medoil annual report 31 december 2013

8/12/2019 MEDOIL Annual Report 31 December 2013

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Annual Report & Accounts 2013

Building aresources factory


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Welcome toMediterranean Oil & Gas

Mediterranean Oil & Gas Plc (MOG, the Group or theCompany) dedicates the highest standards of best practiceand full value chain capability to the greater Mediterraneanregion, providing reliable energy through an optimised portfoliothat adds real value to shareholders, partners, host governmentsand local communities.

Company overview1 Our 2013 highlights

and the year ahead2 At a glance4 Our strengths for growth6 Our strategy

Business review8 Chairmans statement10 Chief Executives report16 Financial review19 Strategic report20 Principal risks and uncertainties22 Corporate responsibility

Governance24 Board of Directors26 Senior management27 Corporate governance report28 Directors report31 Remuneration report

Financial statements33 Independent auditors report34 Consolidated and Company

financial statements41 Notes to financial statements

67 Notice of Annual General Meeting70 Corporate directory

823 6770

2432

17 3366


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Mediterranean Oil & Gas Plc /Annual Report & Accounts 20131

Production Bcf

1.0 down 42%

2010 2011 2012 2013

0.4 1 0.6 1 1.7 1.0

Revenues m

8.4 down 48%

2010 2011 2012 2013

3.5 1 5.6 1 16.3 8.4

Companyoverview

Businessreview

Governance

Financialstatements

Corporate and Operational:Total production of 1.0 Bcf, a 42% decreaserelative to the prior year (2012: 1.7 Bcf) Production performance negatively impacted

by shut-in of two damaged production wells atGuendalina

Completion in February 2013 of transaction withGenel Energy plc (Genel) for the sale of a 75%interest in offshore Malta Area 4 for: An immediate cash payment of US$10 million

100% carry of the cost for the first explorationwell Hagar Qim 1

100% carry of the cost for the secondexploration well up to a maximum ofUS$30 million

Technical progress achieved in advancing theProduction Concession application for OmbrinaMare, Italy:

Commission charged by the Ministry ofEnvironment and of Protection of Land and Sea(MEPLS) ruled in favour of MOGsEnvironmental Impact Assessment (EIA)submission

EIA approval delayed pending resolution ofdispute with MEPLS

Our 2013 highlights and the year ahead

Entry into new exploration acreage offshore MaltaArea 3 Blocks 1, 2 and 3 Low cost entry into Exploration Study

Agreement (ESA) 40% Working Interest with option to proceed

into Production Sharing Contract after two or

three years of ESA Exploring for prospects on the southern margin

of the proven Sicily/Sicily Channel basin

Gas sales agreement with Repower Italia SpArenewed for the bulk of the offtake ofthe Companys gas production until30 September 2014

Continued optimisation of the Groups 2P reservesof 5.3 Bcf of gas and best estimate contingentresources of 26.0 MMbbls of oil and 32.4 Bcf ofgas (at year-end 2013): Completion of new Competent Person Report

(CPR) for Ombrina Mare establishes baselinefor development and upside potential

Decision made to develop Aglavizza, onshorecentral Italy where MOG has a 100% interest,with first gas forecast in Q3 2015

Value of the portfolio clearly defined with thecertification of the majority of our fields andProspects by ERC Equipoise Limited (ERCE)

Financial:Revenues from sales of gas and condensateand operatorship income decreased from16.3 million in 2012 to 8.4 million1 in 2013

Loss from operations of 4.4 million(2012: 4.1 million profit)1

Cash and cash equivalents of 12.4 million(2012: 8.7 million)

1 Excluding discontinued operations.1 Includes production fromdiscontinued operations

1 Includes production fromdiscontinued operations


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07.

01.

02.

03.

04.

05.06.

08.

At a glance

MOG owns and operates assets

in the central Mediterranean region

Northern AdriaticGas exploration,development andproduction

> Non-operated gasproduction atGuendalina

> Asset delivers positivecash flow for theCompany

> Non-operated gasdiscoveries with upside

potential> Goal is to increase the

priority of thesedevelopments in theoverall portfolio of ENI

1 2 3

Onshore ItalyForedeepGas exploration,development andproduction

> Geographically spreadlow-risk production andexploration opportunities

> Goal is to increase returnson assets to providegreater cover ofoperating costs for

the Group

Ombrina MareOmbrina Mare oil and gasdevelopment

> 100% operated oil andgas discovery with upsidepotential

> Goal is to achieve awardof production concessionfrom the Ministry ofEconomic Development


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Mediterranean Oil & Gas Plc /Annual Report & Accounts 20133 Mediterranean Oil & Gas Plc /Annual Report & Accounts 20133

1

2

3

4

5 6

Companyoverview

Businessreview

Governance

Financialstatements

SouthernApenninesMonte Grosso oil andgas exploration

> Exploration prospecton trend with ValDAgri and TempaRossa fields

> Technicallychallengingexploration well that iscurrently waiting for

Environmental ImpactAssessment approval

4 5 6 7 8

Offshore MaltaOil and gas exploration

> Area 4 is a frontierexploration playoffshore Malta similarto Libya and Tunisia

> Area 3 is searching forthe southern extent ofthe Sicily Channelhydrocarbon system

