Annual Financial Report

Cadogan Petroleum PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2012

The Directors present the Annual Financial Report for the year ended 31 December
2012. The full Annual Report and Accounts will shortly be available via the Company's 
website at www.cadoganpetroleum.com

KEY POINTS 

Cadogan Petroleum plc is an independent oil and gas exploration,development 
and production company with onshore gas, condensate and oil assets in Ukraine.

Key developments during 2012:

- The completion of a major transaction between Eni S.p.A("Eni"), NAK Nadra 
and Cadogan Petroleum plc ("Cadogan" or "the Company")resulting in establishment 
of LLC Westgasinvest ("WGI"), which holds a portfolio of 10 licences for 
unconventional gas covering a total area of 3,795square kilometres, and subsequent 
farm-out to Eni of 50.01%. Cadogan retains 15% interest in WGI

- Sale of two gas plants for $29.5 million and settlement of all associated
litigation with Global Process Systems ("GPS") completed in April 2013

- Total impairment of $86.3 million mainly related to the Zagoryanska
license

- Total capital expenditure of $22.3 million (2011: $21.3 million) during the 
year of which $4.1 million was funded by the deferred consideration from the 
disposal of 30% of Cadogan's interest in the Pokrovskoe licence to Eni in 2011

- Net cash and cash equivalents at year-end of $42.4 million
(2011: $65.0 million). Cash and cash equivalents at 24 April of $67.2 million



Cadogan Petroleum plc                                 [phone]
Bertrand des Pallieres
Chief Executive Officer

Cantor Fitzgerald Europe                              [phone]
David Porter

Richard Redmayne
Bankside Consultants                                  [phone]
Simon Rothschild



CHAIRMAN'S STATEMENT

2012 proved a challenging year for Cadogan. Revenue, largely reflecting production 
from the Group's Cheremkhivska and Debeslavetska fields decreased to $5.7 million from 
$7.0m in 2011. The loss before tax was $92.9 million, after a $83.6 million impairment 
taken largely as a result of the unsuccessful drilling and work over programme at 
Zagoryanska licence.

At 31 December 2012 the Company had cash of $42.4m. Since the year end this has 
significantly improved due to the recently reported settlementwith GPS, leaving 
the Company in a strong financial position, with $67.2 million cash and cash 
equivalents at 24 April 2013, to achieve the ambitious targets it has set for 
itself in 2013.

Operations

As reported in the half year report, in the first half of 2012 the Group finalised
a completeoverhaul of its technical operations and sub-surface explorations teams,
bringing in over 120 years combined experience in major Independent Oil Companies. 
Under their supervision, the Group has undertaken a thorough re-evaluation of all
its assets, enabling the Group to revise its list of targets for its short - medium
term plan of activity. Whilst a principal focus for 2013 remains the reduction of 
risk and maximization of existing production potential, we have identified new and 
economically viable exploration and production potential in most of our existing 
licences.

Shale Gas

Within the framework of the Cooperation Agreement with Eni, signed in October 2011,
Cadogan completed its Share Purchase Agreement in October 2012 with Nak Nadra Ukrayny
("Nadra") and Eni, for the exploration and development of unconventional gas in Ukraine,
whereby Eni has acquired a stake in the joint venture company established by Nadra 
and Cadogan, Ukrainian company LLC Westgasinvest. Under the transaction, Eni acquires 
50.01% of LLC Westgasinvest from the joint venture parties and will fund an initial 
exploration program.

The Board

In January 2012, Adelmo Schenato joined the Board as Chief Operating Officer after
a 35 year career at 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 ("R&D") and Technical Management, and Vice 
President Health Safety, Environment and Sustainability. His regional roles included 
General Manager for Tunisia, Gabon and Angola as well as CEO of Eni's Italian gas 
storage company. Since joining Cadogan, Adelmo has been responsible for recruiting
a new technical team. The Chief Executive covers this in more detail in his review.

During the year both Alessandro Benedetti and Ian Baron resigned from the Board, 
although Mr Benedetti continues to advise the Company in a consulting capacity. 
I thank them both for their contribution to the Company.

Litigation

As previously announced, Cadogan has reached a settlement with Global Process 
Systems ("GPS") by way of an Agreement with GPS for the purchase of two gas 
processing plants for the sum of $29.5 million. The completed sale represents 
a full and final settlement of all claims and liabilities between the two parties, 
and marks to the final part in a long running litigation around the Company that 
had proved a substantial distraction for management.

Annual General Meeting

I look forward to meeting shareholders at the Company's Annual General Meeting to
be held at 10.30am on Thursday 27 June 2013 at Chandos House, 2 Queen Anne Street,
London W1G 9LQ.

Strategy and Prospects

Currently all Cadogan's assets are based in Ukraine. The programme approved for the
current year concentrates on increasing production from existing licenses without 
the capital intensity necessitated by the drilling of the major wells have been 
identified in Pokrovskoe. Furthermore, potential operations on the shale gas licenses
that form our Joint Venture with Nadra Ukrayny and Eni S.p.A are under evaluation 
and whilst the Board continues to assess opportunities both in Ukraine, 
where our existing license base continues to  prove attractive to companies wishing 
to get involved in the sector in Ukraine, and overseas in regions where the Company 
has existing relationships and can offer significant, existing expertise.

Zev Furst
Non-executive Chairman
24 April 2013



CHIEF EXECUTIVE'S REVIEW

Since the recruitment of Adelmo Schenato in January 2012, much effort has been 
given to the recruitment and indeed overhaul of the Group's technical operations
and sub-surface explorations teams. A review of the Group's past exploration and 
drilling campaigns suggests that results would be improved by a deeper understanding
of the geology of our license areas and amore thorough technical preparation by way
of seismic acquisition and interpretation. Taken together this will limit the risk
of futuredisappointing results of the type seen in our most recent drilling activity.

As part of the refocusing of the Group's technical capabilities, Emidio Valmori has
been recruited as Business Development Technical Adviser and Luciano Kovacic as Geology
and Geophysics ("G&G") manager, heading technical teams that will assess future operations. 
Emidio headed Eni's geology team in Italy after stints in China, Senegal, Angola and Egypt. 
Luciano also comes from Eni with a strong technical background, having worked in Libya, 
Algeria and the UK and as part of that Group's R&D activities, introducing 4D technologies 
to that company. In addition, Giovanni Ferraro has been recruited as Production and 
Development ("P&D") Technical Consultant Advisor. His past experience has included the 
start-up of the Beniboye oil field (Nigerian Agip Oil Company Limited ("NAOC")) and 
management of 2 large oil fields (one onshore, one offshore) in Libya, with total production
of over 300,000 bopd. Together this represents formidable technical capability at Cadogan as 
it seeks to put past  frustrations behind it.

Operations at Pokrovskoe are currently suspended following disappointing results on 
Pokrovskoe 1 and 2a, the latter afflicted by mechanical problems. However the reassessment of 
the area by our new technical teams has identified residual hydrocarbon potential within the 
license area and operations might be resumed upon finalisation of a positive re-evaluation. 
The Group's Zagoryanska 1, 2 and 3 and 11 wells have all been suspended, with only Zagoryanska 3 
having the potential for commercial production. At the Zagoryanska 11 well, a data acquisition 
programme is underway, the results of which will be used to re-focus operations on the license.
However, in order to reflect the disappointing outcome of the 2012 activity, the Board has 
decided to impair the carrying value of the assets related to the Zagoryanska license to nil.

On the Monastyretska license in Western Ukraine, operations at the Blazhiv 1 well are 
showing positiveresults and the re-entry of another two, existing wells is under evaluation.
In the meantime work with our joint venture partner Eni on assessing the Zagoryanska, 
Pirkovskoe and Pokrovskoe licences continues.

More generally, Ukrainian operations in 2013 are expected to focus on shallow prospects
in our western assets that do not require the capital intensity of our eastern, deep prospects.

Extremely promising gas shows are evident from logging and drilling data at Borynya 3. 
It is our intention to re-enter the well in June 2013 using the Group's Astro 
Service rig.

Other new and promising areas for investment are already under scrutiny and the Group
will report on these in due course. The Group continues to assess opportunities in Ukrainian
acreage in the Black Sea.

Shale Gas

LLC Westgasinvest, in which Cadogan holds a 15% shareholding, currently 
holds subsoil rights to nine unconventional (shale) gas license areas in the
Lviv Basin of Ukraine, totalling approximately 3,800 square kilometres of acreage.  
The Lviv Basin is considered to be one of the most attractive basins in Europe for the 
exploration of unconventional gas,being a continuation of the Lublin Basin in Poland which 
has already attracted substantial interest from the hydrocarbon industry. Studies are ongoing 
with the aim to defining the best area where to start the operations for the first 
exploration well. The potential Shell and the Ukrainian government on acreage in the country.

Service Business

The Ukrainian oil & gas sector currently lacks adequate investment in technical services. 
Partly in order to remedy this, Cadogan has invested limited amounts in oilfield services 
in Ukraine, in particular in agreementswith Medes in Ukraine on the provision of mud treatment
services and an Exclusive Cooperation agreement with AVA (Newpark Group) on drilling fluids 
services. This initiative is already generating so far limited, but positive,financial benefits
and we expect this trend to continue and even increase over time.

