prospective resources (best estimate), further petrophysical
and reservoir studies are currently underway.

- Monastyretska licence area

An exploration and development licence, with no booked Reserves or
Resources (2011: nil). The Blazhiv 1 well was re-entered during the year.

After the formation cleaning performances deteriorated from 20-25
to 10-15 bopd. It was decided to clean the formation with a light acid
chemical that is showing good results. The well is now spontaneously producing
at a rate of 25 bopd and a sucker rod pump is going to be installed. Expected
production is 40 bopd.

The other two presently shut-in wells could be suitable for
intervention and are under evaluation.


Financial Review

Overview

In 2013 the Group focused on the operations in west Ukraine on
Borynya 3 well, re-interpretation of the existing seismic, and preparation for
the seismic acquisition in the selected western assets.

Revenue was stable at the level of $3.8 million; however the sales
mix has changed from that in 2013. Sales of hydrocarbons have decreased from
$3.0 million to $2.5 million due to decreasing production volumes at
Debeslavetska and Cheremkhivska fields. Revenue from service business has
increased from $0.8 million to $1.3 million. The cash position of 
$56.5 million at 31 December 2013 has increased from $40.5 million at 
31 December 2012 mainly due to receivable from Global Process Systems ("GPS") 
paid in April 2013.

Income statement

Loss before tax was $14.4 million (2012: $92.4 million). Revenues
of $3.8 million (2012: $3.8 million) comprised sales of gas from the
Debeslavetska and Cheremkhivska fields, and revenue from the service business.
Cost of sales, which represents production royalties and taxes, depreciation
and depletion of producing wells and direct staff costs increased to 
$3.0 million in 2013 from $2.6 million in 2012 to give a gross profit of 
$0.8 million (2012: $1.1 million).

- Other administrative expenses of $8.9 million 
(2012: $7.5 million) comprise other staff costs, professional fees, Directors'
remuneration and depreciation charges on non-producing property, plant and
equipment. In addition to recurring administrative expenses, $0.5 million
(2012: $0.5 million) of professional costs were incurred in relation to
litigation and $0.5million (2012: nil) of shortfall between the receivable
from GPS and the amount of settlement.

- Share of losses in joint ventures of $6.7 million (2012: $58.3 million), 
represents the loss from the operations of joint ventures, which
have been consolidated using the equity method. This comprised of loss of i) $2.8
million from operations on Zagoryanska license of which $0.4million is the
foreign exchange loss on the loans to Cadogan Group, ii) loss of $3.4 million
from operations on Pokrovska license of which $2.3 million is the foreign
exchange loss on the loans to Cadogan Group, and iii) loss of $0.5 million
from operations of Westgasinvest LLC.

- Other operating expenses of $0.3 million (2012: $2.9 million)
includes $0.3 million of net foreign exchange losses (2012: $3.6 million)
related to the revaluation of USD denominated monetary assets of the Group's
UK entities which have GBP as the functional currency. 

Cash flow statement

The Consolidated Cash Flow Statement below shows cash from
operations of $24.0 million (2012: cash used in operations of $0.5 million)which
related mainly to receivable from GPS of $30.0 million, $29.5 million of which
has been recovered under the settlement in April 2013. In addition, the Group
has occurred capital expenditure of $3.0 million (2012: $0.1 million) on
intangible Exploration and Evaluation ("E&E") assets and $0.8 million 
(2012: $1.1 million) on Property, Plant & Equipment ("PP&E"). In 2013 the Group 
invested into joint ventures  $4.7 million (2012: $22.5 million), mainly to cover
the historical capex incurred in 2012 and to repay the operating service charges 
to Cadogan as the operating services provider.

Balance sheet

As at 31 December 2013, the Group had net cash and cash equivalents
of $56.5 million (2012: $40.5 million). Intangible E&E assets of $6.0 million
(2012: $3.0 million) represent the carrying value of the Group's investment in
exploration and appraisal assets as at 31 December 2013. The PP&E balance of
$43.9 million at 31 December 2013 (2012: $46.4 million), reflects the cost of
developing fields with commercial reserves and bringing them into production.
Investments in joint ventures of $65.9 million (2012: $67.9 million) mainly
represents the carrying value of the Group's investment into Pokrovska
licenses and Westgasinvest LLC (costs related to Zagoryanska license have been
fully impaired), which are accounted for in accordance with IFRS 11 using the
equity method (for details please see Note 19). Trade and other receivables of
$6.9 million (2012: $39.6 million) includes $4.1 million (2012: $6.9 million)
receivable from joint ventures in respect of management charges, loan issued
to Oil and Gas Management Services Group Limited ("OAGSG") of $1.6 million,
VAT recoverable of $0.3 million (2012: $0.1 million) in respect to VAT arose
at UK companies, and $0.4 million (2012: $0.8 million) in prepayments.

Key performance indicators

The Group monitors its performance in implementing its strategy
with reference to clear targets set out for four key financial and one key
non-financial performance indicators (`KPIs'):

- to increase oil, gas and condensate production measured on number
of barrels of oil equivalent produced per day (`boepd');

- to increase the Group's oil and gas reserves by de-risking
possible resources and contingent reserves into 2P Reserves. This is measured
in million barrels of oil equivalent (`mmboe');

- to increase the realised price per 1,000 cubic metres;

- to increase the Group's basic and diluted earnings per share; and

- to maintain no lost time incidents.

The Group's performance in 2013 against these targets is set out in
the table below, together with the prior year performance data. No changes
have been made to the source of data or calculation used in the year.

                                                     Unit      2013   2012
Financial KPIs
Average production (working interest basis)(1)       boepd       88    181
2P reserves(2)                                       mmboe      2.6    2.6
Realised price per 1,000 cubic metres(3)             $        483.8  486.0
Basic and diluted loss per share(4)                  cents     (6.4) (40.1)

Non-financial KPIs
Lost time incidents(5)                               incidents    0      0

(1) Average production is calculated as the average daily
production during the year.

(2) Quantities of 2P reserves as at 31 December 2012 and 2013 are
based on Gaffney, Cline & Associates' independent reserves report on 2P
Reserves as at 31 December 2009, dated 16 March 2010, as adjusted for the
actual production during 2012 and 2013 respectively.

(3) This represents the average price received for gas sold during
the year (including VAT).

(4) Basic and diluted profit per Ordinary share is calculated by
dividing the net profit for the year attributable to equity holders of the
parent company by the weighted average number of Ordinary shares during the
year.

(5) Lost time incidents relate to injuries where an
employee/contractor is injured and has time off work.

Related party transactions

Related party transactions are set out in note 29 to the
Consolidated Financial Statements.

Treasury

The Group continually monitors its exposure to currency risk. It
maintains a portfolio of cash and cash equivalent balances mainly in US dollars 
('USD') held primarily in the UK. Production revenues from the sale of
hydrocarbons are received in the local currency in Ukraine ('UAH'), however
the hydrocarbon prices are linked to the USD denominated gas and oil prices.
To date funds from such revenues have been held in Ukraine for further use in
operations rather than being remitted to the UK. Funds are transferred to the
Company's subsidiaries in USD to fund operations at which time the funds are
converted to UAH.

Risks and uncertainties
There are a number of potential risks and uncertainties, which
could have a material impact on the Group's long-term performance and could
cause the actual results to differ materially from expected and historical
results. Executive management review the potential risks and then classify
them as having a high impact, above $5 million, medium impact above $1 million
but below $5 million, and low impact below $1 million. They also assess the
likelihood of these risks occurring. Risk mitigation factors are reviewed and
documented based on the level and likelihood of occurrence. The Audit
Committee reviews the risk register and monitors the implementation of
improved risk mitigation procedures via Executive management.

The Group has analysed the following categories as key risks:

Risk                                    Mitigation

Operational risks

Health, Safety and Environment ("HSE")

The oil and gas industry by its         The Group maintains HSE system in
nature conducts activities which can    in place demands that
be seriously impacted by health,        management, staff and
safety & environmental incidents.       contractors adhere to it. The
Serious incidents can have not only a   system ensures that the Group
financial impact but can also damage    meets Ukraine legislative
the Group's reputation and the          standards in full and achieves
opportunity to undertake further        international standards to the
projects.                               maximum extent possible.

Drilling operations

The technical difficulty of drilling    The incorporation of detailed
wells in the Group's locations and      sub-surface analysis into a
equipment limitations can result in     robust engineered well design and
the unsuccessful completion of the      work programme, with appropriate
well.                                   procurement procedures and on
                                        site management competence aims
                                        to minimise risk.
Production and maintenance

Some of the Group's facilities have     All plants are operated at
been inherited, and although fully      standards above the Ukraine
checked were not installed under our    minimum legal requirements.
supervision and there is a risk of      Operative staff is chosen for its
plant failure.                          experience and receives
                                        supplemental training to ensure
                                        that facilities are operated and
                                        maintained at a high standard.
 
There is a risk that production or      Service providers are rigorously
transportation facilities can fail      reviewed at the tender stage and 
due to poor performance of the          are monitored during the contract
Group's suppliers and control of        period.
some facilities being with other
governmental or commercial
organisations.

Work over and abandonment

Certain of the Group's wells were       Work programmes are designed to
drilled by the State and other          assess the status of the wells
private companies and will be worked    and any work that is not safe or
over. There is a risk that Cadogan's    is not technically feasible will
activities fail because of problems     be abandoned. Qualified
inherited with these sites.             professionals will be used to
                                        design a step-by-step approach to
                                        re-entering old wells.
 
Any well stock that is not considered   All sites that are abandoned will
satisfactory for purpose or poses an    be restored and re-cultivated to
environmental hazard will need to be    meet or exceed standards required
abandoned.                              by the relevant environmental
                                        control authorities and in
                                        compliance with recognised
                                        international standards.
Sub-surface risks

The success of the business relies on   All externally provided and
accurate and detailed analysis of the   historic data is rigorously
sub-surface. This can be impacted by    examined and discarded when
poor quality data, either historic or   appropriate. New data acquisition
recently gathered, and limited          is considered and appropriate
coverage. Certain information           programmes implemented, but
provided by external sources may not    historic data can be reviewed and
be accurate.                            reprocessed to improve the
                                        overall knowledge base.

Some local contractors may not          Detailed supervision of local
acquire data accurately, and there is   contractors by Cadogan management
frequently limited choice of locally    is followed. Plans are discussed
available equipment or contractors of   well in advance with both local
a desirable standard.                   and international contractors in
                                        an effort to ensure that
                                        appropriate equipment is
                                        available.

Data can be misinterpreted leading to   All analytical outcomes are
the construction of inaccurate models   challenged internally and peer
and subsequent plans.                   reviewed. Interpretations are
                                        carried out on modern geological
                                        software. A staff training
                                        programme has been put in place.

Financial risks

The Group may not be successful in      The Group performs a review of
achieving commercial production from    its O&G assets for impairment on
an asset and consequently the           annual basis. The Group considers
carrying values of the Group's oil      on an annual basis whether to
and gas assets may not be recovered     commission a Competent Person's
through future revenues.                Report (`CPR') from an
                                        independent reservoir engineer.
                                        The CPR provides an estimate of
                                        the Group's reserves and
                                        resources by field/licence area.
                                        As no new production has been
                                        achieved during 2013, Management
                                        has decided not to commission a
                                        new CPR during 2013.
 
                                        As part of the annual budget
                                        approval process the Board
                                        considers and evaluates projects
                                        for the forthcoming year and
                                        considers the appropriate level
                                        of risk. The Board has approved a
                                        work programme for 2014. Further
                                        attempts to bring in partners and
                                        mitigate the Group's risk
                                        exposure are underway.
 
There is a risk that insufficient       The Group manages the risk by
funds are available to meet             maintaining adequate cash
development obligations to              reserves and by closely
commercialise the Group's major         monitoring forecast and actual
licences.                               cash flow, as well as short and
                                        longer funding requirements.
                                        Management reviews these
                                        forecasts regularly and updates
                                        are made where applicable and
                                        submitted to the Board for
                                        consideration.
 
                                        The farm-out campaign to conserve
                                        cash and mitigate risk will
                                        continue through 2014.
 
The Group could be impacted by          These risks are mitigated by
failing to meet regulatory reporting    employing suitably qualified
requirements in the UK, and statutory   professionals who, working with
tax and filing requirements in both     advisers when needed, are
Ukraine and the UK.                     monitoring regulatory reporting
                                        requirements, and who ensure that
                                        timely submissions are made.
 
The Group operates primarily in         Clear authority levels and robust
Ukraine, an emerging market, where      approval processes are in place,
certain inappropriate business          with stringent controls over cash
practices may from time to time         management and the tendering and
occur. This includes bribery, theft     procurement process. Adequate
of Group property and fraud, all of     office and site protection is in
which can lead to financial loss.       place to protect assets.
                                        Anti-bribery policies are in
                                        place.

Risk                                    Mitigation
Financial risks 
The Group is at risk from changes in    Revenues are received in UAH and
the economic environment both in        expenditure is made in UAH, but
Ukraine and globally, which can cause   funds are transferred in US
foreign exchange movements, changes     dollars to Ukraine. The Group
in the rate of inflation and interest   continues to hold most of its
rates and lead to credit risk in        cash reserves in the UK mostly in
relation to the Group's key             US dollars. Cash reserves are
counterparties.                         placed with leading financial
                                        institutions which are approved
                                        by the Audit Committee. The Group
                                        is predominantly a US dollar
                                        denominated business. Foreign
                                        exchange risk is considered a
                                        normal and acceptable business
                                        exposure and the Group does not
                                        hedge against this risk.
 
                                        Refer to note 29 to the
                                        Consolidated Financial Statements
                                        for detail on financial risks.

Corporate risks

Should the Group fail to comply with    The Group designs a work
licence obligations there is a risk     programme and budget to ensure
that its entitlement to the licence     that all licence obligations are
will be lost.                           met. The Group engages
                                        proactively with government to
                                        re-negotiate terms and ensure
                                        that they are not onerous.

Ukraine is an emerging market and as    The Group minimises this risk by
such the Group is exposed to greater    maintaining the funds in
regulatory, economic and political      international banks outside
risks than other jurisdictions.         Ukraine and by continuously
Emerging economies are generally        maintaining a working dialogue
subject to a volatile political         with the regulatory authorities.
environment which could adversely
impact on Cadogan's ability to
operate in the market.

Since November 2013, Ukraine has been
in a political and economic turmoil.
The Ukrainian Hryvnia devalued against
major world currencies and significant
external financing is required to 
maintain stability of teh economy.
In February 2014, Ukraine's sovereign 
rating has been downgraded to CCC with
a negative outlook. The Government 
however is expecting significant
funding from the international creditors
in 2014, with Interntaional Monetary Fund 
("IMF") being the largest.

The further political developments are 
currently unpredictable and may
adversely affect the Ukrainian econmy.

The Group's success depends upon        The Group periodically reviews
skilled management, technical and       the compensation and contract
administrative staff. The loss of       terms of its staff.
service of critical members from the
Group's team could have an adverse
effect on the business.


Statement of Reserves and Resources

The Group did not commission an independent Reserves and Resources
Evaluation of the Group's oil and gas assets in Ukraine as at 31 December
2013, due to insufficient new information arising from operational activity
before the year end. The summary of the Reserves and Resources below are based
on the Independent Reserves and Resources Evaluation performed by Gaffney
Cline and Associates as at 31 December 2009, adjusted for subsequent actual
production and expert review and studies performed with an external firm in
Kiev and in house.

                             Summary of Reserves
                            As of 31 December 2013

                                                       Working interest basis
                                                        Gas   Condensate   Oil
                                                        bcf     mmbbl    mmbbl
Proved and Probable Reserves at 1 January 2013         11.3       0.6        -
Production                                             (0.2)        -        -
Proved and Probable Reserves at 31 December 2013       11.1       0.6        -
Possible Reserves at 1 January 2013 and 31 December    19.5       1.5        -
2013

                       Summary of Contingent Resources
                            As of 31 December 2013

                                                      Working interest basis
                                                       Gas   Condensate  Oil   Total
                                                       Bcf     mmbbl    mmbbl  mmboe
Contingent Resources at 1 January 2013             2,357.3      97.9        -  522.2
Change in working interest                               -         -        -      -
Contingent Resources at 31 December 2013           2,357.3      97.9        -  522.2

Reserves are assigned only to the Pirkovskoe, Debeslavetska and
Cheremkhivska fields.

Contingent Resources are assigned to the Zagoryanska, Pirkovskoe,
Borynya and Bitlya fields, where development is contingent on further
appraisal.

Prospective Resources of 165.9 billion cubic feet ("bcf") 
(2011: 165.9 bcf) of gas and 5.9 mmbl (2011: 5.9 mmbl) of condensate are attributed
to the Pokrovskoe field (reflecting Cadogan's working interest), where there
has not yet been a production test.

The Board recognises the requirement under Section 414C of the Act
to detail information about employees, human rights and community issues,
including information about any policies it has in relation to these matters
and the effectiveness of these policies.

The Group considers the sustainability of its business as a key and
competitive element of its strategy. Meeting the expectations of our
stakeholders is the way in which we secure our licence to operate, and to be
recognised in the values we declare is the best added value we can bring in
order to profitably prolong our business. The Board recognises that the health
and safety of its employees and of the communities and protecting the
environment it impacts are the key drivers for the sustainable development of
the Company's activity. Our Code of Ethics and the adoption of internationally
recognised best practices and standards are our and our employees' references
for conducting our operations.

Our activities are carried out in accordance with a policy manual,
endorsed by the Board, which has been disseminated to all staff. The manual
includes policies on business conduct and ethics, anti-bribery, the acceptance
of gifts and hospitality, and whistleblowing.

The Group's Health, Safety and Environment Manager reports directly
to the Chief Operations Officer. His role is to ensure that the Group has
developed suitable procedures and that operational management have
incorporated them into daily operations, and he has the necessary level of
autonomy and authority to discharge his duties effectively and efficiently.

The Board believes that health and safety procedures and training
across the Group should be to the standard expected in any company operating
in the oil and gas sector. Accordingly, it has set up a Committee to review
and agree health and safety initiatives and report back on progress. The
monthly management report to the Board contains a full report on both health
and safety, and environmental issues, and key safety and environmental issues
are discussed by the Executive Management. The Health, Safety and Environment
Committee Report is below.

Health, safety and environment

The Group has developed an integrated Health, Safety and
Environmental ('HSE') management system. The system aims, by a continuous
improvement programme, to ensure that a safety and environmental protection
culture is embedded in the organisation. The HSE management system ensures
that both Ukrainian and international standards can be met with the Ukrainian
HSE legislation requirements taken as an absolute minimum although the
international requirements are in the main met or exceeded. All the Group's
local operating companies in East and West Ukraine have all the necessary
documentation and systems in place to ensure compliance with Ukrainian
legislation.

A proactive approach to the prevention of incidents has been in
place throughout 2013, which relies on an observation cards system and
reliable near-miss reporting. Staff training on HSE matters is recognised as
the key factor to generate continuous improvement. In-house training is
provided to help staff meet international standards and follow best practice.
At present, special attention is being given to training on risk assessments,
incident reporting and investigation, as well as hazard and operational
('HAZOP') studies to ensure that international standards are maintained even
if they exceed those required by Ukrainian legislation.

The Board monitors lost time incidents as a key performance
indicator of the business, to reasonably verify that the procedures in place
are robust. The Board has benchmarked safety performance against the HSE
performance index measured and published annually by the International
Association of Oil & Gas Producers. In 2013, the Group recorded a total of
440,386 man hours worked. There were no Lost Time Incidents ('LTIs') recorded
in 2013 and a total of over one million man hours have been worked without an
LTI since the previous incident was recorded in July 2011.

Vehicle safety and driving conduct remain among the Company's
priorities in controlling hazards and preventing injuries. As of the end of
2013, the Company has recorded almost 8.4 million kilometres driven without an
LTI.

The European Bank for Reconstruction and Development ('EBRD') was,
until February 2013, a substantial shareholder in the Company and closely
monitored the environmental and community aspects of the Group's activities.
An environmental report was submitted to the EBRD each year summarising the
Group's compliance with local HSE regulation and standards. The EBRD required
and reviewed the results of audits undertaken by external consultants which
were used to generate an environmental action plan. The Group remains highly
conscious of the need to optimise its activities in order to reduce their
environmental impact of its operations. In 2012, a number of steps were taken
in this direction, such as replacing the old compressor unit at the
Debeslavetske Gas Treatment Facility, which benefited the environment by
decreasing fuel consumption and air emissions while improving the overall
efficiency of the plant.