> Presence of reservoirand hydrocarbon

source are the keyrisks> Goal is to spud the

first exploration well inArea 4 in Q1 2014

Onshore FranceGas exploration

> Triassic BunterSandstone playanalogous to NorthSea southern gasbasin

> Structural geometryand hydrocarboncharge are the keyrisks

> Goal is to achieve

extension of theexploration period

Genel Area ofMutual InterestExploration,development andproduction

> Agreement to worktogether in theoffshore basins ofLibya, Malta andTunisia

> Principles are on a firstright and 20% (MOG)

to 80% (Genel) split

Resources and Reserves by Asset (MMboe):

Onshore Italy Foredeep

2P 0.302C 0.162E 7.23

2P 0.002C 0.002E 381.00

2P 0.662C 3.942E 1.99

2P 0.002C 0.002E 35.15

2P 0.002C 26.812E 15.79

Northern Adriatic Ombrina Mare

7

2P 0.002C 0.892E 8.28

Onshore FranceSouthern Apennines

Offshore Malta

2P Proven plus Probable Reserves2C Contingent Resources most

likely estimate2E Prospective Resources best

estimate (unrisked)


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Our strengths for growth

Capable and crediblefrom start to finish

CompetitiveAdvantage

FinancialStrength

ResourcesFactory

Regional OperatorLeverage our competitive

advantage that lies in thebreadth and depth of our Italy-based team that manages thefull-value chain of ourExploration & Production (E&P)business together with our AIM-listing, knowledgeablemanagement team and strongsupport from our keyshareholders.

In 2013 we were able to secure:

> Renewal of direct off-takeagreement with Repower Italia

SpA for the bulk of our Italiangas production> Access to offshore Malta Area

3 Blocks 1, 2 and 3

Debt FreeBeing debt free, our goal is to use

the income from our onshore andoffshore gas production tounderwrite our operating costs,support asset maturation andsmall capital programmes.

In 2013 we were able to:

> Build our year-end cash positionto 12.4 million

> Implemented internal cost andfinancial reporting controls

Balanced PortfolioUse our Resources Factory to our

advantage. Grow production andmove resources to reserves bymaturing the portfolio in support ofour production growth targets.Balance frontier exploration withasset maturation and goodreservoir management.


> Progress the development ofAglavizza

> Develop a forward plan for theOmbrina Mare development

> Progress preparations for drilling

offshore Malta Area 4


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Companyoverview

Businessreview

Governance

Financialstatements

AttractiveProspectiveResources

Growth OpportunityPrudently invest to de-risk our

attractive Prospective Resourcesopportunities of approximately450 million boe (likely unrisked)and look for low entry cost andhigh potential value acreage toadd to our portfolio.


> Secure funding for twoexploration wells offshore Malta

> Enter Area 3 Blocks 1, 2 and 3offshore Malta

Case Study

Protecting Shareholders InterestsOn 1 August 2012 we announced we had bought the 10% interest held by LeniGas & Oil Investments Limited in the PSC covering offshore Malta Area 4 Blocks, 4,5, 6, and 7, bringing our holding to 100%.

Leni Gas & Oil plc (LGO) announced on 1 August that LGO has decided as aresult of its own technical assessment of the project to divest, at no further cost, itsinterest in the Malta venture which is both non-core and non-strategic to LGOsonshore oil development mission. This will allow us to avoid any furtherexpenditure on Malta and to focus our management and cash resources on ourcore business of production growth in Trinidad.

On 23 August 2012 we announced that we had farmed out 75% of our 100%working interest in offshore Malta Area 4 PSC.

The following morning at 7:00am, LGO issued an announcement referring to ourMalta farm out and statingLGO is surprised by the content of the announcementand is seeking immediate advice from the Companys litigation lawyers, Mishconde Reya.Following this, notwithstanding the undoubtedly good news of the farmout, our share price fell over 20% in the space of 20 days.

Apparently concerned to hear that another party had taken a different view ofthe prospectivity of the Malta asset in which they had just divested their 10%interest, LGO proceeded to make various allegations to the effect that they hadbeen misled about the prospectivity. There were exchanges of correspondencebefore solicitors and in January 2013 LGO issued proceedings in the High Courtclaiming they had been induced to sell their 10% interest by a comment madeon a telephone call on 10 July 2012 about MOG opening a data room thefollowing week. The comment is alleged by LGO to have been an impliedrepresentation as to the timing and prospects of the MOGs farm out process andwas designed to cause LGO to sell cheaply and speedily.

Throughout the period of this dispute, LGO has made numerous commentsabout the case via Regulatory News Announcements, Twitter, e-mail and even instatements made at investor conferences that were then posted on You Tube.The nature of the allegations made by LGO became widely known in the sectorand spawned a profusion of speculation, including on-line investor forums, as tothe potential impact on MOG.