Financial Position

Cadogan remains in a strong financial position, despite recent disappointing drilling results 
and the impairment taken on our Zagoryanska license, with no debt and with substantial cash 
resources, particularly following the recent finalisation of the litigation with GPS.
One feature of the Financial Review is the continuing cutting of costs, with cost of sales
decreasing to $4.2 million in 2012 from $6.3 million in 2011 and other administrative 
expenses decreasing to $10.8 million in 2012 from $11.6 million in 2011. This is a continuing
process as the Board seeks to reshape the Group.

Strategy

In my last Chief Executive's Review in the 2011 Annual Report I underlined the potential 
that Ukraine holds for oil & gas exploration and production, a factor that is being 
increasingly recognised by the entry of major oil companies to the Country. 
Not only Eni, with whom Cadogan shares joint ventures, but also Exxon, Chevron,
Shell, OMV, Vitol have all entered Ukraine since last year's report. As predicted, 
it should contribute to a significant re-rating of Ukraine's oil and gas sector and 
valuations over the next quarters and years. Against this background Cadogan, which is
longestablished and highly regarded in Ukraine, is positioned to take advantage also 
on new ventures both on-shore and off-shore.

Bertrand des Pallieres
Chief Executive Officer
24 April 2013

OPERATIONS REVIEW

In 2012 the Group held working interests in nine conventional (2011: 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 2012 was on the four most promising 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 of 31 December 2012)

   Working                                         Licence
 interest (%)       Licence          Expiry       type (1)
Major licences
     40.0         Zagoryanska      April 2014        E&D
     70.0         Pokrovskoe      August 2016        E&D
    100.0         Pirkovskoe      October 2015       E&D
     99.8         Bitlyanska     December 2014       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       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").

In addition to above licences the Group has a 15% interest in 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. 
In light of the results during 2012 campaign, a thoroughre-evaluation is ongoing.

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 Zagoryanska 1 well work-over opened and tested the V19 and V18 intervals; the first 
produced no commercial gas and the second was found to be water bearing; the well is 
suspended.

- The Zagoryanska 2 well work-over tested the V25, V24 and V23 intervals with no commercial
gas produced; the well is suspended.

- The Zagoryanska 8 well work-over, which was intended to test the V20, V18, V17 
and V16 intervals, was unable to recover the previous fish-in-hole due to the very 
poor casing conditions; the well is suspended.

- Production from Zagoryanska 3 well is tied into the Group's Zagoryanska gas 
treatment plant. Average monthly production rates during 2012 were 28 mcm/day gas
and 4.3 t/day condensate. At the end of 2012, the well was worked-over to retrieve
the parted tubing, in order to open the V19 interval and the bottom of the producing
V18 interval. V19 showed some gas but due to poor petro-physical properties production
was not economically sustainable.The well is currently under monitoring to assess the 
possibility to recover production from V18.

- The Zagoryanska 11 well was spud-in on 7 March 2012. In spite of severe hole instability 
problems and multiple equipment failures, the well operations were successfully completed 
in 166 days versus 142 in AuthorisationFor Expenditure ("AFE"). The V24, V23, V19, and 
V18 intervals were tested with no commercial gas; the well is suspended.

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 ongoing. Studies 
are in an early stage and not yet sufficiently mature to enable the Company to define future 
actions.

Pokrovskoe licence

The Group holds a 70 per cent working interest in the Pokrovskoe licence which holds 51.1
mmboe of Prospective Resources (2011: 51.1 mmboe). The exploration licence covers 49.5 square
kilometres and the initial licence was extended until August 2016.

The interpretation of the 3D seismic, completed early in 2010 confirmed the presence of a
prospect with four-way closure at the Lower Visean and the deeper Tournasian levels, beneath
both the Pokrovskoe 1 and Pokrovskoe2 suspended well locations; both wells encountered strong
indications of gas during drilling and logging.

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 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 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 preliminary 3D seismic re-interpretation has been successfully concluded. 
The Pokrovskoe licence shows several interesting objects and encouraging signs for a 
possible programme of activity that can be defined and eventually proposed for the
Board's approval in the final quarter of 2013.

Pirkovskoe licence

The Group has a 100 per cent working interest in the Pirkovskoe licence which holds 2.5 
mmboe of Proven and Probable Reserves (2011: 2.4 mmboe). This exploration and appraisal
licence covers 71.6 square kilometres and has been renewed until October 2015. The 
remaining work programme includes: (a) the testing of Pirkovskoe 1; (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 1 and Pirkovskoe 2 wells are currently suspended. An extensive revision 
and reinterpretation of the 3D seismic and G&G studies is ongoing to value and price all
the possible reserves potential. Studies are in the early stage and not yet sufficiently 
mature to define future actions.

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

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) (2011: 219.2 mmboe) and 117.3 mmboe (gross) (2011: 117.3 
mmboe) of Contingent Resources respectively, while no Reserves and Resources have been 
attributedto 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, proximal 
to these two Soviet era wells. Several intervals showed very interesting evidence of
gas during drilling which was confirmed by logging. Due to the difficult hole 
conditions and the increasingly high pore pressure gradient, three very limited 
open hole drill stem tests were run. Inparticular, from one of the secondary reservoir 
targets at around 3,600 metres gas was tested at a maximum flow rate of 128,000 cubic 
metres per day. At a drilled depth of 5,325 metres the well Borynya 3 was suspended for 
futureevaluation having encounte red several  high-pressure gas bearing intervals that 
could not be tested with the equipment available at that time.

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 interpretationdemonstrates that 
the well was poorly located in relation to any structural closure.

In 2010 a 2D survey was completed in the southern part of thelicence 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, an internal re-evaluation and estimate of 
the resources in Bitlyanska and Borynya areas was concluded.

Since the year end, the re-entry and testing of Borynya 3 well has been approved by the 
Board which also approved the purchase of existing seismic data on the Vovchenska area 
and the acquisition of 50 linear kilometres of 2D seismic lines to better access and 
re-estimate the existing potential.

The remaining work obligation for this licence was recently re-negotiated.

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 0.2 mmboe of Proved, Probable and Possible 
(`3P') Reserves (2011: 0.2 mmboe). The field is currently producing 95.0 boepd 
(2011: 84.0 boepd). The new compressor unit and dehydration facilities for production 
optimisation have been delivered as per the programme.

- 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 (Amplitude Versus Offset ("AVO") and Inversion Analysis),
the purchase of existing seismic data and the acquisition of 80 linear kilometres of 
2D seismic lines to assess and estimate the reserves is forecast in 2013; in addition, 
one shallow well could be drilled by the year end. The satellite radar waves "InSar"
technology will be applied to understand and predict the gas reservoirs' behaviour.

- Cheremkhivska Production licence area

A production licence containing 0.1 mmboe of 3P Reserves (2011: 0.1 mmboe). This 
licence is currently producing 23.9 boepd (2011: 32.8 boepd).

Potential gas production from shallow intervals seems to be challenging from this 
licence. Preliminary studies have not yet been conclusive but a contingent programme 
to purchase existing seismic data and the acquisition of 30 linear kilometres of
2D seismic lines to assess and estimate the reserves will be considered in 2013.

- Slobodo-Rungerska licence area

An exploration and development licence, with no booked Reserves and Resources 
(2011: 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. Ongoing re-evaluation is in its preliminary stage.

- Monastyretska licence area

An exploration and development licence, with no booked Reserves or Resources (2011: nil).
The Blazhiv 1 well was re-entered and a sucker rod pump was installed; 
the well is currently producing at a rate of 20-25 boepd and is being monitored
to ensure that production is optimised.

FINANCIAL REVIEW

Overview

In 2012 the Group focused on concluding drilling and testing of the Pokrovskoe 2a well on
the Pokrovskoe field and, together with its joint venture partner Eni, the work-over 
campaign at the Zagoryanska field. In addition to the ground work on the JV fields 
(Zagoryanska and Pokrovskoe), an extensive re-assessment of the Group's assets has 
been carried out by the sub-surface team which continues into 2013.

Revenue has decreased from $7.0 million in 2011 to $5.7 million in 2012. The unsuccessful
programme on the Zagoryanska licence has resulted in a $83.6 million (2011: $nil) impairment
of Property, Plant and Equipment ("PP&E") assets and a receivable from Eni that was treated 
as contingent consideration, which contributed to the loss for the year of $93.1 million 
(2011: $153.1 million profit). This loss was reflected by a corresponding decrease in the net 
asset position as at 31 December 2012 to $194.3 million from $283.0 million as at 31 December 2011. 
The cash position of $42.4 millionat 31 December 2012 has decreased from $65.0 million at
31 December 2011 mainly as the result of capital expenditure on the Zagoryanska licence and 
ongoing costs.