Starting from 2013, the Company is committed to prepare a baseline
to assess and monitor its environmental performance, namely, the consumption
of electricity and industrial water and fuel consumption by cars, plants and
other work sites. We have developed of procedures necessary for
improving the Group's environmental performance, taking into account
the requirements of any applicable policies, such as UK
regulations on mandatory reporting of greenhouse gas emissions.

Employees

Certain of the Group's operations are undertaken by sub-contractors' specialists 
having the technical knowledge required for complex wells' drilling operations. 
Local interest is part of the Company's sustainable development policy and wherever 
possible local staff are recruited and procedures are in place to ensure that all 
recruitments are undertaken on a transparent and fair basis with no discrimination 
between applicants. Each operating company has its own Human Resources staff to 
ensure that the Group's employment policies are properly implemented and followed. 
As required by Ukrainian legislation, Collective Agreements are in place with the Group's
Ukrainian subsidiary companies which provide an agreed level of staff benefits
and other safeguards for employees. The Group's Human Resources policy covers
key areas such as equal opportunities, wages, overtime and non-discrimination.
All staff are aware of the Group's grievance procedures.

Sufficient levels of health insurance are provided by the Group to
employees to ensure they have access to good medical facilities. Each
employee's training needs are assessed on an individual basis to ensure that
their skills are adequate to support the Group's operations, and to help them
to develop.

Gender diversity

The Board of Directors of the Company comprised of five male
Directors throughout the year to 31 December 2013. The appointment of any new
Director is made on the basis of merit. See below for more information on
the composition of the Board. There were no females holding Senior Manager
position as at 31 December 2003 (1).

As at 31 December 2013, the Company comprised a total of 121
employees, as follows:

                          Male   Female
Non-executive directors      3        0
Executive directors          2        0
Other employees             85       31
All employees               90       31

(1) Senior Managers are directors of subsidiary companies or who otherwise have
responsibility for planning, directing or controlling the activities of the 
company or a strategically significant part of it.

Human rights

Cadogan's commitment to the fundamental principles of human rights is embedded
in our HSE policies and throughout our business processes. We promote the core
principles of human rights pronounced in the UN Universal Declaration of Human
Rights. Our support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with suppliers
wherever we do business.

Community

The Group's activities are carried out in rural areas of Ukraine
and the Board is aware of its responsibilities to the local communities in
which the Group operates and from which some of the employees are recruited.
At current operational sites, management works with the local councils to
ensure that the impact of operations is as low as practicable by putting in
place measures to mitigate their effect. Key projects undertaken include
improvement of the road infrastructure in the area, which provides easier
access to the operational sites while at the same time minimising
inconvenience for the local population and allowing improved road
communications in the local communities. Specific charitable activities are
undertaken for the direct benefit of local kindergartens, schools, sporting
facilities and medical services, as well as other community-focused
facilities. All activities are followed and supervised by managers who are
given specific responsibility for such tasks.

The Group's local companies see themselves as part of the community
and are involved not only with financial assistance, but also with practical
help and support. The recruitment of local staff generates additional income
for areas that otherwise are predominantly dependent on the agricultural
sector.

Approval

The Strategic Report was approved by the Board of Directors on 
28 April 2014 and signed on its behalf by:

Laurence Sudwarts
Company Secretary
28 April 2014


Board of Directors

Zev Furst, 66, American
Chairman

Appointed to the Board on 2 August 2011, Mr Furst is a leading
global business and communications strategist who has advised political
leaders, foreign principals and corporate executives of Fortune 100 companies.
He is the Chairman and CEO of First International Resources, an international
corporate and political consulting firm he founded in 1992. Mr Furst
specialises in providing strategic counsel on crisis management, market entry,
corporate positioning and personal reputational issues. In recent years, he
has also advised and consulted with candidates running for national office in
Israel, Japan, Mexico and Ukraine.

In 1986, Mr Furst was a founding partner of Meridian Resources and
Development Ltd, an international commodities trading company specialising in
chemicals and petroleum products.

Mr Furst currently serves as Chairman of the International Board of
the Peres Center for Peace and is a member of the Advisory Board of the Kennan
Institute in Washington, DC. He has written and lectured extensively on
international affairs, business and political strategy and the role of media
in politics and diplomacy.

Mr Furst is Chairman of the Company's Nomination Committee and a
member of the Remuneration Committee.

Bertrand des Pallieres, 47, French
Chief Executive Officer

Mr des Pallieres was appointed as Chief Executive Officer on 1
August 2011, having joined the Board as a non-executive Director on 26 August
2010. Mr des Pallieres is also the CEO of SPQR Capital Holdings SA, a major
shareholder of the Company.

Previously he was the Global Head of Principal Finance and member
of the Global Market Leadership Group of Deutsche Bank from 2005 to 2007. From
1992 to 2005 he held various positions at JPMorgan including Global Head of
Structured Credit, European Head of Derivatives Structuring and Marketing, and
Co-head of sales for Europe, Middle East and Africa. He is a non-executive
director of Versatile Systems Inc. listed on the Toronto and London Stock
Exchanges and Equus Total return, Inc., listed on the NYSE.

Mr des Pallieres is a member of the Nomination Committee.

Adelmo Schenato, 62, Italian
Chief Operating Officer

Mr Schenato was appointed to the Board as Chief Operating Officer
on 25 January 2012. He joined the Company after a 35-year career at Eni S.p.A
('Eni'), the Italian integrated energy business, where he served in senior
global and regional positions.

His global roles at Eni included Well Operations Research and
Development and Technical Management, and Vice President HSE & Sustainability.
His regional roles include General Manager of Tunisia, Gabon and Angola as
well as CEO of Eni's Italian gas storage company.

Gilbert Lehmann, 68, French
Senior Independent non-executive Director

Mr Lehmann was appointed to the Board on 18 November 2011. He is
currently acting as an adviser to the Executive Board of Areva, the French
nuclear energy business, having previously been its Deputy Chief Executive
Officer responsible for finance. He is also a former Chief Financial Officer
and deputy CEO of Framatone, the predecessor to Areva, and was CFO of Sogee,
part of the Rothschild Group. Mr Lehmann is also Deputy Chairman and Chairman
of the Audit Committee of Eramet, the French minerals and alloy business. He
is Deputy Chairman and Audit Committee Chairman of Assystem SA, the French
engineering and innovation consultancy. He was Chairman of ST Microelectronics
NV, one of the world's largest semiconductor companies, from 2007 to 2009, and
stepped down as Vice Chairman in 2011.

Mr Lehmann is currently Chairman of the Company's Audit Committee
and a member of the Remuneration and Nomination Committees.

Enrico Testa, 62, Italian

Independent non-executive Director

Appointed to the Board on 1 October 2011, Mr Testa has a long and
varied background in the energy market. He was Chairman of the Board of ACEA
(the Rome electricity and water utility company) from 1996 to 2002. He was
Chairman of the Board of Enel S.p.A, the major Italian electricity supplier,
during its privatisation. From 2005 to 2009 he was Chairman of Roma
Metropolitane, the Rome council-owned company constructing new underground
lines. He was also Chairman of the Organising Committee for the 20th World
Energy Congress held in Rome in November 2007, Senior Partner at the Franco
Bernabè Group which owns several investments in the IT sector and, from 2002
to 2005, he was member of the Advisory Board of Carlyle Europe and Chairman of
the Italian Nuclear Forum since 2010. In addition, between 2004 and August
2012 Mr Testa was Managing Director of Rothschild S.p.A.

He is currently Chairman of the AIM listed telecommunications
company Telit Communications Plc, Vice Chairman of Intecs S.p.A and Chairman
of E.VA - Energie Valsabbia S.p.A. - a company developing hydropower and solar
generating plants.

Mr Testa is Chairman of the Company's Remuneration Committee and a
member of the Audit and Nomination Committees.

Directors

The Directors in office during the year and at the date of this report are as
shown below:

Non-executive Directors      Executive Directors

Zev Furst (Chairman)         Bertrand des Pallieres

Gilbert Lehmann              Adelmo Schenato

Enrico Testa

Directors' re-election

The Board has decided previously that all Directors must be subject
to annual election by shareholders, in accordance with the best practice
guidance for FTSE 350 companies contained in the UK Corporate Governance Code
that was issued in 2012 by the Financial Reporting Council(the 'Code'). 
As such, all of the Directors will be seeking re-election at the
Annual General Meeting to be held on 26 June 2014.

The biographies of the Directors in office at the date of this
report are shown above.

Appointment and replacement of Directors

The Board may appoint any individual willing to act as a Director
either to fill a vacancy or act as an additional Director. The appointee may
hold office only until the next annual general meeting of the Company
whereupon his or her election will be proposed to the shareholders.

The Company's Articles of Association prescribe that there shall be
no fewer than three Directors and no more than fifteen.

Directors' interests in shares

The beneficial interests of the Directors in office as at 
31 December 2013 and their connected persons in the Ordinary shares of the
Company at 31 December 2013 are set out below.

Shares as at December 31                            2013        2012
Z Furst                                                -           -
B des Pallieres                                  200,000     200,000
G Lehmann                                              -           -
E Testa                                                -           -
A Schenato                                             -           -

Directors' indemnities and insurance

The Company continues to maintain Directors' and Officers'
Liability Insurance. The Company's Articles of Association provide, subject to
the provisions of the Companies Act 2006, an indemnity for Directors in
respect of any liability incurred in connection with their duties, powers or
office. Save for such indemnity provisions, there are no qualifying third
party indemnity provisions.

Powers of Directors

The Directors are responsible for the management of the business
and may exercise all powers of the Company (including powers to issue or buy
back the Company's shares), subject to UK legislation, any directions given by
special resolution and the Articles of Association. The authority to buy back
shares, granted at the 2013 Annual General Meeting, remains unused.

Dividends

The Directors do not recommend payment of a dividend for the year to 
31 December 2013 (2012: $nil).

Principal Activity and Status

The Company is registered as a public limited company (registration
number 05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production.

Structure of share capital

The authorised share capital of the Company is currently
£30,000,000 divided into 1,000,000,000 Ordinary shares of 3 pence each. The
number of shares in issue as at 31 December 2013 was 231,091,734 Ordinary
shares of 3 pence each with a nominal value of £6,932,752. The Companies
(Acquisition of Own Shares) (treasury Shares) Regulations 2003 (the
`Regulations') allow companies to hold shares in treasury rather than cancel
them. Following the consolidation of the issued capital of the Company on 
10 June 2008, there were 66 residual Ordinary shares which were transferred to
treasury. No dividends may be paid on shares whilst held in treasury and no
voting rights attach to shares held in treasury.

Rights and obligations of Ordinary shares

On a show of hands at a general meeting every holder of Ordinary
shares present in person or by proxy and entitled to vote shall have one vote
and, on a poll, every member present in person or by proxy, shall have one
vote for every Ordinary share held. In accordance with the provisions of the
Company's Articles of Association, holders of Ordinary shares are entitled to
a dividend where declared and paid out of profits available for such purposes.
On a return of capital on a winding up, holders of Ordinary shares are
entitled to participate in such a return.

Exercise of rights of shares in employee share schemes

None of the share awards under the Company's incentive arrangements
are held in trust on behalf of the beneficiaries.

Agreements between shareholders

The Board is unaware of any agreements between shareholders which
may restrict the transfer of securities or voting rights.

Restrictions on voting deadlines

The notice of any general meeting of the Company shall specify the
deadline for exercising voting rights and appointing a proxy or proxies to
vote at a general meeting. It is the Company's policy at present to take all
resolutions at a general meeting on a poll and the results of the poll are
published on the Company's website after the meeting.

Substantial shareholdings

As at 31 December 2013 and 28 April 2014, the Company had been
notified of the following voting rights attached to the Company's shares:

                                            31 December 2013              28 April 2014
                                                      % of total                 % of total
                                          Number of       voting       Number of     voting
Major shareholder                       shares held       rights     shares held     rights

SPQR Capital Holdings SA                 67,298,498        29.12      67,298,498      29.12
Mr Pierre Salik                          40,550,000        17.55      40,550,000      17.55  
Mr Michel Meeus                          26,000,000        11.25      26,000,000      11.25  
J Benaim                                 21,660,582         9.37      21,660,582       9.37   
Credit Agricole Indosuez (Suisse) SA     12,050,000         5.21      12,050,000       5.21   
Credit Suisse Private Banking             7,477,091         3.24       7,477,091       3.24  


Amendment of the Company's Articles of Association

The Company's Articles of Association may only be amended by a special resolution of shareholders.

Disclosure of information to auditors

As required by section 416 of the Companies Act 2006, each of the
Directors as at 28 April 2014 confirms that:

(a) so far as the Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and

(b) the Director has taken all the steps that he ought to have
taken as a Director in order to make himself aware of any relevant audit
information and to establish that the Company's auditor is aware of that
information.

This confirmation is given and should be interpreted in accordance with 
section 416 of the Companies Act 2006.

Going concern

After making enquiries, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the Consolidated and Company
Financial Statements. For further detail refer to the detailed discussion of
the assumptions outlined in note 3(b) to the Consolidated Financial
Statements.

Change of control - significant agreements

The Company has no significant agreements containing provisions
which allow a counterparty to alter and amend the terms of the agreement
following a change of control of the Company.

Should a change in control occur then certain senior staff are
entitled to a payment of salary and benefits for a period of six months.

Certain of the Company's long-term incentive arrangements contain
provisions which permit awards or options to vest or become exercisable on a
change of control in accordance with the rules of the plans.

Global greenhouse gas emissions

This section contains information on greenhouse gas ("GHG")
emissions required by the Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013 ("the Regulations").

Reporting year

The reporting year coincides with the Company's fiscal year, which
is 1 January 2013 to 31 December 2013. This is the first year in which GHG
reporting has been conducted by the Company, and it will be used as the
baseline year for comparison in future years.

Methodology

The principal methodology used to calculate the emissions is drawn
from the 'Environmental Reporting Guidelines: including mandatory greenhouse
gas emissions reporting guidance (June 2013)', issued by the Department for
Environment, Food and Rural Affairs ("DEFRA"). Additionally, 'Petroleum
Industry Guidelines for Reporting Greenhouse Gas Emissions (2nd edition, May
2011)' were used to cover issues specific for the petroleum industry. DEFRA
GHG conversion factors for company reporting were utilised to calculate the
CO2 equivalent of emissions from various sources. In certain limited cases,
where information was available only for a part of the reporting period, the
total emissions were extrapolated by extending the available information to
cover the full reporting period. This occurred where it was not possible to
retrieve information on the amount of heating supplied to one of the Company's
office buildings, due to an office move.

The Company has reported on all of the emission sources required
under the Regulations.

The Company does not have responsibility for any emission sources
that are not included in our consolidated statement.

Consolidation approach and organisation boundary

An operational control approach was used to define the Company's
organisational boundary and responsibility for GHG emissions. All material
emission sources within this boundary have been reported upon, in line with
the requirements of the Regulations.

Scope of reported emissions

Emissions data from the sources within Scope 1 and Scope 2 of the
Company's operational boundaries is detailed below. This includes direct
emissions from assets that fall within the Company's organisational boundaries
(Scope 1 emissions), as well as indirect emissions from energy consumption,
such as purchased electricity and heating (Scope 2 emissions).

Intensity ratio

In order to express the GHG emissions in relation to a quantifiable
factor associated with the Company's activities, wellhead production of crude
oil, condensates and natural gas has been chosen as the normalisation factor
for calculation of the intensity ratio. This will allow comparison of the
Company's performance over time, as well as with other companies in the
Company's peer group.

Total greenhouse gas emissions data for the period from 1 January
2013 to 31 December 2013

Greenhouse gas emissions source               Tonnes of CO2 equivalent
Scope 1
Direct emissions, including combustion of    
fuel and operation of facilities                                 1,313
Scope 2
Indirect emissions from energy consumption,   
including electricity and heating purchased
for own use                                                        705
Total (Scope 1 & 2)                                              2,018


Annual General Meeting

A notice for the Annual General Meeting (the `AGM') to be held at
10.30 am on 26 June 2014 at Chandos House, 2 Queen Anne Street, London W1G 9LQ
is set out below. The following notes provide an explanation of
all of the Resolutions to be put to the AGM. Resolutions 1 to 12 will be
proposed as ordinary resolutions requiring the approval of more than 50 per
cent. of the votes cast at the meeting and Resolutions 13 to 15 will be
proposed as special resolutions requiring the approval of at least 75 per cent
of the votes cast at the meeting. The Board considers that the resolutions to
be put to the meeting are in the best interests of the Company and the
shareholders as a whole. Accordingly, the Directors unanimously recommend that
you vote in favour of the proposed resolutions at the AGM, as they intend to
do in respect of their own beneficial holdings.

Annual Financial Report (Resolution 1)

Shareholders are being asked to receive the Annual Financial Report
of the Company for the financial year ended 31 December 2013. The Annual
Financial Report comprises the Annual Accounts of the Group together with the
Directors' Report, Annual Report on Remuneration and the auditor's report on
those Accounts and the auditable part of the Annual Report on Remuneration.

Approval of Annual Report on Remuneration (Resolution 2)

Shareholders are being asked to approve the Annual Report on
Remuneration for the financial year ended 31 December 2013, as set out on
pages 38 to 43.

Approval of Directors' Remuneration Policy (Resolution 3)

A new directors' remuneration reporting regime came into effect on
1 October 2013. Shareholders will now have an annual advisory vote on the
report on Directors' remuneration and a binding vote, to be held every three
years, on the remuneration policy of the Directors. Accordingly, shareholders
are being requested to vote on the receipt and approval of the Annual Report
on Remuneration 2013 as set out below and on the Directors' Remuneration Policy 
below.

Election and re-election of Directors (Resolutions 4 to 9)

Under Article 118 of the Company's Articles of Association, every
Director must seek re-election by members at least once every three years.
However, it is now the Board's practice for every Director to seek re-election
by shareholders every year as recommended by the Code. Accordingly,
resolutions 4 to 8 deal with the re-election of each of the Company's
Directors.

Biographies of each of the Directors seeking re-election are set
out above. All of the Directors proposed for re-election have wide
ranging business knowledge and bring valuable skills and experience to the
Board and the Board considers that each of the Directors continues to make an
effective and valuable contribution and demonstrates commitment to the role.
Accordingly, the Board recommends the re-election of each of these Directors.

Resolution 9 deals with the election of Mr Michel Meeus to the Board of
Directors of the Company. Given Mr Meeus' more than three decades' experience
spanning both the financial and the energy sectors, sectors of vital
importance to the Company at the present time, the Board believes that Mr
Meeus will make a valuable and effective contribution to the Company and
therefore recommends that shareholders vote in favour of his election.

Auditor (Resolutions 10 and 11)

Deloitte LLP have indicated that they are willing to continue in
office as the Company's auditor. Resolution 10 seeks shareholders' approval to
reappoint Deloitte LLP as auditor of the Company to hold office until the
conclusion of the next general meeting at which the Annual Financial Report is
laid before the shareholders. Resolution 11 seeks shareholders' authorisation
for the Directors to determine the auditor's remuneration.

Authority to Allot Shares (Resolution 12)

The Directors may allot or grant rights over Ordinary shares only
if authorised to do so by a resolution of shareholders. Resolution 12 seeks a
new authority under section 551 of the Companies Act 2006 to authorise the
Directors to allot shares or grant rights to subscribe for, or convert any
security into, shares in the Company. It will expire at the conclusion of next
year's AGM or, if earlier, on 30 June 2015. Resolution 12 follows
institutional investor guidelines regarding the authority to allot shares.

Paragraph (a) of resolution 12 would give the Directors authority
to allot shares or grant rights to subscribe for, or convert any security
into, shares (`Rights') up to a maximum nominal amount of £2,310,917,
representing approximately one third of the Company's existing issued share
capital. This maximum is reduced by the nominal amount of shares allotted or
Rights granted pursuant to paragraph (b) of resolution 12 in excess of
£2,310,917. Paragraph (b) of resolution 12 gives the Directors authority to
allot shares or grant Rights in connection with a rights issue only up to a
maximum nominal amount of £4,621,834 representing approximately two-thirds of
the Company's existing issued share capital. This maximum is reduced by the
nominal amount of shares allotted or Rights granted pursuant to paragraph (a)
of resolution 12.

Therefore, the maximum nominal amount of shares allotted or Rights
granted under resolution 12 is £4,621,834, representing approximately
two-thirds of the Company's existing issued share capital.

As at close of business on 28 April 2014, the Company did not hold
any treasury shares.

The Directors do not currently intend to use this authority.
However, if they do use it, then they intend to follow best practice
(including as regards standing for re-election in certain cases), as
recommended by institutional investor guidelines.