Although not all of the comments have been adverse to MOG indeed, many of

them were supportive, the MOG Board took the view that it could not allow LGOsclaim, and often inaccurate information in the public domain, to erodeshareholder value. The Company took all steps to equip it to defend the claimand to set the record straight, where possible, in relation to any misinformation.This was not always an easy task, particularly given the ability of commentatorsto post anonymously. The successful defence against LGOs claim in an opencourt process will ult imately allow us to defend ourselves, and the interests of ourshareholders to:

a) set the record straight;b) enhance the reputation of the MOG team;c) re-establish investor confidence and interest in MOG stock;d) recover legal defence fees incurred; ande) demonstrate MOGs determination to protect itself from speculative

rumours and legal claims.


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Our strategy

We aim to deliver top quartile1value growth to shareholdersby maximising the value of theResources and Reserves fromour core areas of operation,

while expanding our footprintand Resources Factorythroughout the greaterMediterranean region.1 Defined by performance against all AIM listed E&P Companies.

Corporate Objectives

Create shareholder value by de-riskingand maturing the Resources and Reservesin our Resources Factory.

Given the risks and uncertainties inherentin our business, maintain and grow thefinancial strength of the Company tominimise our overall cost of capital.

Successfully complete and integratetransactions that add value acreage,Resources and Reserves to our ResourcesFactory.

Empower and support both our directand non-direct employees to makebrave and transparent decisions thatcreate shareholder value.

Be respected by our stakeholders for notonly what we do but the way we do it.


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Companyoverview

Businessreview

Governance

Financialstatements

Progress in 2013 Objectives for 2014

Moved first exploration well offshore MaltaArea 4 to a drill ready prospect

Finalised the development strategy for theAglavizza development onshore Italy andreached the Final Investment Decision

Invested in public relations, stakeholder

engagement, engineering studies and anoffice in Ortona in support of the OmbrinaMare development

Worked with ERCE to review and calibratethe Reserves and Resources in our portfolio

Drill offshore Malta Area 4 first explorationwell

Achieve the award of the productionconcession for Ombrina Mare

Drill onshore Italy Faseto 1 exploration well

Prepare to drill Ombrina Mare 3

Prepare to conduct extended well tests atOmbrina Mare

Acquire 1500km 2D seismic in offshoreMalta Area 3

Receive extension for St. Laurent permit

Completed a year of incident-freeoperations

Production disruption at Guendalina Fieldresulted in 40% lower production thanforecast

Balance sheet strengthened by completionof farmout of Area 4 to Genel Energy plc

Year-end 2013 cash balance of 12.4m,higher than year-end 2012

Safe operations

Deliver 15 million scm production +/- 10%

Control discretionary expenditure

Regularly review Risk Register with Board

Optimise Company general and

administrative expenses

MOGs wholly owned subsidiary Melitaacquired a 40% working interest in the ESArelating to offshore Malta Area 3 Blocks 1, 2and 3

Add one or two business developmentopportunities, which include newproduction or opportunity to start-upproduction within 12 months

Add Prospective and Contingent Resourceopportunities that diversify our portfolioaway from Italy

Implemented organisational structurerequired to assure successful execution ofoffshore Malta Area 4 explorationprogramme

Implemented new internal financialreporting system

Completed staffing programme andimplemented performance scheme

Implement organisational changes requiredto support Ombrina Mare development

Ensure new reporting system is fullyfunctioning across the Group

Implement efficient IT system across theGroup

Complete agreed professionaldevelopment/training programme

Developed Corporate Social Responsibili tystatement

Launched new brand and website

Kept the market informed of all materialdevelopments in a timely manner

Complied with Corporate Ethics, HealthSafety and Environment and Anti-Briberypolicies

Complete all regulatory reporting at thehighest quality and on time

Keep the market informed of all material

developments in a timely manner Comply with Corporate Ethics, HSE and

Anti-Bribery policies

Defend our reputation and interests of ourshareholders from the Leni Gas & Oil plclegal claim


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Chairmans statement

Keith HenryChairman

12.4m. Net cash flow from operationsin 2013 was an outflow of 1.2m, downfrom 6.5m inflow in 2012.

We were informed at the start of 2013that Italys Environmental ImpactAssessment (EIA) Commission,charged by the Ministry of Environmentand of Protection of Land and Sea(MEPLS) to rule on the Ombrina Mareoil and gas field development EIA, had

ruled in favour of the Companyssubmission. This positive news slowlyturned to disappointment as the yearprogressed, with the Minister decliningto sign the resulting EIA Decree thatwas presented to him for signature inFebruary 2013. The MOG team,together with our advisers, haveinvested very considerable time andeffort, often behind the scenes, toengage with all key stakeholders.Despite our many attempts at thehighest levels to resolve this matter,ultimately we have been obliged tolodge an appeal with the Italian

courts. Post this reporting period ourlegal appeal against the actions of theMinister was heard at a tribunalhearing held on 9 January 2014 at theAdministrative Court in Rome. TheCompany is presently awaiting thedecision of the appeal. We remain

Dear Shareholder,

On behalf of the Board ofMediterranean Oil & Gas Plc, I ampleased to announce the Companys2013 results.