Income statement

Loss before tax was $92.9 million (2011: profit of $152.6 million). Revenues of $5.7 million 
(2011: $7.0 million) comprised sales of gas from the Debeslavetska and Cheremkivska fields, 
the Zagoryanska 3 well and other revenue from the service business. Of the $1.3 million 
decrease in revenues $2.4 million relates to a decrease from the Zagoryanska licence 
mainly due to the fact that the Group proportionately consolidated 40% of Zagoryanska 
revenues throughout whole of 2012 while revenues were fully consolidated into the Group's 
income statement during the first half of 2011. Revenues from sales of hydrocarbons from 
other licences have increased by $0.3 million, largely due to the gas price increase in 2012. 
In addition, $0.8 million from oil field services provided to third parties by the Group 
contributed to 2012 revenue. Cost of sales, which represents production royalties and taxes, 
depreciation and depletion of producing wells and direct staff costs decreased to $4.2 million
in 2012 from $6.3 million in 2011 to give a gross profit of $1.5 million (2011: $0.7 million).

- Other administrative expenses of $10.8 million (2011: $11.6 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 (2011: $1.2 
million) of professional costs were incurred in relation to litigation, $0.1 million of professional 
fees were incurred in relation to the transaction with Eni on WGI (2011: $0.9 million in relation 
to the transaction with Eni on the Pokrovskoe and Zagoryanska licences).

- Impairment charges amounting to a total of $86.3 million (2011: $2.8 million) comprised: 
$58.9 million (2011: $nil) impairment of PP&E assets of which $47.1 million was recorded in respect 
of the fair value uplift of the Group's 40% non-controlling interest in Zagoryanskoe recorded after 
the disposal of 60% in 2011; $24.7 million (2011: $nil)impairment of contingent consideration from
Eni recorded in 2011 in respect of obtaining the Zagoryanska production licence; and $2.7 million 
(2011: $2.8 million) net impairment charges comprised of $2.4 million impairment (2011: $3.2 million)
of Ukrainian VAT and $0.3 million provision for inventory (2011: $0.3 million release of provision).

- Other gains of $5.4 million represents the profit the on contributions of licences, being the
difference between the fair value of the licences contributed in return for the 15% interest in WGI 
and nil net book value of the licences in the Group's books at the date of contribution.

- Other operating expenses of $2.9 million (2011: $4.6 million income) includes $0.6 million 
income (2011: $2.1 million) related to recoveries from former management and suppliers and 
$3.6 million of net foreign exchange losses (2011: $2.4 million gain) related to revaluation 
of USD denominated monetary assets of the Group's UK entities which have a GBP as the functional currency.

Cash flow statement

The Consolidated Cash Flow Statement below shows expenditure of $6.2 million (2011: $16.9 million)
on intangible Exploration and Evaluation ("E&E") assets and $15.7 million (2011: $4.4 million) 
on PP&E. In addition, the Group received $4.1 million (2011: $58.0 million) deferred consideration 
that had been outstanding as at 31 December 2011 in connection with the disposal of interest in 
Pokrovskoe BV to Eni in 2011.

Balance sheet

As at 31 December 2012, the Group had net cash and cash equivalents of $42.4 million 
(2011: $65.0 million). Intangible E&E assets of $78.2 million (2011: $66.0 million) represent the 
carrying value of the Group's investment in exploration and appraisal assets as at 31 December 2012, 
including $40.3 million of fair value uplift on the valuation of the 70% jointly-controlled interest 
in the former subsidiary which holds the Pokrovskoe licence, and $5.4 million of the associated fair
value of the licences contributed in return for the 15% interest in WGI. The PP&E balance of $46.6
million at 31 December 2012 (2011: $99.4 million, including $40.0 million of the fair value uplift 
on the valuation of the 40% jointly-controlled interest in the former subsidiarywhich holds 
Zagoryanska licence), reflects the cost of developing fields with commercial reserves and 
bringing them into production. Trade and other receivables of $35.5 million (2011: $66.3 million)
includes $30.0 million (2011: $30 million) receivables in respect of the settlement with GPS 
(refer to note 4(a) to the Consolidated Financial Statements), $3.1 million (2011: $1.7 million) 
as the non-consolidated portion of receivables from jointly controlled entities, and $0.9 million 
(2011: $4.3 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 reduce the number of lost time incidents.

The Group's performance in 2012 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    2012   2011
Financial KPIs
Average production (working interest basis (1) boepd     181    297
2P reserves (2)                                mmboe     2.6    2.6
Realised price per 1,000 cubic metres (3)          $   486.0  395.1
Basic and diluted earnings per share (4)       cents   (40.3)  65.6
Non-financial KPIs
Lost time incidents (5)                    Incidents       0      2

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

(2) Quantities of 2P reserves as at 31 December 2011 and 2012 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 2011 and 2012 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 31 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 
and holds these mostly in term deposits depending on the Group's operational requirements.
Production revenues from the sale of hydrocarbons are received in the local currency in Ukraine (`UAH') 
and 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. Some payments are made on
behalf of the subsidiaries from the UK.

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

Drilling operations

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

Some of the Group's facilities    All plants are operated at
have been inherited, and although standards above the Ukraine
fully checked were not installed  minimum legal requirements.
under our supervision and there   Operative staff is chosen
is a risk of plant failure.       for its experience and
                                  receives supplemental
                                  training to ensure that
                                  facilities are operated and
                                  maintained at a high
                                  standard.


There is a risk that production   Service providers are
or transportation facilities can  rigorously reviewes at the tender stage
fail due to poor performance of   and are monitored during the contract period.
the Group's suppliers and control 
of some facilities being with     
other governmental or commercial  
organisations.
 
Work over and abandonment

Certain of the Group's wells were  Work programmes are designed
drilled by the State and other     to assess the status of the
private companies and will be      wells and any work that is
worked over. There is a risk that  not safe or is not
Cadogan's activities fail because  technically feasible will be
of problems inherited with these   abandoned. Qualified
sites.                             professionals will be used
                                   to design a step-by-step
                                   approach to re-entering old
                                   wells.

Any well stock that is not         All sites that are abandoned will be restored
considered satisfactory for        and re-cultivated to meet or exceed standards
purpose or poses an environmental  required by the relevant environmental control
hazard will need to be abandoned.  and control authorities and in compliance with recognised
                                   international standards.
 
Sub-surface risks

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


Some local contractors may not    Detailed supervision of local contractors by Cadogan
acquire data accurately, and      management is followed. Plans are discussed well in       
choice of locally available       advance with both local and international contractors in an
equipment or contractors of a     effort to ensure that appropriate equipment is available.
desirable standard.               
                                   
Data can be misinterpreted        All analytical outcomes are
leading to the construction of    challenged internally and
inaccurate models and subsequent  peer reviewed.
plans.                            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   The Group performs a review
in achieving commercial           of its O&G assets for
production from an asset and      impairment on annual basis.
consequently the carrying values  The Group considers on an
of the Group's oil and gas assets annual basis whether to
may not be recovered through      commission a Competent
future revenues.                  Person's 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 2012,
                                  Management has decided not
                                  to commission new CPR during
                                  2012.
 
                                  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 2013.
                                  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
funds are available to meet       by maintaining adequate cash
development obligations to        reserves and by closely
commercialise the Group's major   monitoring forecast and
licences.                         actual 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
                                  2013.
 
The Group could be impacted by    These risks are mitigated by
failing to meet regulatory        employing suitably qualified
reporting requirements in the UK, professionals who, working
and statutory tax and filing      with advisers when needed,
requirements in both Ukraine and  are monitoring regulatory
the UK.                           reporting requirements, and
                                  who ensure that timely
                                  submissions are made.
 
The Group operates primarily in   Clear authority levels and
Ukraine, an emerging market,      robust approval processes
where certain inappropriate       are in place, with stringent
business practices may from time  controls over cash
to time occur. This includes      management and the tendering
bribery, theft of Group property  and procurement process.
and fraud, all of which can lead  Adequate office and site
to financial loss.                protection is in place to
                                  protect assets. Anti-bribery
                                  policies are in place.

The Group is at risk from changes Revenues are received in UAH
in the economic environment both  and expenditure is made in
in Ukraine and globally which can UAH, but funds are
cause foreign exchange movements, transferred in US dollars to
changes in the rate of inflation  Ukraine. The Group continues
and interest rates and lead to    to hold most of its cash
credit risk in relation to the    reserves in the UK in US
Group's key counterparties.       dollars with some GBP
                                  deposits. Cash reserves are
                                  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   The Group designs a work
with licence obligations there is programme and budget to
a risk that its entitlement to    ensure that all licence
the licence will be lost.         obligations are met. The
                                  Group engages proactively
                                  with government to
                                  re-negotiate terms and
                                  ensure that they are not
                                  onerous.
 
Ukraine is an emerging market and The Group minimises this
as such the Group is exposed to   risk by maintaining the
greater regulatory, economic and  funds in international banks
political risks than other        outside Ukraine and by
jurisdictions. Emerging economies continuously maintaining a
are generally subject to a        working dialogue with the
volatile political environment    regulatory authorities.
which could adversely impact on
Cadogan's ability to operate in
the market.
 
The Group's success depends upon  The Group periodically
skilled management, technical and reviews compensation and
administrative staff. The loss of contract 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 2012, 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.