Disapplication of Pre-Emption Rights (Resolution 13)

If the Directors wish to allot any shares or grant rights over
shares or sell treasury shares for cash (other than under an employee share
scheme) they are required by the Companies Act 2006 to offer them to existing
shareholders pro rata. In certain circumstances, it may be in the interests of
the Company to raise capital without such a pre-emptive offer. Resolution 13
therefore seeks a waiver of shareholders' pre-emptive rights and (aside from
rights issues or other pro rata offers), the authority will be limited to the
issue of securities for cash up to a maximum aggregate nominal value of
£346,637 - approximately five per cent of the Company's issued Ordinary share
capital as at 23 April 2014 (being the latest practicable date prior to the
date of the Notice of AGM).

The Directors confirm their intention to adhere to the provisions
in the Pre Emption Group Statement of Principles regarding cumulative usage of
authorities over more than 7.5 per cent of the Company's issued Ordinary share
capital in any three-year period.

This resolution also seeks a disapplication of the pre-emption
rights on a rights issue to permit such arrangements as may be appropriate to
resolve legal or practical problems which, for example, might arise with
overseas shareholders. The authority will expire at the conclusion of next
year's AGM or, if earlier, on 30 June 2015.

Directors' Authority to Purchase Shares (Resolution 14)

The Company may wish to purchase its own shares and resolution 14
seeks authority to do so. If passed, the Company would be authorised to make
market purchases up to a total of 23,109,173 shares - just under ten per cent
of the Company's issued Ordinary share capital as at 28 April 2014. The
Directors will generally only exercise this power when the effect of such
purchases is expected to increase earnings per share and will be in the best
interests of shareholders generally. Shares purchased may be cancelled and the
number in issue will be reduced accordingly. The Company may hold in treasury
any of its own shares that it purchases in this manner.

The Company does not have any outstanding share options.

Notice of General Meetings (Resolution 15)

The purpose of resolution 15 is to allow the Company to continue to
call general meetings (other than AGMs) on 14 clear days' notice. The
Directors do not expect to use this power unless urgent action is required on
the part of the shareholders. If resolution 15 is passed, the approval will be
effective until the Company's next AGM when it is expected that a similar
resolution will be proposed.

It should be noted that, in order to be able to call a general
meeting on less than 21 clear days' notice, the Company must make a means of
electronic voting available to all shareholders for that meeting.

This Directors' Report has been approved by the Board and signed on its behalf by:

Laurence Sudwarts
Company Secretary

28 April 2014


The Board of the Company is committed to the highest standards of
corporate governance and bases its actions on the principles set out in the
Code issued by the Financial Reporting Council ('FRC') in September 2012 (the
'Code'). The Code can be found on the FRC's website at www.frc.org.uk

This statement describes how the Group applies the principles of
the Code. On 20 December 2011 the Company's listing category on the London
Stock Exchange was transferred from `Premium Listing' to `Standard Listing'.
Although companies with a standard listing are subject to less stringent
corporate governance requirements, the Board has decided that the Group will
continue to govern itself in accordance with the principles of the Code and
explain why it has chosen not to comply with any of the provisions of the
Code.

During the year under review, the Group has complied with the
Code's provisions with the following exceptions:

- Code provision A.4.2 - During the year, the Chairman did not hold
meetings with the non-executive Directors without the executives present

- Code provision E.1.1 - The Senior Independent Director has not
attended meetings with major shareholders

The reasons for these two areas of non-compliance are as follows:

- Although the Chairman did not hold formal meetings of the
non-executive Directors during the year, regular discussions took place by
telephone and email.

- The Senior Independent Director, Mr Lehmann, did not attend meetings with
major shareholders as this responsibility was undertaken by the
Chairman and the Executive Directors. Mr Lehmann is available to shareholders
who have concerns that they feel would be inappropriate to raise via the
Chairman or Executive Directors.

Board

The Board provides leadership and oversight. The Board comprises a
non-executive Chairman, Chief Executive Officer, Chief Operating Officer and
two independent non-executive Directors. The membership of the Board and
biographical details for each of the Directors are incorporated into this
report by reference and appear above.

As at the date of this report, the Chairman had no significant
commitments that might affect his ability to allocate sufficient time to the
Company to discharge his responsibilities effectively.

Under the Company's Articles of Association, all Directors must
seek re-election by members at least once every three years. However, the
Board has agreed that all Directors will be subject to annual election by
shareholders, as recommended by the Code in respect of FTSE 350 companies.
Accordingly, all members of the Board will be standing for re-election at the
Annual General Meeting to be held on 26 June 2014.

The Board has a formal schedule of matters specifically reserved
for it to decide, including approval of acquisitions and disposals, major
capital projects, financial results, Board appointments, dividend
recommendations, material contracts and Group strategy. Five Board meetings
took place during 2013.

The Chairman, in conjunction with the Company Secretary, plans the
programme for the Board during the year. The agenda for Board and Committee
meetings is considered by the relevant Chairman and issued with supporting
papers during the week preceding the meeting. For each Board meeting, the
Directors receive a Board pack including detailed monthly management accounts,
briefing papers on commercial and operational matters and major capital
projects including acquisitions. The Board also receives briefings from key
management on specific issues. The attendance of those Directors in place at
the year end at Board and Committee meetings during the year was as follows:

                                      Audit   Nomination   Remuneration
                          Board   Committee    Committee      Committee
No. Held                      5           3            1              1
No. Attended:
Z Furst                       4         n/a            0              0
B des Pallieres               5         n/a            0            n/a
G Lehmann                     5           3            1              1
E Testa                       4           3            1              1
A Schenato                    5         n/a          n/a            n/a

A procedure exists for the Directors, in the furtherance of their
duties, to take independent professional advice if necessary, under the
guidance of the Company Secretary and at the Company's expense. All Directors
have access to the advice and services of the Company Secretary, who is
responsible to the Chairman for ensuring that Board procedures are complied
with and that applicable rules and regulations are followed.

Board independence

The roles and responsibilities of Chairman and Chief Executive
Officer are separate. A formal division of each individual's responsibilities
has been agreed and documented by the Board. Mr Lehmann is the Senior
Independent Director.

The non-executive Directors bring an independent view to the
Board's discussions and the development of its strategy. Their range of
experience ensures that management's performance in achieving the business
goals is challenged appropriately. The three non-executive Directors, Messrs
Furst, Lehmann and Testa, are considered by the Board, in accordance with the
Code, to be independent. The letters of appointment for the independent
non-executive Directors are available for review at the Registered Office and
prior to the Annual General Meeting. For information regarding the Annual
General Meeting please refer to the Notice of Meeting below.

Responsibilities and membership of Board Committees

The Board has agreed written terms of reference for the Nomination
Committee, Remuneration Committee and Audit Committee. The terms of reference
for all three Board Committees are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the terms of reference, membership and
activities of all Board Committees is provided below.

Board performance evaluation

Principle B.6 of the Code recommends that boards undertake a formal
and rigorous annual evaluation of its own performance and that of its
committees and individual directors. The Board is mindful that it needs to
continually monitor and identify ways in which it might improve its
performance and recognises that board evaluation is a useful tool for
enhancing a board's effectiveness. For the year ended 31 December 2013, the
Board opted to undertake self-evaluation by way of a questionnaire designed
specifically to assess the strengths of the Board and identify any areas for
development.

The process was led by Mr Furst as Chairman and the evaluation of
the Chairman's performance was led by Mr Lehmann as the Senior Independent
Director. The Board discussed the evaluation questionnaire findings, which
were also used by the Nomination Committee in its annual assessment of the
Board's composition. The Directors are committed to ensuring that the Board
continues to represent a broad balance of skills, experience, independence and
knowledge and that there is sufficient diversity within the composition of the
Board. All appointments are made on merit against objective criteria - which
include gender and diversity generally - in the context of the requirements of
the business and the overall balance of skills and backgrounds that the Board
needs to maintain in order to remain effective.

Internal control

The Directors are responsible for the Group's system of internal
control and for maintaining and reviewing its effectiveness. The Board has
delegated responsibility for the review of the Group's internal controls to
the Audit Committee. The Group's systems and controls are designed to
safeguard the Group's assets and to ensure the reliability of information used
both within the business and for publication.

Systems are designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can provide only reasonable, and
not absolute, assurance against material misstatement or loss.

The key features of the internal control systems which operated
during 2013 and up to the date of signing the accounts are documented in the
Group's Corporate Governance Policy Manual and Finance Manual. These manuals
have been circulated throughout the Group. In addition, the Company's joint
venture entities adopted policies that mirror the Company's own, except WGI,
where ENI's policies are adopted.

Day-to-day responsibility for the management and operations of the
business has been delegated to the Chief Executive Officer and senior
management.

Certain specific administrative functions are controlled centrally.
Taxation, treasury and insurance functions report to the Director of Group
Finance who reports directly to the Chief Executive Officer. The legal
function is managed by the General Counsel who reports to the Board and also
attends all Board meetings. The Health and Safety and Environment functions
report to the Chief Operating Officer. An overview of the Group's Treasury
policy is set out above.

The Group does not have an internal audit function. Due to the
small scale of the Group's operations at present, the Board do not feel that
it is appropriate or economically viable to have this function in place. The
Audit Committee will continue to consider the position annually.

The Board has reviewed the process, which has been in place from
the start of the year to the date of approval of this report and which is in
accordance with revised guidance on internal control published in October 2005
(the 'Turnbull Guidance'). During the course of its review of the risk
management and internal control systems, the Board has not identified nor been
advised of any failings or weaknesses which it has deemed to be significant.
Therefore a confirmation in respect of necessary actions has not been
considered appropriate.

Relations with shareholders

The Chairman and Executive Directors of the Company have a regular
dialogue with analysts and substantial shareholders. The outcome of these
discussions is reported to the Board and discussed in detail. Mr Lehmann, as
the Senior Independent Director, is available to shareholders who have
concerns that they feel would be inappropriate to raise via the Chairman or
Executive Directors.

The Annual General Meeting is used as an opportunity to communicate
with all shareholders. In addition, financial results are posted on the
Company's website, www.cadoganpetroleum.com, as soon as they are announced.
The Notice of the Annual General Meeting is contained in this report below. 
It is intended that the Chairmen of the Nomination, Audit and
Remuneration Committees will be present at the Annual General Meeting. The
results of all resolutions will be published on the Company's website,
www.cadoganpetroleum.com.

Audit Committee Report

The Audit Committee is appointed by the Board, on the
recommendation of the Nomination Committee, from the non-executive Directors
of the Group. The Audit Committee's terms of reference include all matters
indicated by the Code. They are reviewed annually by the Audit Committee and
any changes are then referred to the Board for approval. The terms of
reference of the Committee are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum.

Responsibilities

- To monitor the integrity of the annual and interim financial
statements, the accompanying reports to shareholders, and announcements
regarding the Group's results.

- To review and monitor the effectiveness and integrity of the
Group's financial reporting and internal financial controls.

- To review the effectiveness of the process for identifying,
assessing and reporting all significant business risks and the management of
those risks by the Group.

- To oversee the Group's relations with the external auditor and to
make recommendations to the Board, for approval by shareholders, on the
appointment and removal of the external auditor.

- To consider whether an internal audit function is appropriate to
enable the Audit Committee to meet its objectives.

- To review the Group's arrangements by which staff of the Group
may, in confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters.

Governance

Mr Testa and Mr Lehmann, who are both independent non-executive
Directors under provision B.1.1 of the Code, are the members of the Audit
Committee. The Audit Committee is chaired by Mr Lehmann who has recent and
relevant financial experience as a former finance director of major European
companies as well as holding several non-executive roles in major
international entities.

At the invitation of the Audit Committee, the Group Director of
Finance and external auditor regularly attend. The Company Secretary attends
all meetings of the Audit Committee.

The Audit Committee also meets the external auditor without
management being present.

Activities of the Audit Committee

During the year, the Audit Committee discharged its
responsibilities as follows:

Financial statements

The Audit Committee examined the Group's consolidated and Company's
financial statements and, prior to recommending them to the Board, considered
the appropriateness of accounting policies adopted and whether the financial
statements represented a true and fair view.

Internal controls and risk management

The Audit Committee reviews and keeps under review financial and
control issues throughout the Group including the Group's key risks and the
approach for dealing with them.

External auditor

The Audit Committee is responsible for recommending to the Board,
for approval by the shareholders, the appointment of the external auditor.

The Audit Committee considers the scope and materiality for the audit work,
approves the audit fee, and reviews the results of the external auditor's
work. Following the conclusion of each year's audit, it considers the
effectiveness of the external auditor during the process. An assessment of the
effectiveness of the audit process was made, giving consideration to reports
from the auditors on their internal quality procedures. The Committee reviewed
and approved the terms and scope of the audit engagement, the audit plan and
the results of the audit with the external auditors, including the scope of
services associated with audit-related regulatory reporting services.
Additionally, auditor independence and objectivity were assessed, giving
consideration to the auditors' confirmation that their independence is not
impaired, the overall extent of non-audit services provided by the external
auditors and the past service of the auditors who were first appointed.

We have also taken account of the latest recommendations of the Code in
relation to the regular tendering of the external audit appointment.

Deloitte LLP was first appointed in 2005. Having satisfied itself
as to their qualifications, expertise, resources and independence and the
effectiveness of the audit process, the Audit Committee has recommended to the
Board, for approval by shareholders, the reappointment of Deloitte LLP as the
Company's external auditor.

There is an agreed policy on the engagement of the external auditor
for non-audit services to ensure that their independence and objectivity are
safeguarded. Work closely related to the audit, such as taxation or financial
reporting matters, can be awarded to the external auditor by the executive
Directors provided the work does not exceed £50,000 in fees per item. Work
exceeding £50,000 requires approval by the Audit Committee. All other
non-audit work either requires Audit Committee approval or forms part of a
list of prohibited services, where it is felt the external auditor's
independence or objectivity may be compromised.

A breakdown of the non-audit fees is disclosed in note 10 to the
notes to the Consolidated Financial Statements. The Company's external
auditor, Deloitte LLP, has provided non-audit services (excluding audit
related services) which amounted to $105,000 (2012: $119,000). The Audit
Committee has reviewed the level of these services in the course of the year
and is confident that the objectivity and independence of the auditor is not
impaired by the reason of such non-audit work.

Internal audit

The Audit Committee considers annually the need for an internal
audit function and believes that, due to the size of the Group and its current
stage of development, an internal audit function will be of little benefit to
the Group.

The Group's whistleblowing policy encourages employees to report
suspected wrongdoing and sets out the procedures employees must follow when
raising concerns. The policy, which was implemented during 2008, was refreshed
in 2013 and recirculated to staff as part of a manual that includes the
Company's policies on anti-bribery, the acceptance of gifts and hospitality,
and business conduct and ethics.

Political and economic uncertainty in Ukraine

Recent political turmoil in Ukraine has made it necessary for management to
assess the extent of its impact on the Group's operations and assets.

The Committee reviewed reports from management which considered whether
adjustments are required to the carrying values of assets and the
appropriateness of the going concern assumption. As a result management have
concluded that there were no significant adverse consequences in relation to
the Group's operations, cash flows and assets that impact the 2013 financial
statements, apart from continuous uncertainty related to key assumptions used
by management in assessment of the recoverable amount of production assets
including the gas price and the discount factor in particular. Any further
escalations of the political crisis may impact the Group's normal business
activities, and increase the risks relating to its business operations,
financial status and maintenance of its Ukrainian production licences.

In discussion with the external auditors, the Committee
acknowledged the inherent difficulty in making any assessment as to the
eventual outcome of the present political situation and, as a consequence, the
difficulty of making a reliable judgement as to the future impact, if any, on
the Group's business. The Committee concurs with conclusions reached by
management summarized in Note 4 to the financial statements.

Other significant issues related to 2013 financial statements

For the year ended 31 December 2013 the Audit Committee identified
the significant issues that should be considered in relation to the financial
statements, being areas which may be subject to heightened risk of material
misstatement.

The Group estimates of oil and gas reserves have a significant
impact on the financial statements, in particular in relation to depletion,
depreciation and decommissioning ("DD&A") and impairment. Oil and gas
reserves, as discussed in the Statement of Reserves and Resources, are based
on the Independent Reserves and Resources Evaluation performed by Gaffney
Cline and Associates as at 31 December 2009, adjusted for subsequent actual
production and expert review and studies performed with external firm in Kiev
and in house.

Following discussions with management and the auditors, including
discussing the range of sensitivities, the Committee is satisfied with results
of the assessment of recoverable amount of production assets. However,
reserves estimates are inherently uncertain, especially in the early stages of
a field's life, and are routinely revised over the producing lives of oil and
gas fields as new information becomes available and as economic conditions
evolve. The Audit Committee acknowledges that such revisions may impact the
Group's future financial position and results, in particular, in relation to
DD&A and impairment testing of oil and gas property, plant and equipment.

The Audit Committee considered the Group's intangible exploration
and evaluation assets and interests in exploration and evaluation assets held
through joint ventures individually for any indicators of impairment including
those indicators set out in IFRS 6 Exploration for and Evaluation of Mineral
resources. The Audit Committee has not found any evidence for the existence of
any such indicators of impairment. The Audit Committee has discussed the
Group's exploration and evaluation assets with both management and the
auditor's and concur with the treatment adopted.

Overview

As a result of its work during the year, the Audit Committee has
concluded that it has acted in accordance with its terms of reference and has
ensured the independence and objectivity of the external auditor. A formal
review of the Audit Committee's performance was undertaken after the year end
and concluded that the Committee is effective in its scrutiny of the accounts
and financial reporting process, its oversight of risk management systems and
its monitoring of internal control testing.

The Chairman of the Audit Committee will be available at the Annual
General Meeting to answer any questions about the work of the Audit Committee.

Health, Safety and Environment Committee Report

The Health, Safety and Environment Committee (the `HSE Committee')
is appointed by the Board, on the recommendation of the Nomination Committee.
The HSE Committee's terms of reference are reviewed annually by the HSE
Committee and any changes are then referred to the Board for approval. The
terms of reference of the Committee are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum, one of whom must be a
Director.

Responsibilities

- To develop a framework of the policies and guidelines for the
management of health, safety and environment issues within the Group.

- Evaluate the effectiveness of the Group's policies and systems
for identifying and managing health, safety and environmental risks within the
Group's operation.

- Assess the policies and systems within the Group for ensuring
compliance with health, safety and environmental regulatory requirements.

- Assess the performance of the Group with regard to the impact of
health, safety, environmental and community relations decisions and actions
upon employees, communities and other third parties and also assess the impact
of such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement.

- On behalf of the Board, receive reports from management
concerning any fatalities and serious accidents within the Group and actions
taken by management as a result of such fatalities or serious accidents.

- Evaluate and oversee, on behalf of the Board, the quality and
integrity of any reporting to external stakeholders concerning health, safety,
environmental and community relations issues.

- Where it deems it appropriate to do so, appoint an independent
auditor to review performance in regard to health, safety, environmental and
community relations matters and review any strategies and action plans
developed by management in response to issues raised and, where appropriate,
make recommendations to the Board concerning the same.

Governance

The HSE Committee was in place throughout 2013. Members of the HSE
Committee as of April 2014 are Mr Adelmo Schenato (Chief Operating Officer and
HSE Committee Chairman), Mr Oleg Sybira (HSE Manager), Mr Luciano Kovacic
(Exploration Manager). The Company Secretary attends meetings of the HSE
Committee. The HSE Committee meets monthly to monitor continuously progress by
management.

Activities of the Health, Safety and Environment Committee

During the year the HSE Committee discharged its responsibilities
as follows:

- The ongoing review of existing HSE policies and procedures, as
well as development of new ones, was regularly discussed at the Committee
meetings in relation to the current activities.

- Compliance with HSE regulatory requirements was ensured through
discussion of any inspections, both internal ones and those carried out by the
Authorities.

- HSE statistics were a standing item on the agenda, allowing the
HSE Committee to assess the Company's performance by analysing any lost-time
incidents (of which there were none during 2013), near misses, HSE training
and other indicators.

- Interaction with contractors, Authorities, local communities and
other stakeholders was discussed among other HSE activities.

Overview

As a result of its work during the year, the HSE Committee has
concluded that it has acted in accordance with its terms of reference.

Nomination Committee Report

The Nomination Committee is appointed by the Board predominantly
from the non-executive Directors of the Group. The Nomination Committee's
terms of reference include all matters indicated by the Code. They are
reviewed annually by the Nomination Committee and any changes are then
referred to the Board for approval. The terms of reference of the Nomination
Committee are published on the Company's website, www.cadoganpetroleum.com,
and are also available from the Company Secretary at the Registered Office.
Two members constitute a quorum.