A significant challenge for theCompany in 2013 was the sudden lossof production from two of our keyproduction wells at the GuendalinaField, offshore Italy, which resulted in usmissing our production expectations

by over 40%. I am pleased to reportthat, following a well clean-upoperation at the start of 2014,production has been restored at GUE3SS, and that the updated reservoiranalysis carried out during this exerciseindicates the reservoir is in bettercondition and less depleted than wethought at the time of our InterimResults statement. As such, in theseresults, we are able to reverse 1.2million of the 1.8 million impairmentof the Guendalina Field reported inSeptember 2013. We look forward tocontinued safe and reliable operations

at the Guendalina Field, whichremains our main source of revenue.

Total annual production was 27.6MMscm (175,420 boe) and totalrevenue was 8.4m. Cash and cashequivalents at the period end was

We have turned

the corner aftera challenging yearand are well placedto advance the valueof our portfolio in theyear ahead.


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Companyoverview

Businessreview

Governance

Financialstatements

convinced that the development ofthe Ombrina Mare Field will benefit theAbruzzo region and we are resolutethat we will protect our shareholdersinterests in what is a very importantasset within our portfolio.

On a more positive note, we havemade good progress preparing for ourupcoming drilling activities offshoreMalta in Area 4. All of the necessarylogistics and contracts are in placeand we are now awaiting arrival of therig and final clearances to start drilling.Post this reporting period, we receivedan extension of six months to the firstexploration period to July 2014,enabling sufficient time to completethe drilling activities.

In 2012 the Board implemented arevised remuneration policy for theexecutives and all staff that more closelyaligns their total reward based on aweighted combination of their individualperformance, and the overallperformance of the Company ascompared with our peers. At the endof 2012, the Company was in the topquartile in terms of share value growthwhen compared with over 100 E&Pcompanies listed on AIM, and this reportreflects the executive and staff bonusesfor 2012 performance that were

awarded in January 2013. As a result ofthe general underperformance of ourshare price during the last twelvemonths, no executive bonuses oroptions were awarded for 2013.

OutlookThere is no doubt that 2014 will be animportant year in the growth of theCompany. We are excited to have twoexploration wells and 1,500km of 2Dseismic acquisition planned for thefirst half of the year. The drilling of thefirst exploration well, Hagar Qim,offshore Malta Area 4, has the

potential to open up a newhydrocarbon basin. The onshore ItalyFaseto 1 exploration well, while not ahigh-impact well like Hagar Qim, is anopportunity for rapid implementationas the development options havealready been pre-approved.

During 2013 significant time, effort andresources have been spent by theCompany in preparing to defend theinterests of our shareholders againstthe claim and proceedings initiatedby Leni Gas & Oil plc (LGO) inJanuary 2013. The Company continuesto refute the various claims that havebeen made by LGO. The allegationsmade are unfounded and theCompany will defend itself and theinterests of its shareholders rigorously.The case is due to come before theCommercial High Court in London inearly March 2014.

Particularly given the productionchallenges of 2013, we havemaintained a strong focus on the cost

of our operations, and our corporateoverheads. At the close of the year wemoved our four-person Londonhead-quarters to a small servicedoffice and, at the beginning ofJanuary, we announced that two ofour Non-Executive Directors, JakeUlrich and Matthew Clarke, hadstepped down from the Board. I amvery grateful to Jake and Matthew fortheir guidance and I know that theyremain strong supporters of theCompany. I am confident we have aBoard of Directors that is well placed toguide the Company through its nextphase of development.

Mediterranean Oil & Gas continues tobuild up a very experienced technicaland management team highlycapable of exploring and developingoil and gas assets. To that end theBoard remains focused and committedto growing the Company and we areactively seeking additional opportunitiesto expand our current portfolio.

On behalf of the Board, I would likethank our shareholders and ouremployees for their continued support.

Keith HenryChairman24 February 2014

OutlookDrilling of first explorationwell, Hagar Qim 1 offshore

Malta in Area 4 planned forQ1 2014

Continue to actively pursueaward of EIA and ProductionConcession for OmbrinaMare

Post award of a ProductionConcession, the Companyplans to drill a pilot appraisalwell at Ombrina Mare

Extract value from other

operating assets and de-riskprospective and contingentresources

Continue to actively pursueexploration and strategicgrowth opportunities


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Chief Executives report

William HiggsChief Executive

At the beginning of 2013 we werelooking forward to another full year ofproduction from the Guendalina Field.Sadly this was not to be. Withproduction being shut-in first at GUE2SS in March and then GUE 3SS inAugust our annual production fell over40% short of our 2013 expectations. TheGroup delivered total sales revenue of8.4 million and had a cash and cashequivalents position of 12.4 million at31 December 2013.

We were pleased to note that the GUE3SS re-started production after theoperator (ENI) initiated remedialoperations on 24 December 2013.These operations were hamperedby difficult weather conditions inthe Adriatic. The interventionwas completed successfully on11 January 2014 and the well returnedto low-rate production. The well isnow on stable production ofapproximately 5,500 scm per day netto MOG. In addition, the updatedanalysis of the reservoir by ERCE hasconfirmed our view that the reservoir

is more substantial and in a bettercondition than we had assumed forthe 2013 Interim Results statement.