Summary of Reserves

As of 31 December 2012

                                                   Working interest basis
                                                     Gas Condensate   Oil
                                                     bcf      mmbbl mmbbl
Proved and Probable Reserves at 1 January 2012      11.1        0.6     -
Production                                          (0.2)*        -     -
Change in working interest                           0.4          -     -
Proved and Probable Reserves at 31 December 2012    11.3        0.6     -
Possible Reserves at 1 January 2012 and 31          19.5        1.5     -
December 2012

*During 2012 the Group produced an additional 0.1bcf (2011: 0.6bcf) of natural gas and 
0.01mmbl (2011: 0.02 mmbl) of condensate from the Zagoryanska field which were not 
included by Gaffney Cline and Associates in the Reserves balances at 31 December 2009 
provided in the Reserves and Resources Evaluation Report as at that date.

Summary of Contingent Resources

As of 31 December 2012

                                       Working interest basis
                                     Gas Condensate   Oil  Total
                                     bcf      mmbbl mmbbl  mmboe
Contingent Resources at 1                          
January 2012                     2,252.0       92.8     -  498.1
Change in working interest         105.3        5.1     -   24.1
Contingent Resources at 31       
December 2012                    2,357.3       97.9     -  522.2

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

Although commercial production has been achieved at the Zagoryanska field no 2P Reserves 
have been booked as at 31 December 2012 (2011: nil) as the Group did not receive an updated
Competent Person's Report ("CPR") to independently confirm the Reserves quantities.

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

Prospective Resources of 165.9 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.

CORPORATE RESPONSIBILITY

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 can be found in the Company's full 
Annual Report and Accounts.

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 2012, 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 2012, the Group recorded a total of 708,918 man hours worked. There were no 
Lost Time Incidents (`LTIs') recorded in 2012 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 2012, the Company has a recorded almost 7.5 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 benefitted 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. At the same time, development of 
procedures necessary for improving the Group's environmental performance will begin, 
taking into account the requirements of any applicable policies, such as forthcoming 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 is 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 haveaccess 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.

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. 
In 2012 the Group spent $37,000 (2011: $153,882) predominantly in contributions 
for road repairs, purchasing equipment and furniture for schools, local hospitals, 
housing and public utilities.

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.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The full Annual Report contains the following statements regarding responsibility for 
the financial statements and business review included therein.

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 4of 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 proper 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 taking such steps as are reasonably open to them to safeguard the assets 
of the Company and Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a 
Directors' Report (including Business Review), Directors' Remuneration Report 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, 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.

On behalf of the Board

Zev Furst
Chairman
24 April 2013

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory 
accounts for the years ended 31 December 2012 and 2011 but is derived from those accounts. 
Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those 
for 2012 will be delivered in due course.

The Auditors have reported on the accounts for 2012; 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 (ii) 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 2012

                                                2012     2011
                                      Notes    $'000    $'000
CONTINUING OPERATIONS
Revenue                                   5    5,653    6,981
Cost of sales                                 (4,158)  (6,264)
Gross profit                                   1,495      717
 
Administrative expenses:
Other administrative expenses                (10,783) (11,634)
Impairment of oil and gas assets          8  (83,584)       -
Impairment of other assets                8   (2,684)  (2,818)
                                             (97,051) (14,452)
 
Gain on acquisition of jointly
controlled entity/disposal of
subsidiaries                             28    5,417  164,945
Other losses                             28            (3,299)
Other operating (expenses)/income          6  (2,940)   4,552
Operating (loss)/profit                      (93,079) 152,463
 
Investment revenue                       12      128      155
Finance income/(costs)                   13       67      (11)
(Loss)/Profit before tax                     (92,884) 152,607
 
Tax (charge)/credit                      14     (252)     473
(Loss)/Profit for the year                9  (93,136) 153,080
 
Attributable to:
Owners of the Company                        (93,106) 151,549
Non-controlling interest                         (30)   1,531
                                             (93,136) 153,080
 
(Loss)/Profit per Ordinary share               cents    cents
Basic and diluted                        15    (40.3)    65.6



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2012

                                                 2012    2011
                                                $'000   $'000
 
(Loss)/Profit for the year                    (93,136) 153,080
 
Unrealised currency translation differences     4,384   (2,067)
 
Total comprehensive (loss)/profit for the     (88,752) 151,013
year
 
Attributable to:
Owners of the Company                         (88,722) 149,482
Non-controlling interest                          (30)   1,531
                                              (88,752) 151,013


CONSOLIDATED BALANCE SHEET
As at 31 December 2012

                                                2012     2011
                                     Notes     $'000    $'000
ASSETS
Non-current assets
Intangible exploration and                   
evaluation assets                       16    78,231   65,972
Property, plant and equipment           17    46,627   99,373
                                             124,858  165,345
 
Current Assets
Inventories                             20     5,177    6,556
Trade and other receivables             21    35,537   66,251
Cash and cash equivalents               21    42,404   65,039
                                              83,118  137,846
Total assets                                 207,976  303,191
 
LIABILITIES
Non-current liabilities
Deferred tax liabilities                22    (4,553) (11,538)
Long-term provisions                    24      (414)    (548)
                                              (4,967) (12,086)
 
Current liabilities
Trade and other payables                23    (7,793)  (7,552)
Current provisions                      24      (939)    (524)
                                              (8,732)  (8,076)
Total liabilities                            (13,699) (20,162)
 
NET ASSETS                                   194,277  283,029
 
EQUITY
Share capital                           25    13,337   13,337
Retained earnings                            298,290  389,734
Cumulative translation reserves             (119,400)(123,784)
Other reserves                                 1,682    3,344
Equity attributable to owners of the         193,909  282,631
Company
 
Non-controlling interest                         368      398
TOTAL EQUITY                                 194,277  283,029


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 24 April 2013. 
They were signed on its behalf by:

Bertrand Des Pallieres
Chief Executive Officer
24 April 2013



The notes form an integral part of these financial statements.

CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2012

                                                       2012     2011
                                              Note    $'000    $'000
Net cash outflow from operating activities       27  (5,609)  (7,885)
 
Investing activities
Disposal of subsidiaries (note 28)                    4,142   57,954
Purchases of property, plant and equipment          (15,749)  (4,402)
Purchases of intangible exploration and              (6,239) (16,893)
evaluation assets
Proceeds from sale of property, plant and               688       87
equipment
Interest received                                       128      155
Net cash (used in)/from investing activities        (17,030)  36,901
 
Financing activities
Proceeds from short-term borrowings                       -     (371)
Net cash used in financing activities                     -     (371)
 
Net (decrease)/increase in cash and cash            (22,639)  28,645
equivalents
Effect of foreign exchange rate changes                   4      (25)
Cash and cash equivalents at beginning of            65,039   36,419
year
Cash and cash equivalents at end of year             42,404   65,039



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2012

                                                                     Other reserves

                                                        Cumulative   Share-                  Non-
                                        Share Retained translation    based   Reorga-  controlling
                                      capital earnings    reserves  payment  nisation    interest    Total
                                        $'000    $'000       $'000    $'000     $'000       $'000    $'000

As at 1 January 2011                   13,337  237,963   (121,717)    1,131     1,589     (1,133)  131,170
Share-based payments (note 26)              -      222           -      624         -           -      846
Net income for the year                     -  151,549           -        -         -      1,531   153,080
Exchange translation differences on        
foreign operations                          -        -     (2,067)        -         -           -   (2,067)
As at 1 January 2012                   13,337  389,734   (123,784)    1,755     1,589         398  283,029
Share-based payments (note 26)              -    1,662           -   (1,662)        -           -        -
Net loss for the year                       -  (93,106)          -        -         -         (30) (93,136)
Exchange translation differences on
foreign operations                          -        -      4,384         -         -           -    4,384
As at 31 December 2012                 13,337  298,290   (119,400)       93     1,589         368  194,277



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012

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 Ibex House 42-47 Minories, London EC3N 1DX. The nature of the Group's operations 
and its principal activities are set out in the Operations Review and the Financial Review 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

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 1 (amended) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

IFRS 7 (amended) Disclosures - Transfers of Financial Assets and offsetting of Financial 
Assets and Financial Liabilities

IFRS 9 Financial Instruments

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

IAS 1 (amended) Presentation of Items of Other Comprehensive Income

IAS 12 (amended) Deferred Tax: Recovery of Underlying Assets

IAS 19 (revised) Employee Benefits

IAS 27 (revised) Separate Financial Statements

IAS 28 (revised) Investments in Associates and Joint Ventures

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

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;

- IFRS 10 may impact the amounts reported in the consolidated financial statements as it 
provides a single basis for consolidation with a new definition of control;

- IFRS 11 may result in changes in the accounting of the Group's jointly-controlled 
entities that are currently accounted for using proportionate consolidation. Under IFRS 11, 
a joint arrangement is classified as either a joint operation or a joint venture, and the 
option to proportionately consolidate joint ventures has been removed. Interests in joint 
ventures must be equity accounted;

- IFRS 12 will impact the disclosure of interests Cadogan Petroleum plc has in other entities 
such as subsidiaries, joint arrangements, associates and/or unconsolidated structured entities;

- IFRS 13 will impact the measurement of fair value for certain assets and liabilities as 
well as the associated disclosures; and

- IAS 1 (amendment) requires to be grouped in other comprehensive income based on whether 
those items are subsequently reclassified to profit or loss.