Responsibilities

- To regularly review the structure, size and composition
(including the skills, knowledge and experience) required of the Board
compared to its current position and make recommendations to the Board with
regard to any changes.

- Be responsible for identifying and nominating for the approval of
the Board candidates to fill Board vacancies as and when they arise.

- Before appointment is made by the Board, evaluate the balance of
skills, knowledge, experience and diversity on the Board and, in the light of
this evaluation, prepare a description of the role and capabilities required
for a particular appointment.

In identifying suitable candidates, the Nomination Committee shall
use open advertising or the services of external advisers to facilitate the
search and consider candidates from a wide range of backgrounds on merit,
taking care that appointees have enough time available to devote to the
position.

The Nomination Committee shall also make recommendations to the
Board concerning:

- Formulating plans for succession for both executive and
non-executive Directors and in particular for the key roles of Chairman and
Chief Executive Officer.

- Membership of the Audit and Remuneration Committees, in
consultation with the Chairmen of those committees.

- The reappointment of any non-executive Director at the conclusion
of their specified term of office, having given due regard to their
performance and ability to continue to contribute to the Board in the light of
the knowledge, skills and experience required.

- The re-election by shareholders of any Director having due regard
to their performance and ability to continue to contribute to the Board in the
light of the knowledge, skills and experience required.

Any matters relating to the continuation in office of any Director
at any time including the suspension or termination of service of an executive
Director as an employee of the Company subject to the provisions of the law
and their service contract.

Governance

Mr Zev Furst (Board and Nomination Committee Chairman), Mr Bertrand
des Pallieres (Chief Executive Officer), and Messrs Gilbert Lehmann and Enrico
Testa (independent non-executive Directors) are the members of the Nomination
Committee. The Company Secretary attends all meetings of the Nomination
Committee.

Activities of the Nomination Committee

The Nomination Committee carried out a review of the size,
structure and composition of the Board after the year end and concluded that
it had the appropriate balance of skills, knowledge, independence and
experience.

Overview

As a result of its work during the year, the Nomination Committee
has concluded that it has acted in accordance with its terms of reference. The
Chairman of the Nomination Committee will be available at the Annual General
Meeting to answer any questions about the work of the Nomination Committee.

This report has been prepared in accordance with Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
Amendment 2013 and an Ordinary resolution will be submitted to the
shareholders seeking their approval of the report at the Annual General
Meeting of the Company.

Statement from the Chairman

I am pleased to present the Annual Report on Remuneration for the
year ended 31 December 2013.

Shareholders may be aware that new rules for the reporting of
directors' remuneration came into effect on 1 October 2013. These now require
companies to ask shareholders to approve the annual remuneration paid to
directors every year and to formally approve the Directors' Remuneration
Policy on a three-yearly basis. Any change to the Directors' Remuneration
Policy will require shareholder approval. The vote on the Annual Report on
Remuneration is, as previously, an advisory vote, whilst the Directors'
Remuneration Policy is subject to a binding vote. Accordingly, Ordinary
Resolutions will be put to Shareholders at the forthcoming Annual General
Meeting to be held on 26 June 2014, to receive and approve the Annual Report
on Remuneration and to receive and approve the Directors' Remuneration Policy.

Given the challenging political situation present in Ukraine over
the past months, the company's aim to develop a revised, long-term and
balanced Remuneration Policy aligned to strategy and performance and linked to
shareholder preferences has of necessity taken second precedence to other
pressing matters. In the circumstances, the Company proposes to maintain its
current approach to remuneration, already long-term, balanced and aligned to
strategy and performance, until the situation in the country has settled. At
that point, the Company will bring its revised Remuneration Policy to
shareholders for consideration.

Enrico Testa
Chairman of the Remuneration Committee
28 April 2014


Information not subject to audit: Remuneration Committee

The Remuneration Committee is committed to principles of
accountability and transparency to ensure that remuneration arrangements
demonstrate a clear link between reward and performance. In its work, the
Remuneration Committee considers fully the principles and provisions of the
Code. In designing performance-related remuneration schemes for executive
Directors, the Remuneration Committee has considered and applied Schedule A of
the Code.

Remuneration Committee Report

Responsibilities

In summary, the Remuneration Committee's responsibilities, as set
out in its terms of reference, are as follows:

- To determine and agree with the Board the policy for the
remuneration of the executive Directors, the Company Secretary and other
members of executive management as appropriate.

- To consider the design, award levels, performance measures and
targets for any annual or long-term incentives and approve any payments made
and awards vesting under such schemes.

- Within the terms of the agreed remuneration policy, to determine
the total individual remuneration package of each executive Director and other
senior executives including bonuses, incentive payments and share options or
other share awards.

- To ensure that contractual terms on termination, and any payments
made, are fair to the individual and the Company, that failure is not rewarded
and that the duty to mitigate loss is fully recognised.

Governance

The Remuneration Committee consists of Mr Enrico Testa , Mr Zev Furst and 
Mr Gilbert Lehmann. At the discretion of the Remuneration Committee,
the Chief Executive Officer is invited to attend meetings when appropriate,
but is not present when his own remuneration is being discussed. The
Remuneration Committee is also supported by the Company Secretary.

Activities of the Remuneration Committee

During the year, the Remuneration Committee:

- Approved the outline structure of a Long-Term Incentive Plan 
(as recommended by PricewaterhouseCoopers, the Group's appointed external advisers) 
and directed management to develop a detailed proposal for the Remuneration Committee's 
consideration.

- Reviewed and confirmed the Company's remuneration policy, as set
out in this Annual Report on Remuneration 2013.

No awards or payments were made under incentive schemes during
2013. No new incentive schemes were introduced during the period.

Overview

As a result of its work during the year, the Remuneration Committee
has concluded that it has acted in accordance with its terms of reference. The
chairman of the Remuneration Committee will be available at the Annual General
Meeting to answer any questions about the work of the Committee.

The Remuneration Committee unanimously recommends that shareholders
vote to approve the Annual Report on Remuneration and the Directors'
Remuneration Policy at the 2014 Annual General Meeting.

Your Company's performance

A graph may be found in the Comapny's full Annual Report and Accounts
and appears on the Company's website www.cadoganpetroleum.com which highlights 
the Company's total shareholder return ('TSR') performance since listing compared
to the FTSE All Share Oil & Gas Producers index. This index has been selected on 
the basis that it represents a sector-specific group which is an appropriate group 
for the Company to compare itself against. TSR is the return from a share or index 
based on share price movements and notional reinvestment of declared dividends.

The Chairman and Executive Directors of the Company have a regular
dialogue with analysts and substantial shareholders, which includes the
subject of Directors' Remuneration. The outcome of these discussions are
reported to the Board and discussed in detail both there and during meetings
of the Remuneration Committee. Mr Lehmann, as the Senior Independent Director,
is available to shareholders who have concerns that they feel would be
inappropriate to raise via the Chairman or Executive Directors.

The Annual General Meeting is used as an opportunity to communicate
with all shareholders. In addition, financial results, including details of
Directors' remuneration, are posted on the Company's website,
www.cadoganpetroleum.com, as soon as they are announced. It is intended that
the Chairmen of the Nomination, Audit and Remuneration Committees will be
present at the Annual General Meeting. The results of all resolutions will be
published on the Company's website, www.cadoganpetroleum.com.

Arrangements for past Directors

Mr Ian Baron resigned as a Director on 15 June 2012 and received
compensation of £80,000 for termination of his consultancy agreement without
notice. Whilst a Director, Mr Baron was entitled to a payment of 10 per cent
of his base salary into a suitable pension arrangement as long as he could
demonstrate that he had made a contribution equating to 5 per cent of salary
to the arrangement. A payment relating to the accrued value from February 2011
to February 2012 was made in 2013 and 2014.

Arrangements for existing Directors

During 2013, Mr Bertrand des Pallieres continued as Chief Executive
Officer. Mr des Pallieres' salary is £246,000 ($384,941) per annum, comprising
£216,000 ($337,997) per annum under a consultancy agreement (the terms of
which are reviewed by the Remuneration Committee annually) and £30,000
($46,944) per annum under a services agreement. Any bonus to be awarded to 
Mr des Pallieres is at the discretion of the Board. In addition, Mr des Pallieres
is entitled to participate in an incentive scheme, the performance conditions
for which are set by the Remuneration Committee.

Adelmo Schenato continued as Chief Operating Officer of the Company
throughout 2013. Mr Schenato's basic salary is £212,093 ($331,728) comprising
€225,000 per annum under a consultancy agreement and £21,000 under a services
agreement. Any bonus to be awarded to Mr Schenato is at the discretion of the
Board. In addition, Mr Schenato is entitled to participate in an incentive
scheme, the performance conditions for which are set by the Remuneration
Committee.

Information subject to audit:

2013 Directors' emoluments

       Director                  $         $             $         $            $        $                $           $
                       Salary/fees   Pension       Loss of     Total  Salary/fees  Pension   Loss of office       Total
                                                    office   in 2013                                            in 2012

Z Furst                    133,008         -             -   133,008      131,714        -                -     131,714
B des Pallieres            384,941         -             -   384,941      389,935        -                -     389,935
A Schenato                 331,728         -             -   331,728      308,849        -                -     308,849
G Lehmann                   70,416         -             -    70,416       71,330        -                -      71,330
E Testa                     54,768         -             -    54,768       55,479        -                -      55,479
I Baron (resigned 15             -         -             -         -      121,524   31,966          126,808     280,298
June 2012)
TOTAL                      974,861         -             -   974,861    1,078,831   31,966          126,808   1,237,605


The remuneration of the highest paid Director, Mr des Pallieres, was $384,941 (2012: $389,935).

There were no performance payments or benefits in kind paid in 2013 (2012: $nil).

Mr des Pallieres is a non-executive Director of Versatile Systems
Inc. and Equus Total Returns Inc. Any fees paid are retained by Mr des
Pallieres.

Share Incentive Arrangements

The Company currently operates the following incentive plans:

2008 Performance Share Plan ('PSP')

The PSP offers the opportunity to earn shares in the Company
subject to the achievement of stretching performance targets. Awards can be
made under the PSP at the direction of the Remuneration Committee with a value
of up to a maximum of 200 per cent of base salary (400 per cent in exceptional
circumstances).

No Directors who held office during the year have received any
awards under the PSP.

Share options

The Company operates two share option plans: the 2008 Share Option
Plan (unapproved for HMRC purposes) and the 2008 Approved Option Plan ('CSOP')
(which is an HMRC approved plan).

No options have been exercised under any Option Scheme and thus no
gain on exercise has been realised.

There are no options outstanding at 31 December 2013.

Non-Executive Directors

In May 2011 the Board agreed that the Chairman's fee be set at
£85,000 ($131,714) and that the fee for acting as an independent non-executive
Director be set at £35,000 ($55,479) with an additional £10,000 ($15,851) for
acting as Chairman of the Audit Committee. There has been no increase in
non-executive Directors' fees since that time.

Directors' Remuneration Policy

The Company adheres to the recommendation of the Code, that levels
of remuneration should be sufficient to attract, retain and motivate directors
of the quality required to run the Company successfully. The Company, however,
will not pay more than is necessary to achieve these objectives.

Those aspects of executive directors' remuneration which relate to
performance will be testing in nature, and designed to promote the long-term
success of the Company. At present, however, there are no plans to increase
the level of fees paid to directors. In addition, views expressed by
shareholders on the fees paid to directors, will be taken into consideration
by the Board, when reviewing the Directors' Remuneration Policy and in the
annual review of directors' fees. The Company's policy when determining the
duration of notice periods, and the extent of termination payments, will be
based on prevailing best practice. The Directors' Remuneration Policy will be
put to a shareholders' vote, at least once every three years.

An Ordinary Resolution, for the approval of the Directors'
Remuneration Policy, will be put to shareholders at the forthcoming Annual
General Meeting. The Directors' Remuneration Policy will be effective
immediately, if and when the Ordinary Resolution is passed by shareholders.

The Remuneration Committee is appointed by the Board from the
non-executive Directors of the Group. The Remuneration Committee's terms of
reference include all matters indicated by the Code. They are reviewed
annually by the Remuneration Committee and any changes are then referred to
the Board for approval. The terms of reference of the Remuneration Committee
are published on the Company's website, www.cadoganpetroleum.com, and are also
available from the Company Secretary at the Registered Office. Two members
constitute a quorum.

Service agreements

The Company's policy on service agreements is that executive
Directors' agreements should, following any necessary initial notice period,
be terminable by either the Company or the Director on not more than six
months' notice. The service agreements contain provision for early
termination, among other things, in the event of a breach by the executive but
make no provision for any termination benefits except in the event of a change
of control of the Company where the executive becomes entitled to 12 months'
salary on termination by the Company. The service agreements contain
restrictive covenants for a period of 12 months following termination of the
agreement. Details of service agreements in place as at the date of this
report are set out below:

Director                 Current agreement start date      Notice period
B des Pallieres                         1 August 2011         Six months
A Schenato                            25 January 2012         Six months

Remuneration policy and package for executive Directors

The Remuneration Committee's philosophy is that remuneration
arrangements should be appropriately positioned to support the Group's
business strategy over the longer term and create value for shareholders. In
this context the following key principles are considered to be important:

- remuneration arrangements should align executive and employee
interests with those of shareholders;

- remuneration arrangements should help retain key executives and
employees; and

- remuneration arrangements should incentivise executives to
achieve short, medium and long-term business targets which represent value
creation for shareholders. Targets should relate to the Group's performance in
terms of overall revenue and profit and the executive's own performance.
Individual targets should reflect the role of the executive in question but
might relate, for example, to the generation of new revenue streams protection
of the Company's existing tangible and intangible assets and the promotion of
the Company's business interests. Exceptional rewards should only be delivered
if there are exceptional returns.

Share Incentive Arrangements

The Company currently operates the following incentive plans:

- 2008 Performance Share Plan; and

- 2008 Share Option Plan with a corresponding HMRC approved plan.

The Company made no awards in 2013 under the 2008 Share Option
Plan. There were no outstanding options as at 31 December 2013.

2008 Performance Share Plan ('PSP')

The PSP offers the opportunity to earn shares in the Company
subject to the achievement of stretching performance targets. Awards can be
made under the PSP at the direction of the Remuneration Committee with a value
of up to a maximum of 200 per cent of base salary (400 per cent in exceptional
circumstances).

No Directors who held office during the year have received any
awards under the PSP.

Directors' interests in shares

The beneficial interests of the Directors in office as at 31 December 2013 
and their connected persons in the Ordinary shares of the
Company at 31 December 2013 are set out below.

Shares as at December 31                            2013       2012
Z Furst                                                -          -
B des Pallieres                                  200,000    200,000
G Lehmann                                              -          -
E Testa                                                -          -
A Schenato                                             -          -

Share options

The Company operates two share option plans: the 2008 Share Option
Plan (unapproved for HMRC purposes) and the 2008 Approved Option Plan ('CSOP')
(which is an HMRC approved plan).

No options have been exercised under any Option Scheme and thus no
gain on exercise has been realised.

There are no options outstanding at 31 December 2013.

Remuneration policy for non-executive Directors

Independent non-executive Directors

The payment policy for independent non-executive Directors is to
pay the market rate to secure persons of a suitable calibre. The remuneration
of the non-executive Directors is determined by the Board. External
benchmarking data and specialist advisers are used when setting fees, which
will be reviewed at appropriate intervals.

In May 2011 the Board agreed that the Chairman's fee be set at
£85,000 ($131,714) and that the fee for acting as an independent non-executive
Director be set at £35,000 ($55,479) with an additional £10,000 ($15,851) for
acting as Chairman of the Audit Committee. There has been no increase in
non-executive Directors' fees since that time.

The non-executive Directors' fees are non-pensionable. The
non-executive Directors have not to date been eligible to participate in any
incentive plans; however, the Board considers that it may be appropriate in
the future to enable such participation, subject to suitably stretching
performance thresholds. All non-executive Directors have a letter of
appointment that appoints them to the Board for an initial three year period.
Under the Company's Articles of Association, they are subject to retirement
and reappointment by shareholders at the first Annual General Meeting
following appointment, and then at least once every three years thereafter.
The Board has agreed, however, that all Directors should stand for annual
re-election by the shareholders. Appointments can be terminated by the Company
on three months' notice or immediately due to a breach.

Other non-executive Directors

The dates of the non-executive Directors' original appointment and
expiry of current term in accordance with their letters of appointment are:

                                      Date of               Expiry of
Non-executive                         appointment           current term
Director                            
Z Furst                               2 August 2011         1 August 2014
E Testa                               1 October 2011        1 October 2014
G Lehmann                             18 November 2011      18 November 2014

Approval

The Annual Report on Remuneration 2013 was approved by the Board on
28 April 2014 and signed on its behalf by:

Zev Furst
Chairman
28 April 2014

Statement of Directors' Responsibilities in respect of the Annual
Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements
for each financial year. The Directors are required under that law to prepare
the Group financial statements in accordance with International Financial
Reporting Standards ('IFRSs') as adopted by the European Union and Article 4
of the IAS regulation and have also elected to prepare the Parent Company
financial statements under IFRSs as adopted by the European Union. Under
Company law, the Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and Group and of the profit or loss for that period. In preparing the
Company and Group's financial statements, International Accounting Standards
('IAS') Regulation requires that Directors:

- properly select and apply accounting policies;

- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;

- provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity's
financial position and financial performance; and

- make an assessment of the Company's and Group's ability to
continue as a going concern.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company and Group's
transactions and disclose with reasonable accuracy at any time the financial
position of the Company and Group and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for 
safeguarding the assets of the company and hence for taking reasonable steps
for the prevention and detectiln of fraud and other irregularities.

Under applicable law and regulations, the Directors are also
responsible for preparing a Directors' Report (including Business Review),
Annual Report on Remuneration, Directors' Remuneration Policy and Corporate
Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company's website,
www.cadoganpetroleum.com. Legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Annual
Report

We confirm to the best of our knowledge:

(1) the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company and the undertakings included in the
consolidation as a whole; and

(2) the management report, which is incorporated into the
Directors' Report along with the Strategic Report, includes a fair review of
the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face; and

(3) the annual report and the financial statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for the shareholders to assess the Group's performance, business
model and strategy.

On behalf of the Board

Zev Furst
Chairman
28 April 2014

The Auditors have reported on the accounts for 2013; their report was 
(i) unqualified, (ii) did not include a reference to any matters to
which the Auditors drew attention by way of emphasis without qualifying
their report and (iii) did not contain a statement under Section 498 
(2) or (3) of the Companies Act 2006. The text of the Auditor's report
can be found in the Company's full Annual Report and Accounts on the 
Company's website www.cadoganpetroleum.com


CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2013

                                                            Restated
                                                       2013     2012
 
                                             Notes    $'000    $'000
CONTINUING OPERATIONS
Revenue                                          5    3,772    3,761
Cost of sales                                        (3,019)  (2,616)
Gross profit                                            753    1,145
 
Administrative expenses:
Other administrative expenses                        (8,919)  (7,456)
Impairment of oil and gas assets                 8        -  (25,717)
Reversal of impairment of other assets           8      234      669
                                                     (8,685) (32,504)
 
Share of losses in joint ventures               19   (6,630) (58,277)
Other operating expenses, net                    6     (266)  (2,926)
Operating loss                                      (14,828) (92,562)
 
Investment revenue                              12      434      118
Finance (costs)/income                          13       (6)      34
Loss before tax                                     (14,400) (92,410)
 
Tax charge                                      14     (289)    (251)
Loss for the year                                9  (14,689) (92,661)
 
Attributable to:
Owners of the Company                               (14,660) (92,631)
Non-controlling interest                                (29)     (30)
                                                    (14,689) (92,661)
 
Loss per Ordinary share                               cents    cents
Basic and diluted                               15     (6.3)   (40.1)
 

COMSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2013


                                                            Restated
                                                       2013     2012
 
                                                      $'000    $'000
 
Loss for the year                                   (14,689) (92,661)
 
Items that may be reclassified subsequently
to profit or loss:
Unrealised currency translation differences          (3,551)   4,384
 
Total comprehensive loss for the year               (18,240) (88,277)
 
Attributable to:
Owners of the Company                               (18,211) (88,247)
Non-controlling interest                                (29)     (30)
                                                    (18,240) (88,277)

CONSOLIDATED BALANCE SHEET
As at 31 December 2013

                                                                Restated  Restated
                                                          2013      2012      2011
 
                                               Notes     $'000     $'000     $'000
ASSETS
Non-current assets
Intangible exploration and evaluation assets      16     5,958     3,017     2,207
Property, plant and equipment                     17    43,886    46,378    47,985
Investments in joint ventures                     19    65,965    67,908   106,286
                                                       115,809   117,303   156,478
Current assets
Inventories                                       20     2,951     3,482     4,007
Trade and other receivables                       21     6,879    39,621    63,647
Cash and cash equivalents                         21    56,484    40,477    64,301
                                                        66,314    83,580   131,955
Total assets                                           182,123   200,883   288,433
 
LIABILITIES
Non-current liabilities
Deferred tax liabilities                          22      (675)     (586)     (458)
Long-term provisions                              24      (195)     (219)     (395)
                                                          (870)     (805)     (853)
Current liabilities
Trade and other payables                          23    (3,442)   (4,087)   (3,625)
Current provisions                                24      (513)     (453)     (140)
                                                        (3,955)   (4,540)   (3,765)
Total liabilities                                       (4,825)   (5,345)   (4,618)
 
NET ASSETS                                             177,298   195,538   283,815
 
EQUITY
Share capital                                     25    13,337    13,337    13,337
Retained earnings                                      282,871   297,438   388,407
Cumulative translation reserves                       (120,838) (117,287) (121,671)
Other reserves                                           1,589     1,682     3,344
Equity attributable to owners of the Company           176,959   195,170   283,417
 
Non-controlling interest                                   339       368       398
TOTAL EQUITY                                           177,298   195,538   283,815

The consolidated financial statements of Cadogan Petroleum plc,
registered in England and Wales no. 5718406, were approved by the Board of
Directors and authorised for issue on 28 April 2014. They were signed on its
behalf by:

Bertrand Des Pallieres
Chief Executive Officer
28 April 2014

The notes below form an integral part of these financial statements.