Buildinga resourcesfactory2013 was a tough year

for the Company. It isgood that 2014 will seeus drilling wells andshooting seismic for thefirst time since 2011 these are the activitiesthat will progress ourportfolio

Using this latest analysis we are able toreverse 1.2 million of the 1.8 millionimpairment of the Guendalina Fieldreported in September 2013.

Our critical commercial objective for2013 was to seek the approval of theEnvironmental Impact Assessment(EIA) for our Ombrina Mare Field. Theyear started well with the EIACommission, charged by the Ministryof Environment and of Protection ofLand and Sea (MEPLS) to rule on the

Ombrina Mare oil and gas fielddevelopment EIA, ruling positively infavour of MOGs submission. Theresulting EIA Decree was presented tothe MEPLS for signature in February2013, where it has remained unsigned,despite continued lobbying from theCompany with all key stakeholders,ever since. Once the EIA Decree iscountersigned by the MEPLS, and bythe Minister of Heritage and CulturalActivities, MOG will be able to seekaward of the d30 BC MD OmbrinaMare Production Concession from theMinistry of Economic Development

(MED). The MED granted technicalapproval of the Field DevelopmentPlan for Ombrina Mare in June 2009.


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Companyoverview

Businessreview

Governance

Financialstatements

In 2013 we acquired a 40% workinginterest in the Exploration StudyAgreement for offshore Malta Area 3Blocks 1, 2, and 3. We believe that thisregion is a complementary asset tooffshore Malta Area 4, as it lies on themargin of a proven hydrocarbonprovince. We have also made goodprogress in preparing for ourupcoming drilling activities offshoreMalta in Area 4. All of the necessarylogistics and contracts are in placeand we are now awaiting arrival of theNoble rig Paul Romano, which isfinalising refurbishments in Malta. Postthe reporting period we received anextension of six months to the firstexploration period to enable sufficienttime to complete the drilling activities.

The Company has a broad asset baseacross the exploration, developmentand production phases of thebusiness. These assets have significantupside potential and we are lookingahead to de-risk and mature theseassets over the coming years, whilealso looking for valuable opportunitiesfor asset acquisition.

Gas Production and PricesAll gas production of the Group iscurrently from onshore and offshore Italy.

In 2013, total gas production was 0.97Bcf (27.6 MMscm), which represented a42% reduction relative to the prior year(2012: 1.69 Bcf). This was largely due tothe reduction in gas production at theGuendalina Gas Field caused by the

shut-in of wells GUE 2SS and GUE 3SS.

During 2012, the Brent oil price hasfluctuated around $100-110/bbl, whilethe Euro versus US Dollar exchange ratehas experienced significant volatilitywhich has influenced gas prices. Theaverage gas sales price achievedby the Group during the period was0.30/scm (USD 11.2/Mcf).

The Companys forecasts for future gasprices indicate continued downwardpressure in 2014 and 2015 and theItalian gas price is expected to remain

between 28.1 and 29.3 Euro cents perscm which is below the long runaverage gas price, due to the excessof gas supply relative to gas demandin the Italian market.

What Happened at Guendalina?The problems encountered at theGuendalina Field in 2013 are still underinvestigation, but appear to have theirorigins in the spring of 2012 when theoperating conditions of the two wellsGUE 2SS and GUE 3SS changed in lateMay 2012.

In the case of GUE 2SS, both theproduction rate and the flowingwellhead pressure increased, whichat the time was (correctly) interpretedas a cleaning up of the well and theunexpected addition of incrementalproduction from sand intervals notoriginally connected to the well. InSeptember 2012, after a short wellshut-in, GUE 2SS had a suddendeterioration in gas rate as wellas wellhead tubing pressure.Unfortunately on 5 March 2013, afterseveral months of decline, GUE 2SS wastaken offline to determine the cause ofan influx of water that resulted in thewell ceasing production. The probablecause of the well shut-in is thepremature water breakthrough fromthe bottom aquifer associated with theadditional sand intervals that startedcontributing in May 2012. This well iscurrently shut-in and will remain shut-infor the foreseeable future. However, thegas level completed for production atGUE 2SS is being produced from wellGUE 3LS, which is in an up dip location.

In the case of GUE 3SS, the productionrate increased and the flowing wellhead pressure decreased. Once

again, the characteristics of the wellindicate cleaning up of the completionand, in this case, an increase in thedrawdown of the reservoir. In July andAugust 2013 the production rate onGUE 3SS started to decline more rapidlyand the well was taken offline on30 August 2013 due to low pressure atthe manifold. Subsequent analysisindicated that the reservoir was ingood condition and at a higher staticpressure than predicted. With thesenew data it was possible todemonstrate that the well performancehad been progressively deteriorating

since the late May 2012 event and thatthe observed increased skin to thewell was probably the consequence ofthe migration of fine grained materialtowards the wellbore, which

progressively reduced productivity. Thiswas unknowable during the period oftime that the well was on production.With these new data the operator (ENI)designed and executed a remedialtreatment of the well to remove thefines. The well was brought back ontolow-rate production on 11 January2014. The well continues to clean upand is currently achieving stableproduction of approximately 5,500 scmper day net to the Company.