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.

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 theInternational 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 2012 was $42.4 million (2011: $65.0 million) 
with no external debt (2011: $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 taking into account receivables 
from litigation and 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.

(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. Control is achieved where the Company has the power to govern the 
financial and operating policies of an investee entity so as to obtain benefits from 
its activities.

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 onconsolidation.

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 jointly-controlled entities

A jointly-controlled entity is an entity in which the Group holds a long-term 
interest and shares joint control over the operating and financial decisions 
with one or more other venturers under a contractual arrangement. Jointly-controlled 
entities are accounted for using proportionate consolidation, which combines the Group's 
share of the results of the jointly-controlled entity on a line-by-line basis with 
similar items in the Group's financial statements.

When a Group entity transacts with its jointly-controlled entity, profits and losses 
resulting from the transactions with the jointly-controlled entity are recognised in 
the Group's consolidated financial statements only to the extent of interests in the 
jointly-controlled entity that are not related to the Group.

(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 Dec 2012 1US$ = £
Closing rate                       0.6185
Average rate                       0.6597


(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 liabilitiesare 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 and other intangible assets

Property, plant and equipment (`PP&E') and other intangible assets 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 tangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets 
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 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 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. The carrying value, after any impairment loss, 
of the relevant E&E assets is then 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.

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.

Impairment of development and production assets

Development and production assets are assessed for impairment whenever events and 
circumstances arising during both the development and production phase indicate that 
the carrying value of a development or production asset may exceed its recoverable amount.

The carrying value of the asset is compared with its expected recoverable amount of the 
asset, by reference to the present value of the future cash flows expected to be derived 
from production of commercial Reserves from it. The cash-generating unit applied for 
impairment test purpose is normally the field or group of fields if the cash flow of 
the relevant fields is interdependent.

(m) Inventories

Inventories 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 proï¬t 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 classiï¬ed as either ï¬nancial liabilities `at FVTPL' or 
`other ï¬nancial 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 issues 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 issues 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.

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) Other receivable recognised in relation to settlement with Global 
Process Systems LLC (`GPS')

An amount of $30.0 million has been recognised in current other receivables 
as at 31 December 2012, representing receivables from a settlement agreement 
reached with GPS (2011: $30.0 million).

During October 2009, a settlement was reached with GPS resolving previous 
disputes which existed between the Group and GPS concerning the manufacture 
and delivery of two gas treatment plants for a total purchase price of $54.5 million.

The key commercial terms of the settlement provided for GPS exclusively to 
market the two gas plants for a 10 month period and, if a sale was achieved, 
for the Group to receive in stage payments an aggregate cash consideration of 
$38.5 million. If the plants were not sold within this period, then GPS agreed 
to take the plants to stock and the Group would receive stage payments for an 
aggregate cash consideration of $37.5 million.

The settlement also provided for the release by GPS of a potential $10.9 
million contractual claim against the Group for the unpaid balance of the 
consideration for the plants. The amounts of $43.5 million paid to GPS in 
respect of the gas plants had previously been recognised as prepayments, 
as title to the gas plants was to pass on delivery. As a result of the 
settlement, these prepayments were then reclassified as receivables 
included within other receivables at 31 December 2009. An impairment charge 
of $6.0 million was provided in the year ended to 31 December 2009 to reduce the
carrying value of the original prepayments to their fair value, being the 
expected proceeds from the settlement.

GPS were not able to sell the plants within the stipulated period, and so the 
stage payments' terms apply. During the years to 31 December 2011 and 2012, 
$3.0 million each year were received from GPS respectively.

The first payment of $10.0 million of the remaining $30.0 million was due 
to be paid to the Group on 14 February 2011 but was not received. A cure 
period subsequently expired on 18 April 2011 and on 19 July 2011 the Group 
rescinded the exclusive right of sale of GPS and as such are able to market 
the gas plants themselves.

During February 2013 the High Court in London awarded judgment in favour of the 
Group in the sum of just over US$21,000,000 inclusive of interest (the "Judgment Debt"), 
to be paid by 4 March 2013. GPS' counterclaim for the sum of approximately US$7,500,000 
million was dismissed. At the request of the Group, a decision by the Court on further 
damages estimated at approximately up to US$10,500,000 was adjourned pending sale of the 
plants. In the meantime the Company continued to retain legal title to the plants. GPS 
did not pay by 4 March 2013however on 12 April the Group reached an agreement concerning 
the purchase of two gas processing plants by GPS for the sum of $29.5 million. The sale completed 
on 18 April 2013 following receipt in full by Cadogan of the agreed consideration. In accordance 
with the terms of the settlement documentation, the parties are now taking appropriate steps 
to dismiss the legal proceedings commenced in England against GPS and all other claims and 
liabilities have been released.

(b) Impairment of E&E, PP&E and contingent consideration

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. 
As a result of the negative results of the drilling and work over programme at Zagoryanska 
licence, the Directors believed it appropriate to assess the carrying value of the Group's 
PP&E assets for impairment as at 31 December 2012. The Group assessed the present value 
of the future cash flows attributable to the Group's PP&E assets as at 31 December 2012 
using discounted cash flows method.

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. On this basis, an impairment of PP&E 
related to the Zagoryanska license of $66.0 million (2011: $nil) of which $47.1 million 
relates to the fair value uplift recognised in 2011 as the result of revaluation of 
non-controlling interest, with the respective decrease in the deferred tax liability of 
$7.1 million has been provided as at 31 December 2012 resulting in the impairment charge 
to profit and loss of $58.9 million. In addition $24.7 million ($35.0 million unrisked and 
undiscounted) of impairment has been charged to the profit and loss which represents the 
bonus 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 (note 28).

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 2012, the Group has performed significant volume 
of work which it continues in 2013, including the re-interpretation of the existing 3D seismic, 
in order to evaluate the remaining potential of the full Pokrovskoe licence.

The recoverable amounts are determined with reference to value-in-use calculations. 
The key assumptions for the value in use calculations are those regarding the production 
flow rates, discount rates, relevant elements of Ukraine fiscal regime for petroleum 
operators, and expected changes to selling prices and direct cost during the year. These 
assumptions reflect management's best estimates and have been revised in the year in light 
of the current economic environment which has resulted in more conservative estimates about 
the future. 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:

- 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;

- pre-tax discount rate of 17.86% (post-tax of 15%);

- inclusion of relevant elements of Ukraine fiscal regime for petroleum operators 
(such as production and royalty tax relevant to each licence and future expected 
corporate income tax of 16%);

- expected future selling prices based on current and anticipated market conditions 
for oil, condensate and gas;

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

- cash flows projected up to 2033 depending on the field to which they relate and an 
assumption has been made that the relevant licences will be extended.

(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. Although $2.8 million of Ukrainian VAT was recovered in the year 
to 31 December 2010, largely through a bond scheme initiated by the Government of Ukraine, 
the Directors consider that this scheme was one-off in nature. Management anticipates no 
significant cash settlements of receivables from the State Budget.

The Group therefore recognises recoverable VAT only to the extent that it is probable 
that VAT payable arising on the sales of gas production will be sufficient to offset 
the VAT due from the State within a reasonable period. Estimating the recoverability 
of VAT requires management to make an estimate of the future revenues in order to 
calculate amounts and timing of the VAT payable available for offset. 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 $20.6 million 
(2011: $18.2 million) against Ukrainian VAT receivable has thus been recognised as at 
31 December 2012.

(e) Accounting for the WGI transaction

As a consequence of the WGI transaction, outlined in note 28, 2 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, specifically a jointly controlled entity.

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.

5. Revenue

                                           2012    2011
                                          $'000   $'000
Sale of hydrocarbons                      5,653   6,981
Investment revenue (note 12)                128     155
                                          5,781   7,136
Information about major customers

Included in revenues for the year ended 31 December 2012 are revenues of $3.8 million 
(2011 - $5.0 million) which arose from sales to the Group's largest customer, which is 
the only customer that individually accounts for more than 10% of the Group's revenues.

6. Other operating (expenses)/income

                                           2012    2011
                                          $'000   $'000
Out of court settlements                    597   2,144
Transactions with JV partner                 81       -
Net foreign exchange (losses)/gains     (3,618)   2,408
                                        (2,940)   4,552

Out-of-court settlements in the amount of $0.6 million includes recovery of $0.5 million 
from a supplier who had received prepayment in 2008 and not supplied the goods.

Net foreign exchange loss of $3.6 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 revenues and only one geographical segment, being Ukraine.

8. Impairment

                                               2012    2011
                                              $'000   $'000
Impairment of oil and gas assets (note 17)  (83,584)      -
Inventories (note 20)                          (291)    344
VAT recoverable (note 4(d))                  (2,393) (3,162)
Impairment of other assets                   (2,684) (2,818)


Total impairment of oil and gas assets of $83.6 million comprises of impairment 
of $66.0 million of PP&E with the respective decrease in the deferred tax liability 
of $7.1 million and $24.7 million ($35 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 (note 28).