CONSOLIDATED CASH FLOW STATEMENT
For year ended 31 December 2013

                                                                   Restated
                                                              2013     2012
 
                                                   Note      $'000    $'000
Net cash inflow/(outflow) from operating                    23,994     (525)
activities                                           26
 
Investing activities
Investments in joint ventures                               (4,687) (22,478)
Purchases of property, plant and equipment                    (783)  (1,083)
Purchases of intangible exploration and evaluation          (3,069)     (87)
assets
Proceeds from sale of property, plant and                      127      227
equipment
Interest received                                              434      118
Net cash used in investing activities                       (7,978) (23,303)
 
Net increase/(decrease) in cash and cash                    16,016  (23,828)
equivalents
Effect of foreign exchange rate changes                         (9)       4
Cash and cash equivalents at beginning of year              40,477   64,301
Cash and cash equivalents at end of year                    56,484   40,477


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                Other reserves
                                                 Cumulative                                        Non-
                             Share   Retained   translation   Share-based     Reorgani-     controlling
                           capital   earnings      reserves       payment        sation        interest      Total
                             $'000      $'000         $'000         $'000         $'000           $'000      $'000
                                                            
As at 1 January 2012        13,337    389,734      (123,784)        1,755         1,589             398    283,029
Adoption of new standard         -     (1,327)        2,113             -             -               -        786
As at 1 January 2012 (as
restated)                   13,337    388,407      (121,671)        1,755         1,589             398    283,815
Net loss for the year            -    (93,106)            -             -             -             (30)   (93,136)
Exchange translation
differences on foreign
operations                       -          -         4,384             -             -               -      4,384
Total comprehensive loss
for the year                     -    (93,106)        4,384             -             -             (30)   (88,752)
Share-based payments             -      1,662             -        (1,662)            -               -          -
Adoption of new standard         -        475             -             -             -               -        475
As at 1 January 2013 (as
restated)                   13,337    297,438      (117,287)           93         1,589             368    195,538
Net loss for the year            -    (14,660)            -             -             -             (29)   (14,689)
Exchange translation
differences on foreign
operations                       -          -        (3,551)            -             -               -     (3,551)
Total comprehensive loss                             (3,551)                          -
for the year                     -    (14,660)                          -                           (29)   (18,240)
Share-based payments             -         93             -           (93)            -               -          -
As at 31 December 2013      13,337    282,871      (120,838)            -         1,589             339    177,298


Notes to the Company Financial Statements
For year ended 31 December 2013

1. General information

Cadogan Petroleum plc (the `Company', together with its
subsidiaries the `Group'), is registered in England and Wales under the
Companies Act. The address of the registered office is 1st Floor, 40 Dukes Place, London, EC3A 7NH. 
The nature of the Group's operations and its principal activities are set out in the Operations 
Review above and the Financial Review also above.

2. Adoption of new and revised Standards

In the current year, the following new and revised Standards and
Interpretations are effective but have not had any significant impact on the
financial statements:

IFRS 3(amended)   Business Combinations

IFRS 13           Fair Value Management

IAS 24(amended)   Related Party Disclosures

IAS 32(amended)   Classification of Rights Issues

IFRIC 19 Extinguishing Financial Liabilities with Equity
Instruments

IFRIC 14(amended) Prepayments of a Minimum Funding Requirement

At the date of authorisation of the financial statements, the
following Standards and Interpretations which have not been applied in the
financial statements were in issue but not yet effective (and in some cases
had not yet been adopted by the EU):

IFRS 9              Financial Instruments (effective 1 January 2015)
IFRS 10, IFRS 12,   Investment entities (effective 1 January 2014)
IAS 27 (amended)
IAS 32 (amended)    Offsetting Financial Assets and Financial Liabilities 
                   (effective 1 January 2014)

The Directors do not expect that the adoption of the standards
listed above will have a material impact on the financial statements of the
Group in future periods, except as follows:

- IFRS 9 will impact both the measurement and disclosures of
financial instruments.

Beyond the information above, it is not practicable to provide a
reasonable estimate of the effect of these standards until a detailed review
has been completed.

2. Adoption of new and revised Standards 

The following accounting amendments, standards and interpretations
were not yet effective in the current reporting period but were early adopted:

IFRS 10   Consolidated Financial Statements

IAS 27    Separate Financial Statements

IFRS 11   Joint Arrangements

IAS 28    Investment in Associates and Joint Ventures

IFRS 12   Disclosure of Interests in Other Entities

The Group has not early adopted any other amendment, standard or
interpretation that has been issued but is not yet effective. It is expected
that where applicable, these standards and amendments will be adopted on each
respective effective date. A number of other amendments to accounting
standards issued by the International Accounting Standards Board also apply
for the first time in 2013. These do not have a significant impact on the
accounting policies, methods of computation or presentation applied by the
Group.

The nature and the impact of each new amendment, standard or
interpretation are described below:

IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements

IFRS 10 replaces the parts of the previously existing IAS 27 that
dealt with consolidated financial statements. The new standard changes the
definition of control such that an investor controls an investee when it is
exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to control those returns through its power over
the investee. The adoption of IFRS 10 has had no impact on the consolidation
of investments held by the Group.

IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13
Jointly-controlled Entities - Non-monetary Contributions by Venturers and
changes the classifications for joint arrangements. Under IFRS 11, investments
in joint arrangements are classified as either joint ventures or joint
operations based on the rights and obligations of the parties to the
arrangement. When a joint arrangement has been structured through a separate
vehicle, consideration is given to the legal form of the separate vehicle, the
terms of the contractual arrangement and, when relevant, other facts and
circumstances. When the activities of an arrangement are primarily designed
for the provision of output to the parties and the parties are substantially
the only source of cash flows contributing to the continuity of the operations
of the arrangement, this indicates the parties to the arrangement have rights
to the assets and obligations for the liabilities. The Group has considered
these facts and circumstances, among others, in assessing whether the
arrangement is a joint operation or a joint venture. The standard removes the
option to account for joint ventures using proportionate consolidation and
instead joint arrangements that meet the definition of a joint venture under
IFRS 11 must be accounted for using the equity method.

The application of this standard has resulted in the existing joint
ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest
being accounted for under the equity method where previously they were
proportionately consolidated. No other material joint arrangements within the
Group were affected. The Group has applied IFRS 11 retrospectively in
accordance with the transitional provisions and the 2012 results have been
restated accordingly. Further detail of the impact on the Group financial
statements for the year ended 31 December 2013 and the year ended 31 December 2012
is set out in note 30.

3. Significant accounting policies

(a) Basis of accounting

The financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') as issued by the
International Accounting Standards Board ('IASB') and as adopted by the
European Union ('EU'), and therefore the Group financial statements comply
with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost
convention basis, except for share-based payments, accounting for the WGI
transaction, and other financial assets and liabilities, which have been
measured at fair values, and using accounting policies consistent with IFRS.

The principal accounting policies adopted are set out below:

(b) Going concern

The Group's business activities, together with the factors likely
to affect future development, performance and position are set out in the
Business Review above. The financial position of the Group, its
cash flow and liquidity position are described in the Financial Review above.

The Group's cash balance at 31 December 2013 was $56.5 million
(2012: $40.5 million) excluding $0.2 million (2012: $0.7 million) of Cadogan's
share of cash and cash equivalents in joint ventures with no external debt
(2012: $nil) and the Directors believe that the funds available at the date of
the issue of these financial statements is sufficient for the Group to manage
its business risks successfully.

The Group's forecasts and projections, taking into account
reasonably possible changes in operational performance, start dates and flow
rates for commercial production and the price of hydrocarbons sold to
Ukrainian customers, show that there are reasonable expectations that the
Group will be able to operate on funds currently held and those generated
internally, for the foreseeable future without the requirement to seek
external financing.

As the Group engages in oil and gas exploration and development
activities, the most significant risk faced by the Group is delays encountered
in achieving commercial production from the Group's major fields. The Group
also continues to pursue its farm-out campaign, which, if successful, will
enable it to farm-out a portion of its interests in its oil and gas licences
to spread the risks associated with further exploration and development.

After making enquiries and considering the uncertainties described
above, the Directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the
foreseeable future and consider the going concern basis of accounting to be
appropriate. Thus they continue to adopt the going concern basis of accounting
in preparing the annual financial statements. In making its statement the
Directors have considered the recent political and economic uncertainty in
Ukraine, as described further in the note 4 (f).

(c) Basis of consolidation

The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. IFRS 10 defines control to be
investor control over an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to
control those returns through its power over the investee.

The results of subsidiaries acquired of or disposed of during the
year are included in the consolidated income statement from the effective date
of acquisition or up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial statements of subsidiaries to
bring accounting policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses are eliminated on
consolidation.

(c) Basis of consolidation

Non-controlling interests in subsidiaries are identified separately
from the Group's equity therein. Those interests of non-controlling
shareholders that are present ownership interests entitling their holders to a
proportionate share of net assets upon liquidation may be initially measured
at fair value or at the non-controlling interests' proportionate share of the
fair value of the acquiree's identifiable net assets. The choice of
measurement is made on an acquisition-by-acquisition basis. Other
non-controlling interests are initially measured at fair value.

Subsequent to acquisition, the carrying amount of non-controlling
interests is the amount of those interests at initial recognition plus the
non-controlling interests' share of subsequent changes in equity. Total
comprehensive income is attributed to non-controlling interests even if this
results in the non-controlling interests having a deficit balance.

Changes in the Group's interests in subsidiaries that do not result
in a loss of control are accounted for as equity transactions. The carrying
amount of the Group's interests and the non-controlling interests are adjusted
to reflect the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on
disposal is calculated as the difference between (i) the aggregate of the fair
value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets (including
goodwill), less liabilities of the subsidiary and any non-controlling
interests. Amounts previously recognised in other comprehensive income in
relation to the subsidiary are accounted for (i.e. reclassified to profit or
loss or transferred directly to retained earnings) in the same manner as would
be required if the relevant assets or liabilities are disposed of. The fair
value of any investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial recognition for
subsequent accounting under IAS 39 Financial Instruments: Recognition and
Measurement or, when applicable, the costs on initial recognition of an
investment in an associate or jointly controlled entity.

(d) Business combinations

The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of exchange, of assets given, liabilities
incurred or assumed, and equity instruments issued in exchange for control of
the acquiree. Acquisition-related costs are recognised in profit or loss as
incurred. The acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations are recognised at their fair value at the acquisition date,
except for non-current assets (or disposal groups) that are classified as held
for resale in accordance with IFRS 5 Non-Current Assets held for sale and
Discontinued Operations, which are recognised and measured at fair value less
costs to sell.

(e) Investments in joint ventures

A joint venture is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement. A
joint venturer recognises its interest in a joint venture as an investment and
shall account for that investment using the equity method in accordance with
IAS 28 Investments in Associates and Joint Ventures.

(f) Revenue recognition

Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for hydrocarbon products and
services provided in the normal course of business, net of discounts, value
added tax ('VAT') and other sales-related taxes.

Sales of hydrocarbons are recognised when the title has passed.

Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying amount on
initial recognition.

To the extent that revenue arises from test production during an
evaluation programme, an amount is charged from evaluation costs to cost of
sales, so as to reflect a zero net margin.

(g) Foreign currencies

The individual financial statements of each Group company are
presented in the currency of the primary economic environment in which it
operates (its functional currency). The functional currency of the Company is
pounds sterling. For the purpose of the consolidated financial statements, the
results and financial position of each Group company are expressed in US
dollars, which is the presentation currency for the consolidated financial
statements.

In preparing the financial statements of the individual companies,
transactions in currencies other than the functional currency of each Group
company (`foreign currencies') are recorded in the functional currency at the
rates of exchange prevailing on the dates of the transactions. At each balance
sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost
in a foreign currency are not retranslated.

Exchange differences are recognised in the profit or loss in the
period in which they arise except for exchange differences on monetary items
receivable from or payable to a foreign operation for which settlement is
neither planned nor likely to occur, which form part of the net investment in
a foreign operation, and which are recognised in the foreign currency
translation reserve and recognised in profit or loss on disposal of the net
investment.

For the purpose of presenting consolidated financial statements,
the results and financial position of each entity of the Group are translated
into US dollars as follows:

i. assets and liabilities of the Group's foreign operations are
translated at the closing rate on the balance sheet date;

ii. income and expenses are translated at the average exchange
rates for the period, unless exchange rates fluctuate significantly during
that period, in which case the exchange rates at the date of the transactions
are used; and

iii. all resulting exchange differences arising, if any, are
recognised in other comprehensive income and accumulated equity (attributed to
non-controlling interests as appropriate), transferred to the Group's
translation reserve. Such translation differences are recognised as income or
as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
  
The relevant exchange rates used were as follows:

              Year ended 31 December 2013
                   GBP/USD        USD/UAH
Closing rate        1.6491         8.3920
Average rate        1.5648         8.2545


(h) Taxation

The tax expense represents the sum of the tax currently payable and
deferred tax.

The tax currently payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the balance sheet
date.

Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation
of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from the initial
recognition of goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit. Deferred tax
liabilities are recognised for taxable temporary differences arising on
investments in subsidiaries and associates, and interests in joint ventures,
except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse
in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the
asset to be recovered. Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.

(i) Property, plant and equipment

Property, plant and equipment ('PP&E') are carried at cost less
accumulated depreciation and any recognised impairment loss.

Depreciation and amortisation is charged so as to write off the
cost or valuation of assets, other than land, over their estimated useful
lives, using the straight-line method, on the following bases:

Buildings 4%

Fixtures and equipment 10% to 30%

The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in income.

(j) Impairment of Property, plant and equipment

At each balance sheet date, the Group reviews the carrying amounts
of its PP&E to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. The recoverable
amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of the
asset (cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount
of the asset (cash-generating unit) is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset (cash-generating unit) in prior years. A
reversal of an impairment loss is recognised as income immediately.

(k) Intangible exploration and evaluation assets

The Group applies the modified full cost method of accounting for
intangible exploration and evaluation ('E&E') expenditure as set out in IFRS 6
Exploration for and Evaluation of Mineral Resources. Under the modified full
cost method of accounting, expenditure made on exploring for and evaluating
oil and gas properties is accumulated and initially capitalised as an
intangible asset, by reference to appropriate cost centres being the
appropriate oil or gas property. E&E assets are then assessed for impairment
on a cost pool basis as described below.

E&E assets comprise costs of (i) E&E activities which are in
progress at the balance sheet date, but where the existence of commercial
Reserves has yet to be determined (ii) E&E expenditure which, whilst
representing part of the E&E activities associated with adding to the
commercial Reserves of an established cost pool, did not result in the
discovery of commercial Reserves.

Costs incurred prior to having obtained the legal rights to explore
an area are expensed directly to the income statement as incurred.

Exploration and Evaluation costs

E&E expenditure is initially capitalised as an E&E asset. Payments
to acquire the legal right to explore, costs of technical services and
studies, seismic acquisition, exploratory drilling and testing are also
capitalised as intangible E&E assets.

Tangible assets used in E&E activities (such as the Group's
vehicles, drilling rigs, seismic equipment and other property, plant and
equipment) are normally classified as PP&E. However, to the extent that such
assets are consumed in developing an intangible E&E asset, the amount
reflecting that consumption is recorded as part of the cost of the intangible
asset. Such intangible costs include directly attributable overheads,
including the depreciation of PP&E items utilised in E&E activities, together
with the cost of other materials consumed during the exploration and
evaluation phases.

E&E assets are not amortised prior to the conclusion of appraisal
activities.
             
Treatment of E&E assets at conclusion of appraisal activities

Intangible E&E assets related to each exploration property are
carried forward, until the existence (or otherwise) of commercial Reserves has
been determined. If commercial Reserves have been discovered, the related E&E
assets are assessed for impairment on a cost pool basis as set out below and
any impairment loss is recognised in the income statement. Upon approval of a
development program, the carrying value, after any impairment loss, of the
relevant E&E assets is reclassified to the development and production assets
within PP&E.

Intangible E&E assets that relate to E&E activities that are
determined not to have resulted in the discovery of commercial Reserves remain
capitalised as intangible E&E assets at cost less accumulated amortisation,
subject to meeting a pool-wide impairment test in accordance with the
accounting policy for impairment of E&E assets set out below. Such E&E assets
are amortised on a unit-of-production basis over the life of the commercial
Reserves of the pool to which they relate.

Impairment of E&E assets

E&E assets are assessed for impairment when facts and circumstances
suggest that the carrying amount may exceed its recoverable amount. Such
indicators include, but are not limited to, those situations outlined in
paragraph 20 of IFRS 6 Exploration for and Evaluation of Mineral Resources and
include the point at which a determination is made as to whether or not
commercial Reserves exist.

Where there are indications of impairment, the E&E assets concerned
are tested for impairment. Where the E&E assets concerned fall within the
scope of an established full cost pool, they are tested for impairment
together with all development and production assets associated with that cost
pool, as a single cash generating unit.

The aggregate carrying value of the relevant assets is compared
against the expected recoverable amount of the pool, generally by reference to
the present value of the future net cash flows expected to be derived from
production of commercial Reserves from that pool. Where the E&E assets to be
tested fall outside the scope of any established cost pool, there will
generally be no commercial Reserves and the E&E assets concerned will
generally be impaired in full. Impairment losses are recognised in the income
statement as additional depreciation and amortisation and are separately
disclosed.

The Group considers the whole of Ukraine to be one cost pool and
therefore aggregates all Ukrainian assets for the purposes of determining
whether impairment of E&E assets has occurred.

(l) Development and production assets

Development and production assets are accumulated on a
field-by-field basis and represent the cost of developing the commercial
Reserves discovered and bringing them into production, together with E&E
expenditures incurred in finding commercial Reserves transferred from
intangible E&E assets.

The cost of development and production assets comprises the cost of
acquisitions and purchases of such assets, directly attributable overheads,
finance costs capitalised, and the cost of recognising provisions for future
restoration and decommissioning.

Depreciation of producing assets

Depreciation is calculated on the net book values of producing
assets on a field-by-field basis using the unit of production method. The unit
of production method refers to the ratio of production in the reporting year
as a proportion of the proved and probable Reserves of the relevant field,
taking into account future development expenditures necessary to bring those
Reserves into production.

(l) Development and production assets 

Producing assets are generally grouped with other assets that are
dedicated to serving the same Reserves for depreciation purposes, but are
depreciated separately from producing assets that serve other Reserves.

(m) Inventories

Raw materials and oil stock are stated at the lower of cost and net
realisable value. Costs comprise direct materials and, where applicable,
direct labour costs and those overheads that have been incurred in bringing
the inventories to their present location and condition. Cost is allocated
using the weighted average method. Net realisable value represents the
estimated selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.

(n) Financial instruments

Recognition of financial assets and financial liabilities

Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the contractual
provisions of the instrument.

Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset only when the contractual
rights to cash flows from the asset expire; or it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to
another entity. If the Group neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and an
associated liability for the amount it may have to pay. If the Group retains
substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also
recognises a collateralised borrowing for the proceeds received.