Well GUE 3LS has maintained itsoperating conditions throughout 2012and 2013. GUE 3LS has been performingin line with expectations and is currentlyproducing about 31,000 scm per daynet to the Company.

The knock-on effects of the damageto these two wells cannot beunderstated. We quickly went from acash flow positive to cash flow negativebusiness when including all operatingand capital costs. This has placeddownward pressure on the share priceand created sufficient uncertainty inour future cash flows that it has beenvery difficult to undertake anyaccretive transactions.

Oil & Gas Reserves and ResourcesIn 2013 the Company selected ERCEto undertake an audit of the Groupsreserves and resources. This analysis,which has been detailed and robust,has resulted in some significantmovement and reductions on ourReserves and Resources ledger. The

changes year-on-year are highlightedbelow. Importantly, we can now beconfident in the assessment andtherefore value of our Reserves andResources.

As at 31 December 2013, the Companyrecorded 2P reserves of 5.3 Bcf (net) ofgas (1.0 MMboe) and 2,376 boe ofcondensate. Best estimate contingentresources were 26 MMbbls oil (net)and 32.4 Bcf (net) of gas.


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Chief Executives report continued

Asset OverviewExploration, Development andProductionItaly Offshore Northern AdriaticThe Companys efforts during theperiod under review were mostlyfocused on understanding theproduction challenges at theGuendalina gas field offshore Italyin the northern Adriatic.

Other North Adriatic Gas Discoveries(MOG WI 15%, ENI WI 85% andOperator)The Guendalina project is located inone of the most important gasexploration and production areas inItaly and is situated 70km south of fourother discovered, but stillundeveloped, offshore gas fields inwhich the Group has a 15% interest.

These four gas discoveries amount tobetween 10 to 50 Bcf net contingentgas resources to the Group andrepresent an important growthopportunity for the Company. Theirreclassification from 2C (ContingentResources) to 2P reserves is expectedto take place following authorisation ofthe development plans for the fields.

The tables set out on pages 12 and 13summarise the evolution of theGroups hydrocarbon Reserves andResources since 2006 and includethe latest update, as at 31 December2013.

> 2P Oil Reserves were reduced withthe movement of the OmbrinaMare Field into the ContingentResources Category

> The Companys 2P RRR was -129%,which was caused by a negativerevision of Reserves

> The Companys 2P Reserves toProduction (R/P) ratio for gas hasdropped to 5.5

> Prospective Resources for theMonte Grosso prospect have beencertified as 9.8 MMbbls (1E), 29.9MMbbls (2E) and 85.3 MMbbls (3E)with a mean of 41.5 MMbbls

> The Company is committed tode-risk and mature resources, toprogressively replace reserves,

maintaining the 2P RRR at around100% and targeting an R/P ratio ofapproximately 9

Development activity for these fieldswas frozen from 2001, initially pendingthe resolution of environmentalconcerns about subsidence causedby developing the offshore region.The Italian Government indicated in2009 that it is in favour of a positiveresolution of these issues in this area ofthe Northern Adriatic. As a portion ofthe Companys AC19 PI concession lieswithin 12 miles of nature reserves it wasimpacted by the 2010 offshorerestrictions introduced by the ItalianGovernment for the offshore E&Pactivities. On 7 August 2012 the ItalianParliament issued the Law 134/2012containing Article 35, which relates tooffshore exploration and productionactivities. The Article states that therestrictions introduced under DecreeDLGS 128/2010 would no longer beapplicable for the pre-existing offshoreE&P activities such as concession AC19PI. The Company can now work withENI to increase the priority of thedevelopment of the Northern Adriaticdiscoveries within AC19 PI.

Net Oil Reserves & Resources in MMbbls

ReservesProven Plus

Probable(2P)

MMbbls

ContingentResources

BestEstimateMMbbls

ContingentResources

HighEstimateMMbbls

ProspectiveResources(unrisked)

BestEstimateMMbbls


HighEstimateMMbbls

1 July 2006 01 292 702 1,5773 4,4473

30 June 2007 01 292 702 1,2914 3,6144

30 June 2008 201 122 192 1,4194 3,9514

31 December 2008 201 122 192 1,4194 3,9514

31 December 2009 201 122 192 1,4194 3,9514

31 December 2010 401 122 192 1,4054 3,9204

31 December 2011 401 122 212 1,4054 3,9204

31 December 2012 401 172 312 4706 1,2006

31 December 2013 05

265

665

4246

1,2006

1: Independent certification by Studio di Ingegneria Mineraria.2: Company assessment.3: Independent certification by RPS Energy (RPS).4: Independent certification by RPS.5: Independent certification by ERCE.6: Independent certification by ERCE and Company assessment.