The carrying value of inventory as at 31 December 2012 and 2011 has been impaired to 
reduce it to net realisable value (see note 20). During 2012 the Group gross sales of 
inventory to third parties comprised $1.6 million (2011: $0.5 million).

During the year a net impairment of $2.4 million (2011: $3.2 million) in respect of 
Ukrainian VAT was provided which comprised VAT impairment on new program capital expenditure 
and VAT recovery of historical balances through offset of VAT liabilities arising on sales.

9. (Loss)/Profit for the year

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

                                                      2012    2011
                                                     $'000   $'000
Depreciation of property, plant and equipment      (1,967) (2,411)
Loss on disposal of property, plant and equipment     (52)    (13)
Impairment of other assets (note 8)                (2,684) (2,818)
Impairment of oil and gas assets (note 8)         (83,584)       -
Staff costs                                        (4,304) (4,587)
Net foreign exchange (losses)/gains                (3,618)  2,408


In addition to the depreciation of PP&E of $2.0 million (2011: $2.4 million) in the year 
ended 31 December 2012, depreciation of $0.5 million (2011: $0.7 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:

                                                      2012    2011
                                                     $'000   $'000
Audit fees
Fees payable to the Company's auditor and their        232     186
associates for 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               27      32
Total Audit fees                                       259     218
 
Non-audit fees
- Audit-related assurance services                      21      53
- Taxation compliance services                         101      72
- Other taxation advisory services                       -     197
Non-audit fees                                         122     322

11. Staff costs

The average monthly number of employees (including Executive Directors) was:

                                              2012      2011
                                            Number    Number
Executive Directors                              2         2
Other employees                                162       128
                                               164       130
 
Total number of employees at 31 December       164       148
 
                                             $'000     $'000
Their aggregate remuneration comprised:
Wages and salaries                           5,893     3,196
Loss of office                                   -       144
Other pension costs                             36       123
Social security costs                          857       749
Share-based payments                             -       846
                                             6,786     5,058

Within wages and salaries $0.8 million (2011: $0.9 million) relates to amounts paid 
and accrued to executive Directors for services rendered.

Included within wages and salaries, is $0.4 million (2011: $0.4 million) capitalised 
to intangible E&E assets and $0.4 million (2011: $0.4 million) capitalised to development 
and production assets.

12. Investment revenue

                                           2012    2011
                                          $'000   $'000
Interest on bank deposits                   128     155

No additional investment revenue earned from loan and receivables (including cash and 
bank balances) have been recognised other than interest on bank deposits.

13. Finance income/(costs)

                                           2012    2011
                                          $'000   $'000
Unwinding of discount on 
decommissioning provision                    67    (11)
(note 24)

No additional gains or losses have been recognised on financial liabilities measured at 
amortised cost. In 2012 inflation rate in Ukraine has decreased. That has positively 
influenced the discounting of decommissioning provision resulting in finance income of $67 thousand.

14. Tax

                                           2012    2011
                                          $'000   $'000
Current tax                                 122     132
Deferred tax (note 22)                      130    (605)
                                            252    (473)


The Group's operations are conducted primarily outside the UK. The most appropriate 
tax rate for the Group is therefore considered to be 21 per cent (2011: 23 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/(credit) for the year can be reconciled to the (loss)/profit per 
the income statement as follows:

                                    2012   2012     2011        2011
                                   $'000      %    $'000          %
(Loss)/Profit before tax
Continuing operations            (92,883)    100%   152,607      100
Tax (credit)/charge at Ukraine
corporation tax rate of 21%
(2011: 23%)                      (19,505)     21    35,100      23.0
Permanent differences             18,499     (20)  (34,987)    (22.9)
Foreign exchange on operating
activities                           733    (0.8)     (387)     (0.3)
Tax losses generated in the
year not yet recognised              798    (0.8)      128       0.2
Other temporary differences           57    (0.2)     (566)     (0.4)
Utilisation of deferred tax
asset not previously recognised
on losses                              6      -        136       0.1
Effect of different tax rates       (336)    0.4       103       0.1
Tax credit and effective tax
rate for the year                    252    (0.4)     (473)     (0.3)


15. (Loss)/Profit per Ordinary share

Basic profit per Ordinary share is calculated by dividing the net (loss)/profit 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 
profit per share is based on the following data:

                                                       2012    2011
(Loss)/Profit attributable to owners of the           $'000   $'000
Company
(Loss)/Profit for the purposes of basic profit per
share being net (loss)/profit attributable to
owners of the Company                              (93,106) 151,549
 
                                                       2012    2011
                                                     Number  Number
Number of shares                                       '000    '000
Weighted average number of Ordinary shares for the
purposes of basic profit per share                  231,092 231,092

Effect of dilutive potential ordinary shares:
Options and warrants outstanding                         93      95

Weighted average number of Ordinary shares for the
purposes of diluted profit per share                231,185 231,187
 
                                                       2012    2011
                                                       Cent    Cent
(Loss)/Profit per Ordinary share
Basic                                                (40.3)    65.6
Diluted                                              (40.3)    65.6


Diluted loss (profit in 2011) 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 2011                                                63,288
Additions                                                        17,387
Acquisition of jointly-controlled entities (note 28)             49,181
Disposal of subsidiaries (note 28)                              (33,955)
Change in estimate of decommissioning assets (note 24)              301
Disposals                                                            (9)
Exchange differences                                               (280)
At 1 January 2012                                                95,913
Additions                                                         6,745
Fair value of non-monetary assets contributed to jointly          5,454
controlled entity (note 28)
Change in estimate of decommissioning assets (note 24)              (92)
Transfer to property, plant and equipment (note 17)                 (38)
Disposals                                                            (1)
Exchange differences                                                417
At 31 December 2012                                             108,398
 
Impairment
At 1 January 2011                                                57,125
Disposal of subsidiaries (note 28)                              (26,984)
Exchange differences                                               (258)
At 1 January 2012                                                29,941
Exchange differences                                                226
At 31 December 2012                                              30,167
 
Carrying amount
At 31 December 2012                                              78,231
At 31 December 2011                                              65,972


Additions during the year include $0.4 million (2011: $0.5 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 2011                        3,524      67,435  70,959
Additions                                  465       4,645   5,110
Acquisition of jointly-controlled                   
entities (note 28)                          72      49,522  49,594
Disposal of subsidiaries (note 28)        (421)     (7,248) (7,669)
Transfer between property, plant and        
equipment                                   (1)          1       -
Change in estimate of decommissioning
assets (note 24)                             -         107     107
Disposals                                 (439)       (811) (1,250)
Exchange differences                       (19)       (331)   (350)
At 1 January 2012                        3,181     113,320 116,501
Additions                                  303      15,704  16,007
Transfer between property, plant and        
equipment                                   34           3      37
Change in estimate of decommissioning
assets (note 24)                             -         434     434
Disposals                                 (168)     (1,855) (2,023)
Exchange differences                        40         583     623
At 31 December 2012                      3,390     128,189 131,579
 
Accumulated depreciation and impairment
At 1 January 2011                        1,802      15,234  17,036
Disposal of subsidiaries (note 28)        (313)     (1,955) (2,268)
Charge for the year                        583       2,513   3,096
Disposals                                 (365)       (279)   (644)
Exchange differences                       (13)        (79)    (92)
At 1 January 2012                        1,694      15,434  17,128
Impairment                                   -      66,017  66,017
Charge for the year                        438       2,010   2,448
Disposals                                  (65)     (1,034) (1,099)
Exchange differences                        32         426     458
As at 31 December 2012                   2,099      82,853  84,952
 
Carrying amount
At 31 December 2012                      1,291      45,336  46,627
At 31 December 2011                      1,487      97,886  99,373


Total impairment of oil and gas assets of $83.6 million comprises of impairment of 
$66.0 million of PP&E with the respective decrease in the deferred tax liability of 
$7.1 million and $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 (note 28).