The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or expired.

Financial assets

The Group classifies its financial assets in the following
categories: loans and receivables; available-for-sale financial assets; held
to maturity investments; and financial assets at fair value through profit or
loss ("FVTPL"). The classification depends on the purpose for which the
financial assets were acquired. Management determines the classification of
its financial assets at initial recognition and re-evaluates this designation
at every reporting date.

Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They
are included in current assets, except for those with maturities greater than
twelve months after the balance sheet date which will then be classified as
non-current assets. Loans and receivables are classified as "other
receivables" and "cash and cash equivalents" in the balance sheet.

Trade and other receivables

Trade and other receivables are measured at initial recognition at
fair value, and are subsequently measured at amortised cost using the
effective interest rate method.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, on-demand
deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash with three months or less remaining to
maturity and are subject to an insignificant risk of changes in value.

Financial assets at FVTPL

Financial assets at FVTPL are stated at fair value, with any gains
or losses arising on remeasurement recognised in profit or loss which is
included in the 'Other gains and losses' line item in the consolidated income
statement. Fair value is determined in the manner described in note 28.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for
indicators of impairment at each balance sheet date. Appropriate allowances
for estimated irrecoverable amounts are recognised in profit or loss when
there is objective evidence that the asset is impaired. The allowance
recognised is measured as the difference between the asset's carrying amount
of the financial asset and the present value of estimated future cash flows
discounted at the effective interest rate computed at initial recognition.

Evidence of impairment could include:

- significant financial difficulty of the issuer or counterparty;

- default or delinquency in interest or principal payments; or

- it becoming probable that the borrower will enter bankruptcy or
financial re-organisation.

For certain categories of financial assets, such as trade
receivables, assets that are assessed not to be impaired individually are, in
addition, assessed for impairment on a collective basis.

The carrying amount of the financial assets is reduced by the
impairment loss directly for all financial assets with the exception of trade
receivables, where the carrying amount is reduced through the use of an
allowance account. Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying amount of the
allowance account are recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised, the previously recognised impairment loss
is reversed through profit or loss to the extent that the carrying amount of
the investment at the date the impairment is reversed does not exceed what the
amortised cost would have been had the impairment not been recognised.

Financial liabilities

Financial liabilities are classified as either financial
liabilities 'at FVTPL' or 'other financial liabilities'

Financial liabilities at FVTPL

Financial liabilities at FVTPL are stated at fair value, with any
resultant gain or loss recognised in profit or loss and is included in the
'Other gains and losses' line item in the income statement. Fair value is
determined in the manner described in note 28. 

Trade payables and short-term borrowings

Trade payables and short-term borrowings are initially measured at
fair value, and are subsequently measured at amortised cost, using the
effective interest rate method.

(o) Provisions

Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that the
Group will be required to settle that obligation and a reliable estimate can
be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the balance sheet
date, taking into account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of
those cash flows.

(p) Decommissioning

A provision for decommissioning is recognised in full when the
related facilities are installed. The decommissioning provision is calculated
as the net present value of the Group's share of the expenditure expected to
be incurred at the end of the producing life of each field in the removal and
decommissioning of the production, storage and transportation facilities
currently in place. The cost of recognising the decommissioning provision is
included as part of the cost of the relevant asset and is thus charged to the
income statement on a unit of production basis in accordance with the Group's
policy for depletion and depreciation of tangible non-current assets. Period
charges for changes in the net present value of the decommissioning provision
arising from discounting are included within finance costs.

(q) Leases

Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases. Rentals payable
under operating leases are charged to income on a straight-line basis over the
term of the relevant lease.

(r) Share-based payments

The Group issued equity-settled share-based payments to certain
parties in return for services or goods. The goods or services received and
the corresponding increase in equity are measured directly at the fair value
of the goods or services received at the grant date. The fair value of the
services or goods received is recognised as an expense except in so far as
they relate to the cost of issuing or acquiring its own equity instruments.
The costs of an equity transaction are accounted for as a deduction from
equity to the extent they are incremental costs directly attributable to the
equity transaction that would otherwise have been avoided.

The Group also issued equity-settled share-based payments to
certain Directors and employees. Equity settled share-based payments are
measured at fair value (excluding the effect of non market-based vesting
conditions) at the date of grant. The fair value determined at the grant date
for each tranche of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group's estimate of
shares that will eventually vest and adjusted for the effect of non
market-based vesting conditions. At each balance sheet date, the Group revises
its estimate of the number of equity instruments expected to vest as a result
of the effect of non market-based vesting conditions.

The impact of the revision of the original estimates, if any, is
recognised in profit or loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to the equity-settled
employee benefits reserve.

(r) Share-based payments 

For those equity-settled share-based payments with market-based
performance conditions, fair value is measured by use of the Stochastic model.
For those which are not subject to any market based performance conditions,
fair value is measured by use of the Black-Scholes model. The expected life
used in the models has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions, and behavioural
considerations.

4. Critical accounting judgements and key sources of estimation
uncertainty

In the application of the Group's accounting policies, which are
described in note 3, the Directors are required to make judgements, estimates
and assumptions about the carrying amounts of the assets and liabilities that
are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both the
current and future periods.

The following are the critical judgements and estimates that the
Directors have made in the process of applying the Group's accounting policies
and that have the most significant effect on the amounts recognised in the
financial statements:

(a) Impairment of E&E and PP&E

IAS 36 Impairment of Assets and IFRS 6 Exploration for and
Evaluation of Mineral Resources require that a review for impairment be
carried out if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.

For PP&E assets the aggregate carrying value of each cash
generating unit ('CGU') was compared against the expected recoverable amount
of the related asset, by reference to the net present value of the future cash
flows expected to be derived from the production of commercial Reserves 
(2P Reserves) of that unit.

The Group considers the whole of Ukraine to be one cost pool and
therefore aggregates all Ukrainian assets for the purposes of determining
whether impairment of E&E assets has occurred. E&E assets are assessed for
impairment when facts and circumstances suggest that the carrying amount may
exceed its recoverable amount. Such indicators include, but are not limited
to, those situations outlined in paragraph 20 of IFRS 6 Exploration for and
Evaluation of Mineral Resources and include the point at which a determination
is made as to whether or not commercial Reserves exist. In 2013, the Group has
performed significant volume of work which it continues in 2014, including the
extension of the Pokrovskoe license exploration for a shallow stratigraphic
levels, re-interpretation of the existing 3D seismic, in order to evaluate the
remaining potential of the full Pokrovskoe license.

Management assessed whether any impairment triggers were present at
31 December 2013 and concluded that the following impairment indicators
existed for the Pirkovska license area:

- High uncertainty about the impact of political and economic
turmoil in Ukraine on Group operations;

- Significant market capitalization discount to the carrying amount
of the net assets of the entity; and

- Lack of production at Pirkovska license area since 2009

Management determined the recoverable amount of the Pirkovska
license as its fair value less cost to sell (FVLCS). The key assumptions for
the FVLCS calculations are those regarding the production flow rates, discount
rates, relevant elements of Ukraine fiscal regime for petroleum operators, and
expected selling prices and direct costs. These assumptions reflect
management's best estimates. Management estimates discount rates that reflect
the current market assessments of the time value of money and the risks
specific to the CGUs. Changes in selling prices and direct costs are based on
past practices and expectations of future changes in the market.

- The key assumptions used to forecast cash flows from Ukraine operations are
as follows: pre-tax discount rate of 17.86% (post-tax of 15%); Due to the
recent events in Ukraine, there is an increased level of risk associated with
operating in Ukraine, and consequently a revision of discount rate might be
required if the escalation of political turmoil results in significant downgrading
of country risk, or company' own risk, or both;

- expected future selling prices based on current and anticipated market
conditions for oil, condensate and gas. The regulated gas price for the
industrial users in Ukraine was set at about 10% lower than during 2013.
However, it has been announced by Gazprom that the price for Ukraine, which is
the reference price for the Regulator setting the maximum price for the
industrial consumers, from 1 April 2014 onwards will not include any discounts
and will be in line with the original Gazprom and Naftogaz contract.
Nevertheless, there continues to be a level of uncertainty in forecasting the
Ukraine gas price due to the current events. The estimate used in the
calculation uses the gas price referenced to Gazprom and Naftogaz contract
(conservatively including $100/mcm discount as the result of Kharkiv
agreements of 2010), there is however declarations by Gazprom that this
discount will no longer apply;

- cash flows projected up to 2034 depending on the field to which they relate
and an assumption has been made that the relevant licenses will be extended.
The assumption has been made based on the most recent analysis of political
turmoil impacts. Further escalations of the political crisis may impact the
Group's normal business activities, including maintenance of its Ukrainian
production licences;

- production flow rates confirmed by experienced in-house geologists and
engineers, supported by report produced in 2009 by an independent reservoir
engineer, Gaffney, Cline & Associates Ltd;

- costs based on best estimates with consideration to previous experience and
inflation; and

- inclusion of relevant elements of Ukraine fiscal regime for petroleum
operators (such as production and royalty tax relevant to each license;

(c) Reserves

Commercial Reserves are proven and probable ('2P') oil and gas
reserves, which are defined as the estimated quantities of crude oil, natural
gas and natural gas liquids which geological, geophysical and engineering data
demonstrate with a specified degree of certainty to be recoverable in future
years from known reservoirs and which are considered commercially producible.
There should be a 50 per cent statistical probability that the actual quantity
of recoverable Reserves will be more than the amount estimated as proven and
probable Reserves and a 50 per cent statistical probability that it will be
less.

Commercial Reserves used in the calculation of depreciation and for
impairment test purposes are determined using estimates of oil and gas in
place, recovery factors and future oil and gas prices. Management base their
estimate of oil and gas Reserves and Resources upon the Report provided by
independent advisers.

(d) Recoverability of VAT

The Group has significant receivables from the State Budget of
Ukraine relating to reimbursement of VAT arising on purchases of goods and
services from external service and product providers. Due to the budgetary
problems of Ukraine, the recovery of VAT has been an issue for most companies
operating in Ukraine. In the past the Group has taken a conservative view in
relation to VAT and has impaired all outstanding balances due to the
uncertainty of the recovery of these balances in cash from the State Budget of
Ukraine and uncertainty of future production, VAT on which would be offset
against the VAT recoverable amounts the Group has.

The Group will continue to use an approach consistent with prior
years by impairing Ukrainian VAT and recognising the recovery in the period it
has been made. A cumulative provision of $9.5 million (2012: $10.1 million)
against Ukrainian VAT receivable has thus been recognised as at 
31 December 2013, excluding VAT recoverable balances in the JV which are reported 
under the equity method in these financial statements.

(e) Accounting for the WGI transaction

As a consequence of the WGI transaction, outlined in note 19, two
areas of significant judgement were identified by the Group, being the
accounting treatment of the WGI transaction and the valuation of the Group's
contribution of the two licenses to WGI. After considering the requirements
per IAS 31 Interest In Joint Ventures, the Directors have deemed the criteria
under this standard to have been met, and have therefore accounted for WGI as
a joint venture.

In accounting for the contribution of the licenses, the Group have
applied IAS 31 and SIC Interpretation 13 - Jointly Controlled Entities -
Non-Monetary Contributions by Venturers, which states that any profit or loss
arising on the contribution of non-monetary assets in exchange for an equity
interest should be recognised to the extent they are attributable to the
equity interests of the other venturers. Whilst the licenses contributed had a
nil NBV in the books of the Group at the date of contribution, the associated
fair value of the licenses contributed in return for the 15.0% interest in WGI
has been estimated at $6.4 million. The resultant profit recognised in the
income statement is $5.4 million which represents the un-eliminated 84.9%
share of the gain on contribution of these licenses. The Group has accordingly
recognised an intangible asset of $5.4 million as its share of the licenses.

As at 31 December 2012 the Group has adopted IFRS 11, according to
which joint ventures have been recognized in the financial statements of the Group 
using the equity method (see note 19).

(f) Assessment of political and economic turmoil in Ukraine impact on Group
operations

Since November 2013, Ukraine has been in a political and economic
turmoil. The Ukrainian Hryvnia devalued against major world currencies and
significant external financing is required to maintain stability of the
economy. In February 2014, Ukraine's sovereign rating has been downgraded to
CCC with a negative outlook. The Government however is expecting significant
funding from the international creditors in 2014, with International Monetary
Fund ("IMF") being the largest.

In February 2014, the Parliament of Ukraine voted for reinstatement
of the 2004 Constitution and dismissal of the incumbent President. New
presidential elections are scheduled for May 2014 and a transitional
government has been formed. In March 2014, Crimea, an autonomous republic of
Ukraine, was effectively annexed by the Russian Federation. The further
political developments are currently unpredictable and may adversely affect
the Ukrainian economy.

Management is monitoring how the political and economic situation is affecting
the Group operations, and has considered whether adjustments are required to
the carrying values of assets and the appropriateness of the going concern
assumption. As a result management have concluded that there were no
significant adverse consequences in relation to the Group's operations, cash
flows and assets that impact the 2013 financial statements, apart from
continuous uncertainty related to key assumptions used by management in
assessment of the recoverable amount of production assets as described above.
Any further escalations of the political crisis may impact the Group's normal
business activities, and increase the risks relating to its business
operations, financial status and maintenance of its Ukrainian production
licences.

5. Revenue
                                                      2013    2012
                                                     $'000   $'000

Sale of hydrocarbons                                 2,619   2,999
Other revenues                                       1,153     762
                                                     3,772   3,761

Other revenues represent revenues from services provided to third parties of
$1.2 million (2012: $0.8 million).

Information about major customers
Included in revenues for the year ended 31 December 2013 are revenues of 
$1.2 million (2012 - $2.4 million) which arose from sales to the Group's 
largest customer.

6. Other operating expenses, net
                                                      2013      2012
                                                     $'000     $'000

Out of court settlements                                65       597
Transactions with JV partner                           (60)       88
Net foreign exchange losses                           (271)   (3,611)
                                                      (266)   (2,926)

Net foreign exchange loss of $0.3 million mainly relates to the
revaluation of the USD-denominated monetary assets of the Group's UK entities
which have GBP as a functional currency.

7. Business and geographical segments

The Directors continue to consider there to be only one business
segment, the exploration and development of oil and gas assets and only one
geographical segment, being Ukraine.

8. Impairment
                                                       2013       2012
                                                      $'000      $'000

Impairment of oil and gas assets                          -    (25,717)
Inventories (note 20)                                    97       (323)
VAT recoverable (note 4(d))                             137        992
Impairment of other assets                              234        669

The carrying value of inventory as at 31 December 2013 and 2012 has
been impaired to reduce it to net realisable value (see note 20). During 2013
the Group gross sales of inventory to third parties comprised $0.4 million
(2012: $1.6 million) and some sales were for the higher amounts than the book
value of inventories, therefore $0.1 million of the inventory impairment
provision previously recognised has been released.

During the year a net release of impairment $0.1 million (2012: $0.9 million) 
in respect of Ukrainian VAT as the result of VAT recovery of
historical balances through offset of VAT liabilities arising on sales.

Total impairment for 2012 of oil and gas assets of $25.7 million
includes $24.7 million ($35.0 million undiscounted) impairment of the bonus to
be received from Eni on obtaining the production licence on Zagoryanska
licence which formed part of the consideration on disposal of 60% in the
Zagoryanska licence to Eni in 2011.

9. Loss for the year

The loss for the year has been arrived at after charging/(crediting):

                                                                         Restated
                                                                  2013       2012
                                                                 $'000      $'000

Depreciation of property, plant and equipment                   (1,201)    (1,352)
Loss on disposal of property, plant and equipment                 (227)      (285)
Reversal of impairment of other assets (note 8)                    234        669
Impairment of oil and gas assets (note 8)                            -    (25,717)
Staff costs                                                     (4,790)    (4,753)
Net foreign exchange losses                                       (271)    (3,611)

In addition to the depreciation of PP&E of $1.2 million (2012: $1.4 million) 
in the year ended 31 December 2013, depreciation of $0.2 million
(2012: $0.4 million) was capitalised to E&E assets being depreciation of
tangible assets used in E&E activities.

10. Auditor's remuneration

The analysis of auditor's remuneration is as follows:
                                                                         Restated
                                                                  2013       2012
                                                                 $'000      $'000
Audit fees
Fees payable to the Company's auditor and their associates for     201        232
the audit of the Company's annual accounts
Fees payable to the Company's auditor and their associates for
other services to the Group:
- The audit of the Company's subsidiaries                           13         27
Total audit fees                                                   214        259
 
Non-audit fees
- Audit-related assurance services                                  20         21
- Taxation compliance services                                      45         98
- Other taxation advisory services                                  40          -
Non-audit fees                                                     105        119

11. Staff costs

The average monthly number of employees (including Executive
Directors) was:
                                                                  2013       2012
                                                                Number     Number
Executive Directors                                                  2          2
Other employees                                                    116        124
                                                                   118        126
 
Total number of employees at 31 December                           118        126
 
                                                                 $'000      $'000
Their aggregate remuneration comprised:
Wages and salaries                                               5,102      5,191
Other pension costs                                                  -         36
Social security costs                                              725        748
                                                                 5,827      5,975

Within wages and salaries $0.7 million (2012: $0.7 million) relates
to amounts accrued and paid to executive Directors for services rendered.

Included within wages and salaries, is $0.3 million (2012: $0.2 million) 
capitalised to intangible E&E assets and $0.1 million (2012: $0.2 million) 
capitalised to development and production assets.

12. Investment revenue
                                                                  2013       2012
                                                                 $'000      $'000

Interest on bank deposits                                          283        118
Interest on loans issued                                           151          -
                                                                   434        118

13. Finance (costs)/income
                                                                  2013       2012
                                                                 $'000      $'000

Unwinding of discount on decommissioning provision (note 24)        (6)        34

14. Tax
                                                                  2013       2012

                                                                 $'000      $'000
Current tax                                                        169        121
Deferred tax (note 22)                                             120        130
                                                                   289        251


The Group's operations are conducted primarily outside the UK. The
most appropriate tax rate for the Group is therefore considered to be 
19 per cent (2012: 21 per cent), the rate of profit tax in Ukraine which is the
primary source of revenue for the Group. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.

The taxation charge for the year can be reconciled to the loss per
the income statement as follows:

                                                     2013     2013       2012     2012
                                                    $'000        %      $'000        %

Loss before tax                                   (14,400)     100    (92,410)     100
Tax credit at Ukraine corporation tax rate of      (2,736)            (19,406)
19% (2012: 21%)                                                 19                  21
Permanent differences                               3,004    -21.0     17,776    -19.2
Foreign exchange on operating activities             (552)     3.8        730     -0.8
Tax losses generated in the year not yet              857               1,041
recognised                                                    -6.0                -1.1
Other temporary differences                             -      0.0        446     -0.5
Effect of different tax rates                        (284)     2.0       (336)     0.4
Tax credit and effective tax rate for the year        289     -2.1        251     -0.2

15. Loss per Ordinary share

Basic loss per Ordinary share is calculated by dividing the net
loss for the year attributable to owners of the Company by the weighted
average number of Ordinary shares outstanding during the year. The calculation
of the basic and diluted loss per share is based on the following data:

                                                                      2013     2012
Loss attributable to owners of the Company                           $'000    $'000

Loss for the purposes of basic loss per share being net loss       (14,660) (92,631)
attributable to owners of the Company
                                                                      2013     2012
                                                                    Number   Number
Number of shares                                                      `000     `000

Weighted average number of Ordinary shares for the purposes of     231,092  231,092
basic profit per share
Effect of dilutive potential ordinary shares:
Options and warrants outstanding                                         -       93
Weighted average number of Ordinary shares for the purposes of     231,092  231,185
diluted profit per share
 
                                                                      2013     2012
                                                                      Cent     Cent
Loss per Ordinary share
Basic                                                                 (6.3)   (40.1)
Diluted                                                               (6.3)   (40.1)

Diluted loss per Ordinary share equals basic loss per Ordinary
share as there is no dilutive effect from the outstanding share warrants.

16. Intangible exploration and evaluation assets
 
Cost                                                            $'000
At 1 January 2012 (as restated)                                31,951
Additions                                                         973
Change in estimate of decommissioning assets (note 24)            (89)
Transfer to property, plant and equipment (note 17)               (31)
Disposals                                                          30
Exchange differences                                              215
At 1 January 2013 (as restated)                                33,049
Additions                                                       3,276
Change in estimate of decommissioning assets (note 24)             16
Transfer from property, plant and equipment (note 17)              34
Disposals                                                        (118)
Exchange differences                                           (1,362)
At 31 December 2013                                            34,895
 
Impairment
At 1 January 2012 (as restated)                                29,941
Exchange differences                                               91
At 1 January 2013 (as restated)                                30,032
Exchange differences                                           (1,095)
At 31 December 2013                                            28,937
 
Carrying amount
At 31 December 2013                                             5,958
At 31 December 2012 (as restated)                               3,017

Additions during the year include $0.2 million (2012: $0.3 million)
of capitalised depreciation of development and production assets used in
exploration and evaluation activities.