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Companyoverview

Businessreview

Governance

Financialstatements

Italy Onshore Foredeep GasIn Italy, the Company has focused itsfootprint of onshore production andexploration gas assets that target gastraps in the Pliocene aged sanddeposits of the Apennines Foredeepwith the completion of the saleof 13 non-core assets to CanoelInternational Energy Limited. In ourremaining E&P acreage the existingproduction is not the only value. In fact,several interesting development andexploration projects are also present,mainly within existing productionconcessions that have the potential tounlock approximately 26 to 64 Bcf netunrisked prospective resources to theGroup and achieve new near tomid-term gas production.

In December 2012, we received theaward of the Aglavizza ProductionConcession onshore central Italywhere we have a 100% interest in the7km2concession that includes theCivita 1 discovery with estimatedproved and probable reserves closeto 1 Bcf. Post the award, we safelyconducted a production test of Civita1 that confirmed excellent permeabilityand no near-well bore formationdamage. In Q3 2013 the Board madethe final investment decision for theAglavizza development. First gas isexpected in Q3 2015 and over the

two-year development cycle theCompany will invest 2.8 million.The asset is expected to start withproduction rates of 18,000 to20,000 scm per day.

Italy Ombrina MareOil & Gas Discovery (MOG WI 100%)The Ombrina Mare discovery is animportant asset for the Company thatrepresents an important future growthopportunity.

Following the successful drilling of twoexploration/appraisal wells in 2008, thecompletion of a well as an oil producerand the set-up of a tripod platform inpreparation for the developmentphase, the Company applied for aproduction Concession (d 30 B.C-MD)in December 2008. In the reportingperiod the Company worked with ERCEto complete a revised independentcertification of Ombrina Mare on theexpectation that we would be soonmoving forwards with the development.Because of the continued delay to theaward of the EIA for the project and theneed for further appraisal drilling to fullyassess the potential of the asset, ERCEcertified Ombrina Mare oil and gas intothe Contingent Resources categorywith 9.8 MMboe oil and 4.03 Bcf gas(1C), 25.1 MMboe oil and 8.04 Bcf gas(2C), and 62.8 MMboe oil and 17.2 Bcf

gas (3C). We plan on drilling a pilotdevelopment well as soon aslogistically and safely possible post theaward of the production concession.The goals of the pilot appraisal wellwould be:> To assess the potential for a

hydrodynamic or tilted oil-watercontact

> To assess net reservoir distributionto the north away from the crestof the structure

> To test the hydrodynamicperformance of the reservoir

> To test the potential of theCretaceous interval to contribute tothe productivity

The year started well with the EIACommission, charged by the MEPLS torule on the Ombrina Mare oil and gasfield development EIA, ruling positivelyin favour of MOGs submission. Theresulting EIA Decree was presented tothe MEPLS for signature in February

2013, where it has remained unsignedever since. Significant effort andresources have been directed atcreating the correct environment forthe Italian authorities to make apositive decision. We have engagedwith the local communities onshorefrom the proposed developmentlocation including the opening of anew office in the important port townof Ortona.

Net Gas Reserves & Resources in Bcf

ReservesProven Plus

Probable(2P)

(Bcf)

ContingentResources

BestEstimate

(Bcf)

ContingentResources

HighEstimate

(Bcf)


BestEstimate

(Bcf)


HighEstimate

(Bcf)

1 July 2006 121 212 502 202 442

30 June 2007 111 252 612 702 1382

30 June 2008 101 252 552 932 1582

31 December 2008 171 252 552 932 1582

31 December 2009 16.51 252 552 932 1582

31 December 2010 17.61 252 552 482 1202

31 December 2011 18.41 22.32 482 862 1562

31 December 2012 15.31 22.32 482 1142 2162

31 December 2013 5.33

32.44

73.44

1444

2864

1: Independent certifications by SIM and RPS (Guendalina 2012 only).2: Company assessment.3. Independent certification by ERCE.4: Independent certification by ERCE and Company assessment.


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Chief Executives report continued

Malta Offshore Area 4The Group holds a 25% working interestin offshore Malta Area 4, whichcomprises 5,700km2of deep wateracreage north of the internationallyrecognised border between Maltaand Libya.

During the period:> We completed the sale of a 75%

interest in offshore Malta Area 4to Genel for:

> US$10 million cash payment(received in February 2013);

> 100% carry on the first explorationwell, and a 100% carry on thesecond exploration well up toUS$30 million gross expenditure;

> At MOGs option, should the costsof the second well exceed US$30million, Genel will provide afinancing arrangement to fundMOGs 25% share of anyadditional expenditure, at aninterest rate equivalent to 3

Month LIBOR plus 400 bps.> We completed the logistics,

contract awards and procurementrequired to support the drilling of thefirst exploration well, which isexpected to spud in Q1 2014.

The area is frontier exploration whereno drilling activity has occurred andit is one of the rare areas that stillremains to be explored in theMediterranean basin. The transactionwith Genel means that a minimum oftwo exploration wells are now fully

funded.