18. Subsidiaries

The Company had investments in the following subsidiary undertakings as at 
31 December 2012, which principally affected the profits and net assets of the Group:

                                Country of Proportion
                             incorporation  of voting
                                       and   interest
Name                             operation          %           Activity
Directly held
Cadogan Petroleum Holdings Ltd          UK      100.0    Holding company
Ramet Holdings Ltd                  Cyprus      100.0    Holding company
 
Indirectly held
Rentoul Ltd                    Isle of Man      100.0    Holding company
Cadogan Petroleum Holdings BV  Netherlands      100.0    Holding company
Cadogan Bitlyanske BV          Netherlands      100.0    Holding company
Cadogan Delta BV               Netherlands      100.0    Holding company
Cadogan Astro Energy BV        Netherlands      100.0    Holding company
Cadogan Pirkovskoe BV          Netherlands      100.0    Holding company
Momentum Enterprise (Europe) Ltd    Cyprus      100.0    Holding company
Cadogan Ukraine Holdings Limited    Cyprus      100.0    Holding company
Cadogan Momentum Holdings Inc       Canada      100.0    Holding company
USENCO International Inc.              USA      100.0    Holding company
Radley Investments Ltd                  UK      100.0    Holding company
LLC AstroInvest - Ukraine          Ukraine      100.0        Exploration
LLC Astro Gas                      Ukraine      100.0        Exploration
DP USENCO Ukraine                  Ukraine      100.0        Exploration
LLC USENCO Nadra                   Ukraine         95        Exploration
JV Delta                           Ukraine      100.0        Exploration
LLC Astro-Service                  Ukraine      100.0    Service Company
OJSC AgroNaftoGasTechService       Ukraine       79.9       Construction
                                                                services
LLC Cadogan Ukraine                Ukraine      100.0 Corporate services


During the year ended 31 December 2012, 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. Jointly controlled entities

The Group holds the following interests in jointly controlled entities in 2012:

                                       Country of
                                    incorporation Ownership
                                              and     share
Name                                    operation         %    Activity

LLC Westgasinvest                         Ukraine        15 Exploration
LLC Industrial Company                    Ukraine        70 Exploration
Gazvydobuvannya
LLC Astroinvest-Energy                    Ukraine        40 Exploration
Pokrovskoe Petroleum BV               Netherlands        70     Holding
                                                                company
Zagoryanska Petroleum BV              Netherlands        40     Holding
                                                                company
 
According to the shareholders' agreements, which regulate activities of jointly controlled 
entities, all key decisions require unanimous approval from the shareholders, therefore 
these entities are jointly controlled. The following amounts are included in the Group's 
consolidated financial statements as a result of the proportionate consolidation as at 
31 December 2012 and 2011:

                                                       2012     2011
                                                      $'000    $'000
Intangible exploration and evaluation assets         69,532   63,788
Property, plant and equipment                           435   54,206
Non-current assets                                   69,967  117,994
Inventories                                           1,686    2,795
Trade and other receivables                             714    3,612
Cash and cash equivalents                             1,927      745
Current assets                                        4,327    7,152
 
Deferred tax liabilities                             (4,045) (11,543)
Long-term provisions                                   (195)    (155)
Non-current liabilities                              (4,240) (11,698)
Trade and other payables                             (3,637)  (3,958)
Current provisions                                     (486)    (388)
Current liabilities                                  (4,123)  (4,346)
Net assets                                           65,931  109,102
 
                                                       2012    2011*
                                                      $'000    $'000
Revenue                                               1,885    1,591
Cost of sales                                          (991)  (1,245)
Other administrative expenses                        (1,019)    (691)
Impairment of other assets                           (3,293)  (3,250)
Impairment of property, plant and equipment (note           
4(b))                                               (18,365)       -
Investment revenue                                       10       15
Finance income/(costs)                                   62       (2)
Loss for the period                                 (21,711)  (3,582)
Other comprehensive loss                               (206)    (402)
                                                    (21,917)  (3,984)

*2011 figures are shown for the period from 6 July to 31 December

20. Inventories

                                                      2012     2011
                                                     $'000    $'000
Cost                                                 6,309    8,476
Impairment provision                                (1,132)  (1,920)
Carrying amount                                      5,177    6,556

The impairment provision as at 31 December 2012 and 2011 is made so as to reduce the 
carrying value of the inventories to net realisable value.

21. Other financial assets

Trade and other receivables

                                                      2012     2011
                                                     $'000    $'000
Other receivables                                   34,594   61,816
VAT recoverable                                         88      127
Prepayments                                            855    4,308
                                                    35,537   66,251

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

Out of $34.6 million of other receivables $30.0 million as at 31 December 2012 
(2011: $30.0 million) represent receivables from the settlement agreement with GPS (note 4(a)). 
In 2011 the Group recognised in other receivables the bonus to be received from Eni for the 
receiving production licence on Zagoryanska licence in the amount of $35 million discounted 
to $24.7 million. As a result of the negative results of the drilling and work over programme 
at Zagoryanska licence the probability of receiving the bonus has decreased which resulted in 
full provision of the amount as at 31 December 2012.

VAT recoverable of $0.1 million (2011: $0.1 million) relates to the UK VAT recoverable.

$0.9 million prepayments (2011: $4.3 million) mostly relate to prepayments made to drilling 
contractors in Ukraine and long lead materials for the drilling and work over campaign.

The Directors consider that the carrying amount of the remaining other receivables approximates 
their fair value and none of which are past due except for the amounts due from GPS which were 
settled in April 2013 (see note 4(a)).

Cash and cash equivalents

Cash and cash equivalents as at 31 December 2012 of $42.4 million (2011: $65.0 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
Liabilities as at 1 January 2011                              982
Acquisition of jointly-controlled entities (note 28)       11,153
Deferred tax credit                                          (605)
Exchange differences                                            8
Liability as at 1 January 2012                             11,538
Impairment of property, plant and equipment (note 17)      (7,108)
Deferred tax expense                                          130
Exchange differences                                           (7)
Liability as at 31 December 2012                            4,553

At 31 December 2012, temporary differences of $6.3 million (2011: $6.0 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 2012, the Group had the following unused tax losses available for offset against 
future taxable profits:

                                           2012    2011
                                          $'000   $'000
UK                                        9,486   5,557
Ukraine                                  69,628  66,410
                                         79,114  71,967



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 $9.5 million (2011: $5.6 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 $69.6 million (2011: $66.4 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 assets in Ukraine for which deferred tax 
assets of $8.3 million (2011: $6.3 million) have not been recognised due to the uncertainty 
of future recovery.

23. Other financial liabilities

Trade and other payables

                                           2012    2011                                          
                                          $'000   $'000
Trade creditors                           5,206   3,877
Other taxes and social security              31      18
Other creditors and payables                171     258
Accruals                                  2,385   3,399
                                          7,793   7,552

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 55 days (2011: 62 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   Other   Total
                                           $'000   $'000   $'000
At 1 January 2011                            875      19     894
Change in estimate (note 16 and 17)          408       -     408
Utilisation of provision                       -     (19)    (19)
Unwinding of discount on
decommissioning provision (note 13)            11      -      11
Disposal of subsidiaries (note 28)          (588)      -    (588)
Acquisition of jointly-controlled                 
entities (note 28)                           367       -     367
Exchange differences                         (1)       -     (1)
At 1 January 2012                          1,072       -   1,072
Change in estimate (note 16 and 17)          342       -     342
Unwinding of discount on
decommissioning provision (note 13)          (67)       -    (67)
Exchange differences                           6       -       6
At 31 December 2012                        1,353       -   1,353
 
At 1 January 2011                            875      19     894
Included in long-term provisions             548       -     548
Included in current provisions               524       -     524
At 1 January 2012                          1,072       -   1,072
Included in long-term provisions             414       -     414
Included in current provisions               939       -     939
At 31 December 2012                        1,353       -   1,353

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 $0.9 million (2011: $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 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 17 years). The effect of discounting on 
provisions would be immaterial.

25. Share capital

Authorised and issued equity share capital

                                  2012                  2011
                                Number                Number
                                  `000   $'000          `000   $'000
Authorised
Ordinary shares of £0.03     1,000,000  57,713     1,000,000  57,713
each

Issued
Ordinary shares of £0.03       231,092  13,337       231,092  13,337
each
 
Authorised but unissued share capital of £30 million has been translated into US dollars 
at the average 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 2011 and 2012                   231,091,734
 
26. Share-based payments

Equity-settled share-based payments

Under the terms of an agreement dated 17 February 2006, which was subsequently updated on 
20 September 2006 and 8 May 2007, the Company's then broker and financial adviser 
Fox-Davies Capital (`Fox-Davies') were granted 5.1 million warrant rights, to be 
exercisable at an average price of £0.82 and £1.23 and to be exercisable at any time 
within the five year period following completion of the placing. In 2012 $1.0 million 
(2011: $0.2 million) previously recognised in other reserves in respect of equity-settled 
share-based payments (2012: 3.6 million, 2011: 1.0 million warrant rights) that have 
expired during the year were transferred to retained earnings from other reserves. 
As at 31 December 2012, there were 541,040 outstanding share warrants, exercisable 
at the subscription price of £1.23.

Equity-settled share option scheme

The Company has two Share Option schemes, the 2007 and 2008 Share Option Plans, 
under which options to subscribe for the Company's shares have been granted to 
certain Executive Directors and employees of the Group. Options are exercisable at 
various prices and vest on achieving certain performance criteria. If the options 
remain unexercised after a period of five years from the date of grant, the options 
expire. Options are forfeited if the Executive Director or employee leaves the Group 
before the options vest. All 2007 share option plans have been restated to Ordinary 
shares of £0.03.

Details of the share options outstanding at the end of the year were as follows

                            2007 Share Option Plan 2008 Share Option Plan        Total
                                Number of Weighted   Number of    Weighted Number of Weighted
                                    share  average       share     average     share  average
                                  options    price     options       price   options    price
                                     `000        £        `000           £      `000        £
Outstanding at 1 January 2011           -        -           -           -         -        -
Granted during the year                 -        -       1,943        0.35     1,943     0.35
Outstanding at 1 January 2012           -        -       1,943        0.35     1,943     0.35
Lapsed during the year                  -        -      (1,943)      (0.35)   (1,943)   (0.35)
Outstanding at 31 December 2012         -        -           -           -         -        -
Exercisable at                          -        -
1 January 2011                          -        -           -           -         -        -
1 January 2012                          -        -       1,943        0.35     1,943     0.35
31 December 2012                        -        -           -           -         -        -

No share options were exercised during the year (2011: nil).