17. Property, plant and equipment
 
                                                             Development
                                                                     and
                                                              production
                                                     Other        assets    Total
Cost                                                 $'000         $'000    $'000

At 1 January 2012 (as restated)                      2,846        59,712   62,558
Additions                                              293           783    1,076
Transfer from intangible exploration and evaluation     28             3       31
assets
Change in estimate of decommissioning assets (note       -           263      263
24)
Disposals                                             (156)       (1,381)  (1,537)
Exchange differences                                    43           493      536
At 1 January 2013 (as restated)                      3,054        59,873   62,927
Additions                                              217           585      802
Transfer to intangible exploration and evaluation        -           (34)     (34)
assets
Transfer to other assets                                80           (80)       -
Change in estimate of decommissioning assets (note       -            42       42
24)
Disposals                                             (138)         (416)    (554)
Exchange differences                                  (112)       (2,479)  (2,591)
At 31 December 2013                                  3,101        57,491   60,592
 
Accumulated depreciation and impairment
At 1 January 2012 (as restated)                      1,448        13,182   14,630
Impairment                                               -         1,036    1,036
Charge for the year                                    397         1,315    1,712
Disposals                                              (59)         (985)  (1,044)
Exchange differences                                    33           182      215
At 1 January 2013 (as restated)                      1,819        14,730   16,549
Charge for the year                                    326         1,062    1,388
Disposals                                              (82)         (360)    (442)
Exchange differences                                   (65)         (724)    (789)
At 31 December 2013                                  1,998        14,708   16,706
 
Carrying amount
At 31 December 2013                                  1,103        42,783   43,886
At 31 December 2012 (as restated)                    1,235        45,143   46,378

18. Subsidiaries

The Company had investments in the following subsidiary
undertakings as at 31 December 2013, which principally affected the profits
and net assets of the Group:

                                   Country of       Proportion
                                   incorporation    of voting
                                   and operation    interest %   Activity
Directly held
Cadogan Petroleum Holdings Ltd     UK               100          Holding company
Ramet Holdings Ltd                 Cyprus           100          Holding company
 
Indirectly held
Rentoul Ltd                        Isle of Man      100          Holding company
Cadogan Petroleum Holdings BV      Netherlands      100          Holding company
Cadogan Bitlyanske BV              Netherlands      100          Holding company
Cadogan Delta BV                   Netherlands      100          Holding company
Cadogan Astro Energy BV            Netherlands      100          Holding company
Cadogan Pirkovskoe BV              Netherlands      100          Holding company
Momentum Enterprise (Europe) Ltd   Cyprus           100          Holding company
Cadogan Ukraine Holdings Limited   Cyprus           100          Holding company
Cadogan Momentum Holdings Inc      Canada           100          Holding company
USENCO International Inc.          USA              100          Holding company
Radley Investments Ltd             UK               100          Holding company
Cadogan Petroleum Trading SAGL     Switzerland      100          Trading company
LLC AstroInvest -Ukraine           Ukraine          100          Exploration
LLC Astro Gas                      Ukraine          100          Exploration
DP USENCO Ukraine                  Ukraine          100          Exploration
LLC USENCO Nadra                   Ukraine           95          Exploration
JV Delta                           Ukraine          100          Exploration
LLC WestGasInvest                  Ukraine          100          Exploration
LLC Astro-Service                  Ukraine          100          Service Company
OJSC AgroNaftoGasTechService       Ukraine         79.9          Construction services
LLC Cadogan Ukraine                Ukraine          100          Corporate services

During the year ended 31 December 2013, the Group structure
continued to be rationalised both so as to reduce the number of legal entities
inside Ukraine and also to replace the structure of multiple jurisdictions
with one based on a series of sub-holding companies incorporated in the
Netherlands for each licence area.

19. Joint ventures

Details of each Group's joint ventures at the end of the 2013 and
2012 reporting periods are as follows:

Company name         Licenses held              Country of       Ownership      Activity
                                                incorporation    share %
                                                and operation

LLC                  Zagoryanska exploration    Ukraine          40             Exploration
Astroinvest-Energy   license
LLC Industrial       Pokrovska exploration      Ukraine          70             Exploration
Company              license
Gazvydobuvannya
LLC Westgasinvest    Reklynetska,               Ukraine          15             Exploration
                     Zhuzhelianska,
                     Cheremkhivsko-Strupkivska,
                     Baulinska, Filimonivska,
                     Kurinna, Sandugeyivska,
                     Yakovlivska, and
                     Debeslavetska Exploration,
                     Debeslavetska Production
                     license

All of the above joint ventures are accounted for using the equity
method in these consolidated financial statements. According to the
shareholders' agreements, which regulate the activities of the jointly
controlled entities, all key decisions require unanimous approval from the
shareholders, therefore these entities are jointly controlled.

Summarised financial information in respect of each of the Group's
material joint ventures is set out below. The summarised financial information
below represents amounts shown in the joint venture's financial statements
prepared in accordance with IFRSs.

LLC Astroinvest-Energy

                                                  2013        2012
                                                 $'000       $'000

Non-current assets                                  34         392
Current assets                                   3,001       6,941
Non-current liabilities                         (1,194)     (2,228)
Current liabilities                             (4,288)    (12,369)
Revenue                                              -       4,711
Loss for the period                             (6,997)   (155,124)
Other comprehensive income/(loss)                  111        (174)
Total comprehensive loss                        (6,886)   (155,298)
Net deficit of the joint venture                (2,447)     (7,264)

LLC Industrial Company Gazvydobuvannya

                                                  2013        2012
                                                 $'000       $'000

Non-current assets                             101,041     101,556
Current assets                                   1,041       2,224
Non-current liabilities                         (8,484)     (8,126)
Current liabilities                             (2,617)     (2,231)
Revenue                                              -           -
Loss for the period                             (4,899)     (2,349)
Other comprehensive income/(loss)                   71         (40)
Total comprehensive loss                        (4,828)     (2,389)
Net assets of the joint venture                 90,981      93,423

2012 transactions: LLC Westgasinvest

In February 2012, the Group set up a joint venture LLC
Westgasinvest ("WGI") with a Ukrainian state-owned company, NAK Nadra Ukrainy.
As part of the transaction the Group contributed two unconventional licenses,
the Debeslavetske production license and the Debeslavetske exploration license
to WGI, while keeping all the economic benefit from the existing conventional
activities on these licenses.

Whilst the licenses contributed had a nil NBV in the books of the
Group at the date of contribution, the associated fair value of the licenses
contributed in return for the 15% interest in WGI has been estimated at 
$6.4 million. The resultant profit recognised in the income statement is 
$5.4 million which represents the un-eliminated 85% share of the gain on
contribution of these licenses. The Group accordingly recognised an intangible
asset of $5.4 million.

The Group's resultant equity holding, post this transaction was
15.01%, with Nadra owning the remaining 84.99%.

On 3 October 2012, 50.01% of ownership in WGI was sold by Nadra and
Cadogan to ENI completing the current ownership structure of WGI.

LLC Westgasinvest

                                                  2013    2012
                                                 $'000   $'000

Non-current assets                                 164      25
Current assets                                     662      20
Non-current liabilities                              -       -
Current liabilities                             (2,672)   (102)
Revenue                                              -       -
Loss for the period                             (3,364)    (93)
Other comprehensive income                          55       -
Total comprehensive loss                        (3,309)      -
Net assets of the joint venture                 (1,846)     57

The carrying amounts of the Group's interest in joint ventures
recognized in the financial statements of the Group using the equity method
are set out in the tables below:

                                            LLC     LLC Industrial              LLC     Total
                             Astroinvest-Energy            company    Westgasinvest
                                                  Gazvydo-buvannya
                                          $'000              $'000            $'000     $'000

(Deficit)/ net assets                    (2,906)            65,396            5,418    67,908
recognized as at 31 December
2012
Investments during the year               4,420                267                -     4,687
Loss for the year                        (2,754)            (3,380)            (496)   (6,630)
Carrying amount of Group's               (1,240)            62,283            4,922    65,965
interest as at 31 December
2013

The Group is committed together with ENI to fund LLC Astroinvest-Energy
subsequently to year end with the necessary amount of $1.2 million in order to
close current liabilities of the joint venture.

20. Inventories
                                                       Restated
                                                  2013     2012
                                                 $'000    $'000

Cost                                             3,846    4,596
Impairment provision for obsolete inventory       (895)  (1,114)
Carrying amount                                  2,951    3,482

The impairment provision as at 31 December 2013 and 2012 is made so
as to reduce the carrying value of the obsolete inventories to net realisable
value.

21. Other financial assets

Trade and other receivables
                                                      Restated
                                                 2013     2012
                                                $'000    $'000

Other receivables                                 591   31,796
Receivable from joint venture                   4,077    6,907
Loans issued                                    1,559        -
VAT recoverable                                   251       81
Prepayments                                       401      837
                                                6,879   39,621

All sales are made on a prepayment basis, so there are no trade
debtors.

Out of $31.8 million of other receivables $30.0 million as at 
31 December 2012 represent receivables from the settlement agreement with GPS
which has been repaid in April 2013.

Receivable from joint ventures comprise $1.6 million from
Astroinvest-energy LLC (2012: $5.2 million) and $2.5 million from
Gazvydobuvannya LLC (2012: $1.7 million).

Loans issued of $1.6 million as at 31 December 2013 represents a loan
issued in June 2013 to Oil and Gas Management Services Group Limited ("OAGSG")
as part of a $3 million Loan Facility on a fully secured basis against
receivables due to OAGSG with the term of loan of 24 months and annual
interest of 15%.

Cash and cash equivalents

Cash and cash equivalents as at 31 December 2013 of $56.5 million
(2012: $40.5 million) comprise cash held by the Group and the Company. The
Directors consider that the carrying amount of these assets approximates to
their fair value.

22. Deferred tax

The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current and prior
reporting period:

                                                          Temporary
                                                        differences
 
                                                              $'000

Liability as at 1 January 2012 (as restated)                    458
Deferred tax expense                                            130
Exchange differences                                             (2)
Liability as at 1 January 2013 (as restated)                    586
Deferred tax expense                                            120
Exchange differences                                            (31)
Liability as at 31 December 2013                                675

At 31 December 2013, temporary differences of $6.0 million (2012: $6.3 million) 
existed in respect of foreign exchange gains arising on net
investments in foreign subsidiaries for which deferred tax liabilities have
not been recognised. No deferred tax liabilities have been recognised in
respect of these differences because the Group is in a position to control the
timing of the reversal of the temporary differences and it is probable that
such differences will not reverse in the foreseeable future.

At 31 December 2013, the Group had the following unused tax losses
available for offset against future taxable profits:

                                                         Restated
                                                    2013     2012
                                                   $'000    $'000

UK                                                13,623    9,486
Netherlands                                          938        -
Ukraine                                           46,719   46,906
                                                  61,280   56,392

Deferred tax assets have not been recognised in respect of these tax losses
owing to the uncertainty that profits will be available in future periods
against which they can be utilised.

The Group's unused tax losses of $13.6 million (2012: $9.5 million)
relating to losses incurred in the UK are available to shelter future
non-trading profits arising within Cadogan Petroleum plc. These losses are not
subject to a time restriction on expiry.

Unused tax losses incurred by Ukraine subsidiaries amount to $46.7 million, 
(2012: $46.9 million). Under general provisions, these losses may be
carried forward indefinitely to be offset against any type of taxable income
arising from the same company of origination. Tax losses may not be
surrendered from one Ukraine subsidiary to another. However, in the past,
Ukrainian legislation has been imposed which restricted the carry forward of
tax losses. During 2011 a new tax legislation in Ukraine was implemented which
resulted in the restriction to recognition of accumulated losses at 1 April
2011. Starting 1 January 2012 only 25% of accumulated losses as at this date
are allowed to be utilised each year for the period from 2012 till 2015 in the
calculation of taxable income of the company. Tax losses accumulated after 1
January 2012 have no restrictions. There are further temporary differences
arising on intangible exploration and evaluation assets and property, plant
and equipment assets in Ukraine for which deferred tax assets of $5.2 million
(2012: $4.6 million) have not been recognised due to the uncertainty of future
recovery.

23. Other financial liabilities

Trade and other payables

                                                         Restated
                                                     2013    2012
                                                    $'000   $'000 

Trade creditors                                     1,125   1,122
Payables to joint ventures                            801     423
Other taxes and social security                        21      31
Other creditors and payables                          347     166
Accruals                                            1,148   2,345
                                                    3,442   4,087

Trade creditors and accruals principally comprise amounts
outstanding for capital work program purchases and ongoing costs. The average
credit period taken for trade purchases is 70 days (2012: 55 days). The Group
has financial risk management policies to ensure that all payables are paid
within the credit timeframe.

The Directors consider that the carrying amount of trade and other
payables approximates to their fair value. No interest is generally charged on
balances outstanding.

24. Provisions
                                                  Decommissioning   Total
                                                            $'000   $'000

At 1 January 2012 (as restated)                               528     528
Change in estimate (note 16 and 17)                           174     174
Unwinding of discount on decommissioning                      (34)    (34)
provision (note 13)                                                
Exchange differences                                            3       3
At 1 January 2013 (as restated)                               671     671
Change in estimate (note 16 and 17)                            58      58
Unwinding of discount on decommissioning                         
provision (note 13)                                             6       6
Exchange differences                                          (27)    (27)
At 31 December 2013                                           708     708
 
At 1 January 2012 (as restated)                               528     528
Included in long-term provisions                              219     219
Included in current provisions                                453     453
At 1 January 2013 (as restated)                               672     672
Included in long-term provisions                              195     195
Included in current provisions                                513     513
At 31 December 2013                                           708     708

In accordance with the Group's environmental policy and applicable
legal requirements, the Group intends to restore the sites it is working on
after completing exploration or development activities.

A short-term provision of $0.5 million (2012: $0.5 million) has
been made for decommissioning costs, which are expected to be incurred within
the next year as a result of the demobilisation of drilling equipment and
respective site restoration.

The long-term provision recognised in respect of decommissioning
reflects management's estimate of the net present value of the Group's share
of the expenditure expected to be incurred in this respect. This amount has
been recognised as a provision at its net present value, using a discount rate
that reflects the market assessment of the time value of money at that date, and
the unwinding of the discount on the provision has been charged to the income
statement. These expenditures are expected to be incurred at the end of the
producing life of each field in the removal and decommissioning of the
facilities currently in place (currently estimated to be between one and seventeen years).

25. Share capital

Authorised and issued equity share capital

                                             2013                    2012
                                           Number                  Number
                                        '000    $'000          '000      $'000
Authorised 
Ordinary shares of £0.03 each      1,000,000   57,713     1,000,000     57,713

Issued
Ordinary shares of £0.03 each        231,092   13,337       231,092     13,337

Authorised but unissued share capital of £30 million has been
translated into US dollars at the historic exchange rate of the issued share
capital.

The Company has one class of Ordinary shares which carry no right
to fixed income.

Issued equity share capital

                                                       Ordinary
                                                         shares
                                                       of £0.03
                                                         Number
At 31 December 2012 and 2013                        231,091,734
 
26. Notes to the cash flow statement
                                                                    Restated
                                                             2013       2012
                                                            $'000      $'000

Operating loss                                           ( 14,828)   (92,562)
Adjustments for:
Depreciation of property, plant and equipment               1,201      1,352
Share of losses in joint ventures                           6,630     63,987
Reversal of impairment of inventories (note 8)                (97)      (787)
Reversal of impairment of VAT recoverable (note 8)           (137)      (994)
Loss on disposal of property, plant and equipment             103        285
Effect of foreign exchange rate changes                    (1,571)     4,536
Operating cash flows before movements in working capital   (8,699)   (24,183)
Decrease in inventories                                       628      1,429
Decrease in receivables                                    32,879     23,759
Decrease in payables and provisions                          (645)    (1,409)
Cash from/(used in) operations                             24,163       (404)
Income taxes paid                                            (169)      (121)
Net cash inflow/(outflow) from operating activities        23,994       (525)

27. Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group
will be able to continue as a going concern, while maximising the return to
shareholders.

The capital resources of the Group consists of cash and cash
equivalents arising from equity attributable to owners of the Company,
comprising issued capital, reserves and retained earnings as disclosed in the
Consolidated Statement of Changes in Equity.

Externally imposed capital requirement

The Group is not subject to externally imposed capital
requirements.

Significant accounting policies

Details of the significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement, the basis on
which income and expenses are recognised, in respect of each class of
financial asset, financial liability and equity instrument are disclosed in
note 3 to the Consolidated Financial Statements.

Categories of financial instruments

                                                                                         Restated
                                                                                  2013       2012
                                                                                 $'000      $'000
Financial assets - loans and receivables (includes cash and cash
equivalents)
Cash and cash equivalents                                                       56,484     40,477
Receivable from joint venture                                                    4,077      6,907
Loans issued                                                                     1,559          -
Other receivables (current and non-current)                                        590     31,796
                                                                                62,710     79,180
Financial liabilities - measured at amortised cost
Trade creditors                                                                  1,259      1,545
Payables to joint ventures                                                         801        423
Other taxes and social security                                                     21         31
Other creditors and payables                                                       347        166
Accruals                                                                         1,148      2,345
                                                                                 3,576      4,510
 
Financial risk management objectives

Management provides services to the business, co-ordinates access
to domestic and international financial markets and monitors and manages the
financial risks relating to the operations of the Group in Ukraine through
internal risks reports which analyse exposures by degree and magnitude of
risks. These risks include commodity price risks, foreign currency risk,
credit risk, liquidity risk and cash flow interest rate risk. The Group does
not enter into or trade financial instruments, including derivative financial
instruments, for speculative purposes.

As the Group has no committed borrowings, the Group is not exposed
to any significant risks associated with fluctuations in interest rates on
loans.

The Audit Committee of the Board reviews and monitors risks faced
by the Group through meetings held throughout the year.

27. Financial instruments 

Commodity price risk

The commodity price risk related to Ukrainian gas and condensate
prices and, to a lesser extent, prices for crude oil are the Group's most
significant market risk exposures. World prices for gas and crude oil are
characterised by significant fluctuations that are determined by the global
balance of supply and demand and worldwide political developments, including
actions taken by the Organisation of Petroleum Exporting Countries.

These fluctuations may have a significant effect on the Group's
revenues and operating profits going forward. The principal factor in the
current Ukrainian gas price is bilateral negotiations with Gazprom to
establish the price of gas imports from Russia. The price for Ukrainian gas is
based on the current price of these gas imports from Russia, which are
nonetheless influenced by world prices. Management continues to expect that
the Group's principal market for gas will be the Ukrainian domestic market.

The Group does not hedge market risk resulting from fluctuations in
gas, condensate and oil prices, and holds no financial instruments which are
sensitive to commodity price risk.

Foreign exchange risk and foreign currency risk management

The Group undertakes certain transactions denominated in foreign
currencies. Hence, exposures to exchange rate fluctuations arise.

The Group to date has elected not to hedge its exposure to the risk
of changes in foreign currency exchange rates.

The carrying amounts of the Group's foreign currency
denominated monetary assets and monetary liabilities at the reporting date are
as follows:

                                       Liabilities           Assets
                                       2013   2012       2013     2012
                                      $'000  $'000      $'000    $'000

US dollars ('$')                        106     51     53,277   66,388

Foreign currency sensitivity analysis

The Group is exposed primarily to movements in currencies against
the US dollar as this is the presentation currency of the Group. In order to
fund operations, US dollar funds are converted to UAH just before being
contributed to the Ukrainian subsidiaries. Sensitivity analyses have been
performed to indicate how the profit or loss would have been affected by
changes in the exchange rate between the GBP and US dollar. The analysis is
based on a weakening of the US dollar by 10 per cent against GBP, a functional
currency in the entities of the Group which have significant monetary assets
and liabilities at the end of each respective period. A movement of 10 per
cent reflects a reasonably possible sensitivity when compared to historical
movements over a three to five year timeframe. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and
adjusts their translation at the period end for a ten per cent change in
foreign currency rates.

A number below indicates a decrease in profit where US dollar
strengthens 10 per cent against the other currencies. For a 10 per cent
weakening of the US dollar against the other currencies, there would be an
equal and opposite impact on the profit or loss, and the balances would be
negative.

The Group is not exposed to significant foreign currency risk in
other currencies.

Inflation risk management

The following table details the Group's sensitivity to a 10 per
cent decrease in the US dollar against the GBP.

                                                   2013      2012
                                                  $'000     $'000

Income statement                                 (4,587)   (5,912)

Inflation in Ukraine and in the international market for oil and
gas may affect the Group's cost for equipment and supplies. The Directors
expect that the Group's practices of keeping deposits in US dollar accounts
until funds are needed and selling its production in the spot market, coupled
with the linkage of the currency in Ukraine to the US dollar, to enable the
Group to manage the risk of inflation.

Credit risk management

Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group
does not have any significant credit risk exposure on trade receivables as the
normal terms for sales of gas and condensate to the Group's customers require
payment before delivery.

The Group makes allowances for impairment of receivables where
there is an identified event which, based on previous experience, is evidence
of a reduction in the recoverability of cash flows.

The credit risk on liquid funds (cash) is considered to be limited
because the counterparties are financial institutions with high and good
credit ratings, assigned by international credit-rating agencies in the UK and
Ukraine respectively.

The carrying amount of financial assets recorded in the financial
statements represents the Group's maximum exposure to credit risk.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity risk
management framework for the management of the Group's short, medium and
long-term funding and liquidity management requirements. The Group manages
liquidity risk by maintaining adequate cash reserves and by continuously
monitoring forecast and actual cash flows.

The following tables set out details of the expected contractual
maturity of financial liabilities.

                                     Within    3 months   More than   Total
                                   3 months   to 1 year      1 year
                                      $'000       $'000       $'000   $'000

At 31 December 2013                   1,326       2,250           -   3,576
Trade and other payables              1,326       2,250           -   3,576
At 31 December 2012                   4,115         395           -   4,510
Trade and other payables              4,115         395           -   4,510

28. Commitments and contingencies

Joint activity agreements

The Group has working interests in nine licences for the conduct of
its exploration and development activities within Ukraine. Each licence is
held with the obligation to fulfil a minimum set of exploration activities
within its term and is summarised on an annual basis, including the agreed
minimum amount forecasted expenditure to fulfil those obligations. The
activities and proposed expenditure levels are agreed with the government
licensing authority.

The required future financing of exploration and development work
on fields under the licence obligations are as follow:

                                                          Restated
                                                   2013       2012
                                                  $'000      $'000

Within one year                                   1,258     18,506
Between two and five years                        1,863     20,315
                                                  3,121     38,821

The Group has revised its minimum working programs and resubmitted the required 
documentation to the government authorities; updated commitments has decreased 
for all licenses from $38.8 million to $3.1 million. License obligations of the 
joint ventures as at 31 December 2013 amounted to $0.4 million (2012: $0.5 million) 
of obligations within one year and $0.1 million (2012: $10.5 million) of obligations 
between two and five years.

29. Related party transactions

All transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation and are not
disclosed in this note. The application of IFRS 11 has resulted in the
existing joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC
Westgasinvest being accounted for under the equity method and disclosed as
related parties.

During the period, Group companies entered into the following
transactions with joint ventures who are considered as related parties of the
Group:

                                                           2013   2012
                                                          $'000  $'000

Revenues from services provided and sales of              1,892  4,487
goods
Purchases of goods                                           22     51
Amounts owed by related parties                           4,077  6,907
Amounts owed to related parties                             801    423
 
Remuneration of key management personnel

The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures. Further information
about the remuneration of individual Directors is provided in the audited part
of the Annual Report on Remuneration above.

                               Purchase of services       Amounts owing
                                  2013         2012         2013   2012
                                 $'000        $'000        $'000  $'000

Short-term employee benefits       911        1,048           69    973
Share-based payments                 -         (695)           -      -
                                   911          353           69    973

The total remuneration of the highest paid Director was $0.3 million in the year (2012: $0.4 million).

The amounts outstanding are unsecured and will be settled in cash.
No guarantees have been given or received and no provisions have been made for
doubtful debts in respect of the amounts owed by related parties.

30. Accounting policy changes - adoption of IFRS 11

As discussed in note 2, the Group has restated the financial
performance and position of the Group for the year ended 31 December 2012 to
reflect the adoption of IFRS 11. The quantitative impact of adopting these
standards on the prior year consolidated financial statements is set out in
the tables below:

Adjustments to the Consolidated Income Statements

                                                     Year ended 31 December 2012

                                                          as   IFRS 11  restated
                                                  previously
                                                    reported

                                                       $'000     $'000     $'000
CONTINUING OPERATIONS
Revenue                                                5,653   ( 1,892)    3,761
Cost of sales                                         (4,158)    1,542    (2,616)
Gross profit                                           1,495      (350)    1,145
 
Administrative expenses:
Other administrative expenses                        (10,783)    3,327    (7,456)
Impairment of oil and gas assets                     (83,584)   57,867   (25,717)
(Impairment)/reversal of impairment of other          (2,684)    3,353       669
assets
                                                     (97,051)   64,547   (32,504)
 
Other losses                                           5,417   (63,694)  (58,277)
Other operating income/(expenses)                     (2,940)       14    (2,926)
Operating loss                                       (93,079)      517   (92,562)
 
Investment revenue                                       128      (10)       118
Finance costs                                             67      (33)        34
Loss before tax                                      (92,884)     474    (92,410)
 
Tax                                                     (252)       1     (  251)
Loss for the period/year                             (93,136)     475    (92,661)
 
30. Accounting policy changes - adoption of IFRS 11 
Adjustments to the Consolidated Balance Sheets

                                   as at 1 January 2012           as at 31 December 2012

                                as    IFRS 11                        as    
                        previously    adjust-                previously    adjust-
                          reported      ments   restated       reported      ments    restated
                             $'000      $'000      $'000          $'000      $'000       $'000
ASSETS
Non-current assets
Intangible exploration      65,972    (63,765)     2,207         78,231    (75,214)      3,017
and evaluation assets
Property, plant and         99,373    (51,388)    47,985         46,627       (249)     46,378
equipment
Investments in joint             -    106,286    106,286              -     67,908      67,908
ventures
                           165,345     (8,867)   156,478        124,858     (7,555)    117,303
Current assets
Inventories                  6,556     (2,549)     4,007          5,177     (1,695)      3,482
Trade and other             66,251     (2,604)    63,647         35,537      4,084      39,621
receivables
Cash and cash               65,039       (738)    64,301         42,404     (1,927)     40,477
equivalents
                           137,846     (5,891)   131,955         83,118        462      83,580
Total assets               303,191    (14,758)   288,433        207,976     (7,093)    200,883
 
LIABILITIES
Non-current liabilities
Deferred tax               (11,538)    11,080       (458)        (4,553)     3,967       (586)
liabilities
Long-term provisions          (548)       153       (395)          (414)       195       (219)
                           (12,086)    11,233       (853)        (4,967)     4,162       (805)
Current liabilities
Trade and other             (7,552)     3,927     (3,625)        (7,793)     3,706     (4,087)
payables
Current provisions            (524)       384       (140)          (939)       486       (453)
                            (8,076)     4,311     (3,765)        (8,732)     4,192     (4,540)
Total liabilities          (20,162)    15,544     (4,618)       (13,699)     8,354     (5,345)
 
Net assets                 283,029        786    283,815        194,277      1,261    195,538
 
EQUITY
Share capital               13,337          -     13,337         13,337          -     13,337
Retained earnings          389,734     (1,327)   388,407        298,290       (852)   297,438
Cumulative translation    (123,784)     2,113   (121,671)      (119,400)     2,113   (117,287)
reserves
Other reserves               3,344          -      3,344          1,682          -      1,682
Equity attributable to     282,631        786    283,417        193,909      1,261    195,170
equity holders of the
parent
Non-controlling                398          -        398            368          -        368
interest
Total equity               283,029        786    283,815        194,277      1,261    195,538

30. Accounting policy changes - adoption of IFRS 11 

Adjustments to the Consolidated Cash Flow Statements

                                                          Year ended 31 December 2012

                                                             as    
                                                     previously      adjust-
                                                       reported        ments   restated
                                                          $'000        $'000      $'000
Net cash (outflow)/inflow from operating activities      (5,609)       5,084       (525)
 
Investing activities
Disposal of subsidiaries                                  4,142       (4,142)         -
Investments in joint ventures                                 -      (22,478)   (22,478)
Purchases of property, plant and equipment              (15,749)      14,666     (1,083)
Purchases of intangible exploration and evaluation       (6,239)       6,152        (87)
assets
Proceeds from sale of property, plant and equipment         688         (461)       227
Interest received                                           128          (10)       118
Net cash used in investing activities                   (17,030)      (6,273)   (23,303)
 
Financing activities
Proceeds from short-term borrowings                           -            -          -
Net cash used in financing activities                         -            -          -
 
Net increase/(decrease) in cash and cash equivalents    (22,639)      (1,189)   (23,828)
Effect of foreign exchange rate changes                       4            -          4
Cash and cash equivalents at beginning of                65,039         (738)    64,301
period/year
Cash and cash equivalents at end of period/year          42,404       (1,927)    40,477

30. Accounting policy changes - adoption of IFRS 11 

Adjustments to Notes to the condensed cash flow statements

                                                           Year ended 31 December 2012

                                                              as      
                                                      previously        IFRS 11
                                                        reported   adjust-ments      restated
                                                           $'000          $'000         $'000
Operating loss                                          (93,079)            517       (92,562)
Adjustments for:
Depreciation of property, plant and equipment              1,967           (615)        1,352
Impairment of oil and gas assets                          83,584        (83,584)            -
Gain on acquisition of jointly controlled entity/         (5,454)         5,454             -
disposal of subsidiaries
Loss from investments into joint ventures                      -         63,987        63,987
Reversal of impairment of inventories                        291         (1,078)         (787)
(Reversal of impairment)/Impairment of VAT                 2,394          3,388)         (994)
recoverable
(Gain)/loss on disposal of property, plant and                52            233           285
equipment
Effect of foreign exchange rate changes                    4,014            522         4,536
Operating cash flows before movements in working          (6,231)       (17,952)      (24,183)
capital
Decrease in inventories                                    1,269            160         1,429
Decrease/(increase) in receivables                          (766)        24,525        23,759
(Decrease)/Increase in payables and provisions               241         (1,650)       (1,409)
Cash (used in)/from operations                            (5,487)         5,083          (404)
Income taxes paid                                           (122)             1          (121)
Net cash inflow/(outflow) from operating activities       (5,609)         5,084          (525)

31. Events after the balance sheet date

Political and economic turmoil in Ukraine

We are monitoring the current political situation in Ukraine
carefully and there have been no disruptions to the Company's operations in
either of our operating locations.

As a result of the recent political and economic turmoil in
Ukraine, there has been a significant devaluation of the Ukrainian Hryvnia
against the US Dollar which is likely to affect the carrying value of the
Group's assets in the future. Since 1 January 2014, the Ukrainian Hryvnia has
devalued against the US Dollar by approximately 35%.

We have reassessed the key judgements and critical accounting
estimates as at the date of this report and, based on the current status of
operations, no adjustments have been made.

COMPANY BALANCE SHEET
As at 31 December 2013

                                                     2013       2012
                                           Notes    $'000      $'000
ASSETS
Non-current assets
Investments                                34           -          -
Receivables from subsidiaries              35      77,506     97,289
                                                   77,506     97,289
Current assets
Trade and other receivables                35       1,763        102
Cash and cash equivalents                  35      50,280     32,092
                                                   52,043     32,194
Total assets                                      129,549    129,483
 
LIABILITIES
Current liabilities
Trade and other payables                   36      (1,211)    (1,290)
                                                   (1,211)    (1,290)
Total liabilities                                  (1,211)    (1,290)
 
Net assets                                        128,338    128,193
 
EQUITY
Share capital                              37      13,337     13,337
Retained earnings                                 210,297    212,497
Cumulative translation reserves            38     (95,296)   (97,734)
Share-based payment reserve                             -         93
Total equity                                      128,338    128,193

The financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 5718406, were approved by the board of Directors and
authorised for issue on 28 April 2014.

They were signed on its behalf by:

Bertrand Des Pallieres
Chief Executive Officer
28 April 2014

The notes form part of these financial statements.

COMPANY CASH FLOW STATEMENT
For the year ended 31 December 2013

                                                                2013      2012
                                                        Note   $'000     $'000

Net cash outflow from operating activities                39 ( 4,034)   (1,007)
 
Investing activities
Interest received                                                258        13
Settlement received                                                -     1,070
Repayment of loans to subsidiary companies                    19,783    (1,037)
Net cash from investing activities                            20,041        46
 
Net increase/(decrease) in cash and cash                      16,007      (961)
equivalents
Effect of foreign exchange rate changes                        2,181     2,197
Cash and cash equivalents at beginning of year                32,092    30,856
Cash and cash equivalents at end of year                      50,280    32,092
 

COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2013

                                      Share                Cumulative  Share-based
                                    capital    Retained   translation      payment   
                                    capital    earnings      reserves      reserve      Total
                                      $'000       $'000         $'000        $'000      $'000

As at 1 January 2012                 13,337     212,428      (102,176)       1,755    125,344
Share-based payment                       -       1,662             -       (1,662)         -
Net loss for the year                     -       1,593)            -            -     (1,593)
Exchange translation differences          -           -         4,442            -      4,442
As at 1 January 2013                 13,337     212,497       (97,734)          93    128,193
Share-based payment                       -          93                        (93)         -
Net loss for the year                     -      (2,293)            -            -     (2,293)
Exchange translation differences          -           -         2,438            -      2,438
As at 31 December 2013               13,337     210,297       (95,296)           -    128,338
 
32. Significant accounting policies

The separate financial statements of the Company are presented as
required by the Companies Act 2006 (the 'Act'). As permitted by the Act, the
separate financial statements have been prepared in accordance with
International Financial Reporting Standards.

The financial statements have been prepared on the historical cost
basis. The principal accounting policies adopted are the same as those set out
in note 3 to the Consolidated Financial Statements except as noted below.

As permitted by section 408 of the Act, the Company has elected not
to present its profit and loss account for the year. Cadogan Petroleum plc
reports a loss for the financial year ended 31 December 2013 of $2.3 million
(2012: $1.6 million).

Investments

Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment.

Critical accounting judgements and key sources of estimation
uncertainty

The Company's financial statements, and in particular its
investments in and receivables from subsidiaries, are affected by certain of
the critical accounting judgements and key sources of estimation uncertainty
described in note 4 to the Consolidated Financial Statements.

33. Auditor's remuneration

The auditor's remuneration for audit and other services is
disclosed in note 10 to the Consolidated Financial Statements.

34. Investments

The Company's subsidiaries are disclosed in note 18 to the
Consolidated Financial Statements. The investments in subsidiaries are all
initially stated at cost.

35. Financial assets

Receivables from subsidiaries

At the balance sheet date gross amounts receivable from the fellow
Group companies were $348.5 million (2012: $363.0 million). No impairment was
recognised in 2012 or 2013. The carrying value of the receivables from the
fellow Group companies as at 31 December 2013 was $77.5 million 
(2012: $97.3 million). There are no past due receivables.

Trade and other receivables

                                                 2013   2012
                                                $'000  $'000

Loans issued                                    1,559      -
VAT recoverable                                   138      -
Prepayments                                        51     71
Other receivables                                  15     31
                                                1,763    102

35. Financial assets 

The Company's principal financial assets are bank balances and cash
and cash equivalents and receivables from related parties none of which are
past due. The Directors consider that the carrying amount of receivables from
related parties approximates to their fair value.

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Company and
short-term bank deposits with an original maturity of three months or less.
The carrying value of these assets approximates to their fair value.

36. Financial liabilities

Trade and other payables

                                                   2013  2012
                                                  $'000 $'000

Trade creditors                                     317   321
Other creditors and payables                        238   969
Accruals                                            656     -
                                                  1,211 1,290

Trade payables principally comprise amounts outstanding for trade
purchases and ongoing costs. The average credit period taken for trade
purchases is 45 days (2012: 42 days).

The Directors consider that the carrying amount of trade and other
payables approximates to their fair value. No interest is charged on balances
outstanding.

37. Share capital

The Company's share capital is disclosed in note 25 to the
Consolidated Financial Statements.

38. Cumulative translation reserve

The functional currency of the Company is pounds sterling. The
financial statements of the Company are expressed in US dollars, which is its
presentation currency. Cumulative translation reserve represents the effect of
translating into US dollars the results and financial position of the Company.

39. Notes to the cash flow statement

                                                               2013       2012
                                                              $'000      $'000

Operating loss from continuing operations                    (2,293)    (1,593)
Operating cash flows before movements in working capital     (2,293)    (1,593)
(Increase) in receivables                                    (1,662)       (38)
(Decrease) in payables                                          (79)       624
Cash used in operations                                      (4,034)    (1,007)
Income taxes paid                                                 -          -
Net cash outflow from continuing operations                  (4,034)    (1,007)

40. Financial instruments

The Company manages its capital to ensure that it is able to
continue as a going concern while maximising the return to shareholders. Refer
to note 27 for the Group's overall strategy and financial risk management
objectives.

The capital resources of the Group consists of cash and cash
equivalents arising from equity, comprising issued capital, reserves and
retained earnings.

Categories of financial instruments

                                                                  2013     2012
                                                                 $'000    $'000
Financial assets - loans and receivables (includes cash and
cash equivalents)
Cash and cash equivalents                                       50,280   32,092
Amounts due from subsidiaries                                   77,506   97,289
                                                               127,786  129,381
Financial liabilities - measured at amortised cost
Trade creditors                                                   (317)    (321)
                                                                  (317)    (321)
Interest rate risk

All financial liabilities held by the Company are non-interest
bearing. As the Company has no committed borrowings, the Company is not
exposed to any significant risks associated with fluctuations in interest
rates.

Credit risk

Credit risk refers to the risk that a counterparty will default on
its contractual obligations resulting in financial loss to the Company. For
cash and cash equivalents, the Company only transacts with entities that are
rated the equivalent to investment grade and above. Other financial assets
consist of amounts receivable from related parties.

The Company's credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by international
credit-rating agencies.

The carrying amount of financial assets recorded in the Company
financial statements, which is net of any impairment losses, represents the
Company's maximum exposure to credit risk.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity risk
management framework for the management of the Company's short, medium and
long-term funding and liquidity management requirements. The Company maintains
adequate reserves, by continuously monitoring forecast and actual cash flows.

The Company's financial liabilities are not significant and
therefore no maturity analysis has been presented.

Foreign exchange risk and foreign currency risk management

The Company undertakes certain transactions denominated in foreign
currencies. Hence, exposures to exchange rate fluctuations arise. The Company
holds a large portion of its foreign currency denominated monetary assets and
monetary liabilities in US dollars. More information on the foreign exchange
risk and foreign currency risk management is disclosed in note 27 to the
Consolidated Financial Statements.

41. Related parties

Amounts due from subsidiaries

The Company has entered into a number of unsecured related party
transactions with its subsidiary undertakings. The most significant
transactions carried out between the Company and its subsidiary undertakings
are mainly for short and long-term financing. Amounts owed from these entities
are detailed below:

                                                    2013      2012
                                                   $'000     $'000

Cadogan Petroleum Holdings Limited                77,506    97,289
                                                  77,506    97,289

Refer to note 35 for a discussion on the Company's receivables due
from subsidiaries.

The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures. Further information
about the remuneration of individual Directors is provided in the audited part
of the Annual Report on Remuneration 2013 above.

                                   Remuneration      Amounts owing
                                 2013      2012     2013      2012
                                $'000     $'000    $'000     $'000

Short-term employee benefits      326       296        -       476
                                  326       296        -       476

The total remuneration of the highest paid Director was $0.3 million in the year (2012: $0.4 million).

42. Events after the balance sheet date

Events after the balance sheet date are disclosed in note 31 to the
Consolidated Financial Statements.


ANNUAL GENERAL MEETING
The Annual General Meeting of the Company held at 10.30am on Thursday 26 June 2014 at Chandos House, 2 Queen Anne Street, London W1G 9LQ.


NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism (“NSM”)
and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm

Neither the contents of the Company’s website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.


Investor relations
Enquiries to: [e-mail]

Registered office
1st Floor, 
40 Dukes Place, 
London EC3A 7NH
Registered in England and Wales no. 5718406

Ukraine
27A Taras Shevchenko Boulevard
01032 Kiev

Ukraine
Email: [e-mail]
Tel: [phone]
Fax: [phone]

www.cadoganpetroleum.com