Options were granted under the 2007 Share Option Plan on 11 September 2007 and 19 February 2008, 
and under the 2008 Share Option Plan, on 9 October 2008 and 3 February 2011.

The options were split into three tranches with each tranche subject to certain performance 
conditions. Only the below tranches were outstanding either as at 31 December 2011 and 2012.

Under the 2007 Share Option Plan, options vest immediately upon grant date.

Under the 2008 Share Option Plan, granted in 2011, options vest (but do not become exercisable) 
if and when the share price of an ordinary share in the Company achieves a mid-market 
closing price of not less than 50 pence over a continuous period of 10 trading days 
during the period from the Grant Date of the Option and ending on 3 February 2014. 
Trading days means the days on which the London Stock Exchange is open for
business. The Option shall become exercisable, but only to the extent vested, on 3 February 2014. 
No options were outstanding at 31 December 2012.

The fair values of the options have been calculated using the following models:

- 2007 Share Option - not subject to any market-based performance conditions, and therefore 
the Black-Scholes model has been used.

- 2008 Share Option - market-based performance conditions must be included in the calculation 
of fair value and therefore the Stochastic and Binomial model has been considered the 
most appropriate.

The inputs into the models were as follows:

                               2007 Share Option   2008 Share Option
                                            Plan                Plan
                                   Black-Scholes            Binomial
Year of grant                               2007                2011
Weighted average share price (£)            1.23                0.35
Weighted average exercise price (£)         0.82                0.35
Expected volatility (%)                       55                70.0
Expected term (years)                        2.5                  10
Risk free rate (%)                          4.99                3.88
Expected dividend yield (%)                    -                   -


As the Company has listed shares, the expected volatility was determined by considering 
the historical volatility of other similar entities. Similar entities have been chosen 
as the FTSE AIM Oil & Exploration constituents (with a market capitalisation of greater 
than £100 million) for the 2007 Share Option Plan and the FTSE All Share Oil & Exploration 
sector (with a market capitalisation between £40 million and £500 million) for the 
2008 Share Option Plan at the grant date.

The exercise price was established in accordance with the terms included within the 
share option scheme.

The aggregate of the estimated fair values of the options granted under the two share 
option plans at 31 December 2012 is $nil (2011: $0.8 million), all related to 2008 Share 
Option. Due to certain employees and Directors resigning from their duties to the Company 
in 2009, share options granted under Option Tranche 1 were forfeited in 2010.

27. Notes to the cash flow statement

                                                           2012      2011
                                                          $'000     $'000
Operating(loss)/profit                                 (93,078)   152,463
Adjustments for:
Depreciation of property, plant and equipment             1,967     2,411
Impairment of oil and gas assets (note 8)                83,584         -
Share-based payment charge (note 26)                          -       846
Gain on acquisition of jointly controlled entity
disposal of subsidiaries (note 28)                       (5,454) (164,945)
Other losses (note 28)                                        -     3,299
Impairment of inventories (note 8)                          291      (344)
Impairment of VAT recoverable (note 8)                    2,393     3,162
Loss on disposal of property, plant and equipment            52        13
Effect of foreign exchange rate changes                    4,014   (1,691)
Operating cash flows before movements in working         
capital                                                   (6,231)   (4,786)
Decrease/(Increase) in inventories                         1,269   (2,563)
Increase in receivables                                    (766)   (3,027)
Increase in payables and provisions                         241     1,589
Decrease in restricted cash                                   -     1,035
Cash used in operations                                  (5,487)   (7,752)
Income taxes paid                                          (122)     (133)
Net cash outflow from operating activities               (5,609)   (7,885)
 
28. Disposal of subsidiaries and acquisition of jointly-controlled entities

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 has accordingly recognised 
anintangible asset of $5.4 million.

The Group's resultant equity holding, post this transaction was 15%, with Nadra owning 
the remaining 85%.

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.

2011 transactions: Eni

On 6 July 2011 the Group completed the transaction with Eni, selling a 30% interest 
in the share capital of Pokrovskoe Petroleum BV (the parent company of the holder of 
the Pokrovskoe licence), and a 60% interest in the share capital of Zagoryanska 
Petroleum BV (the parent company of the holder of the Zagoryanska licence).  Both licences 
relate to the Group's operations in eastern Ukraine.

The consideration received comprised a cash payment of $38.1 million for its 
interest in Zagoryanska Petroleum BV and $0.2 million as the working capital 
adjustment for both the Zagoryanska and Pokrovskoe licences. Eni is also 
committed to finance the Pokrovskoe appraisal work programme to an amount 
of up to $36 million (including VAT).

Under the terms of the sale and purchase agreement and subject to successful 
results from the Pokrovskoe appraisal work programme, Eni also had the option 
under the agreement to acquire a further 30% of Pokrovskoe Petroleum BV for 
an additional payment of $40 million (the "Pok Option"). Eni was also committed 
to pay additional amounts of $15 million and $35 million (the "Contingent Consideration") 
should the Group successfully acquire production licences on each of the Pokrovskoe and 
Zagoryanska fields respectively. The Pokrovskoe Contingent Consideration was only 
payable if the Pok Option is exercised.

A total gain on disposal of $165.0 million was recognised in profit and loss in 2011 
relating to the above transaction.

In March 2012 Eni informed the Group that they will not exercise the Pok Option. 
The exercise of the option was a pre-requisite for the contingent payment of 
$15.0 million on obtaining the Pokrovksoe production license. In addition, in 
light of the results of the drilling and work over campaign on the Zagoryanska 
license in 2012 the probability of obtaining the production license on Zagoryanska 
field and receiving a contingent payment of $35.0 million ($24.7 million risked and 
discounted) has significantly decreased and therefore the receivable has been impaired 
in full as at 31 December 2012.

29. 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

                                                      2012    2011
                                                     $'000   $'000
Financial assets - loans and receivables (includes
cash and cash equivalents)
Cash and cash equivalents                           42,404  65,039
Other receivables (current and non-current)         34,594  61,816
                                                    76,998 126,855
Financial liabilities - measured at amortised cost
Trade creditors                                      5,206   3,877
Other creditors and payables                           171     258
                                                     5,377   4,135
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. A five per cent 
fluctuation in interest rates applied to cash balances held at the balance sheet 
date would impact the Group by approximately $2.1 million (2011: $3.3 million) 
over a twelve month period.

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

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
                          2012    2011    2012    2011
                         $'000   $'000   $'000   $'000
US dollars (`$')           162     106  68,297 116,533

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.

                                           2012     2011
                                          $'000    $'000
Income statement                        (8,791) (10,987)

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

The credit risk on other receivables due from GPS is mostly mitigated as the Company maintains 
title of the assets throughout the settlement period (refer to note 4(a)).

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 to  More than 1
                             3 months       1 year         year
                                $'000        $'000        $'000
At 31 December 2012             7,322          471            -
Trade and other payables        7,322          471            -
At 31 December 2011             7,552            -            -
Trade and other payables        7,552            -            -


30. 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 follows

                                           2012    2011
                                          $'000   $'000
Within one year                          18,717   7,440
Between two and five years               27,601  44,469
                                         46,318  51,909

Licence obligations within one year amounting to $18.7 million include $13.4 million related 
to Pirkovskoe licence. The Group currently is in the process of negotiating decrease in the 
work programme activities with the licensing authorities.

31. 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.

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 Directors' Remuneration Report in the full Annual Report and Accounts.

                                Purchase of     Amounts owing
                                services
                                2012    2011    2012    2011
                               $'000   $'000   $'000   $'000
Short-term employee benefits   1,048     852     973     476
Share-based payments           (695)     695       -       -
                                 353   1,547     973     476
 
The total remuneration of the highest paid Director was $0.4 million in the year (2011: $0.5 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.

32. Events after the balance sheet date

GPS

During February 2013 the High Court in London awarded judgment in favour of the Group in 
the sum of just over US$21,000,000 inclusive of interest (the "Judgment Debt"), to be paid 
by 4 March 2013. GPS' counterclaim for the sum of approximately US$7,500,000 million was 
dismissed. At the request of the Group, a decision by the Court on further damages estimated 
at approximately up to US$10,500,000 was adjourned pending sale of the plants. In the meantime 
the Company continued to retain legal title to the plants. GPS did not pay by 4 March 2013 
however on 12 April the Group reached an agreement concerning the purchase of the two gas 
processing plants by GPS for the sum of $29.5 million. The sale completed on 18 April 2013 
following receipt in full by Cadogan of the agreed consideration. In accordance with the terms 
of the settlement documentation, the parties are now taking appropriate steps to dismiss the 
legal proceedings commenced in England against GPS and all other claims and liabilities have 
been released.

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company held at 10.30am on Thursday 27 June 2013 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.