Post period the Company received anextension of the first exploration periodby six months until 17 July 2014 toenable completion of the drillingactivity. In addition, the Companymodified the terms of its sale to Genelsuch that the two parties are now in aJoint Venture partnership, with a JointOperating Agreement.

We have taken all necessary steps,including legal action, to protectshareholders interests. We willcontinue our active dialogue with theItalian Government, with a view tosecuring approval of the EIA forOmbrina Mare and the awardof the associated ProductionConcession. Once the EIA Decree iscountersigned by the MEPLS and theMinister of Heritage and CulturalActivities, MOG will be able to seekthe award of the d30 BC MD OmbrinaMare Production Concession fromthe MED. The MED has alreadygranted technical approval of theField Development Plan for OmbrinaMare in June 2009.

Wildcat ExplorationItaly Southern ApenninesIn the Southern Apennines, the Groupoperates the Monte Grosso project,holding a 22.89% interest. The projectis a high quality near field explorationopportunity close to one of thelargest onshore oil producing areasin western Europe. The Monte Grossoexploration project presently remainson hold, pending resolution ofresidual permitting issues, which theGroup presently believes should bepositively resolved and allow aproject start-up in late 2015 (subjectto rig availability). The Monte Grosso 2well is targeting 181 MMbbls ofunrisked mean Prospective Resources(41.5 MMbbls net to the Group) at adepth of 6,800m. Permitting andexisting well site maintenance works

were the main activities conductedduring the period.

Offshore Malta Area 4 is a high risk, butpotentially a high reward, geologicalenvironment where nine prospectsand leads have been certified by ERCEand RPS with a total of 381 million bblsof unrisked prospective oil resourcesnet to MOG.

Malta Offshore Area 3In June 2013 MOG reached agreementwith Transunion Petroleum Ltd(Transunion) and Nautical PetroleumLtd, a subsidiary of Cairn Energy PLC(Cairn), to join Cairn in theexploration of offshore Malta Area 3 Blocks 1, 2 and 3 (Area 3).

In December 2012 Cairn entered intoa three-year Exploration StudyAgreement (SA) with the Governmentof Malta for offshore Area 3, which islocated in the Sicily Channel coveringan area of approximately 6,000km2and containing a number ofprospective leads. The ESA covers aninitial two-year period with geologicalstudies, the reprocessing of existing 2Dseismic data, the acquisition of new 2Dseismic data and limited capital works.The agreement provides the right tonegotiate a production sharingcontract and it can be extended to athird year to acquire 3D seismic. Theassignment of an interest in the ESAto Melita Exploration Company Ltd,a wholly owned subsidiary of theCompany, was approved by theGovernment of Malta in July 2013.

The joint venture has approved the

acquisition of approximately 1,500kmbroadband 2D seismic in H1 2014and the operator is finalising thepreparation of the seismic campaign.

France St LaurentThe St Laurent permit is located insouthern France in a known gas andoil prone province. The Company hasan 11% WI in this asset. There has beenlittle activity on the permit in 2013. The

joint venture partners are seeking anextension to the exploration periodfrom the French authorities.


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GlossaryBcf Billion cubic feet of gasContingent oil/gas resources Has the meaning ascribed by the SPE/WPC Standard

EIA Environmental Impact AssessmentE&P Exploration and ProductionHSE Health, Safety and the EnvironmentMMbbls Million stock tank barrels of oilMMboe Million stock tank barrels of oil equivalentMMscm Million standard cubic metresP1 & P2 Reserves Proven plus probable reserves as defined in the SPE/WPC StandardProspective oil/gas resources Has the meaning ascribed by the SPE/WPC StandardRRR Reserve Replacement RatioR/P Reserves to Production RatioScm Standard cubic metreSOP Standard Operating ProcedureSPE/WPC Society of Petroleum Engineers/World Petroleum Congress SPE/WPC Standard

Definitions and methodology for certifying hydrocarbon reserves and resourcesadopted by the SPE/WPC from time to time which presently requires the

application of the 2007 Petroleum Resources Management System standards

Health, Safety and the EnvironmentThe Company continues to becommitted to maintaining the higheststandards in HSE management. Nosafety or environmental incidents havebeen reported for the period underreview.

Operational OverviewMOG has a broad portfolio ofproduction, development andexploration assets.

Over the next 12 months, MOG intendsto progress its key assets and pursueattractive and material strategicgrowth opportunities that we expectto identify.

One of the strengths of the Company isthe wide international experience of itssenior managers, in particular in theMediterranean area and theoperational capability of its staffand organisation.

William HiggsChief Executive24 February 2014

Qualified Person:In accordance with the guidelines ofthe AIM Market of the London StockExchange, Dr. Bill Higgs, ChiefExecutive of Mediterranean Oil & GasPlc, a geologist, explorationist andreservoir manager with over 24 yearsoil and gas industry experience, is thequalified person as defined in theLondon Stock Exchanges GuidanceNote for Mining and Oil and Gascompanies, who has reviewed andapproved the technical informationcontained in this announcement.


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Production Bcf

1.0 down 42%

2010 2011 2012 2013

0.4 1 0.6 1 1.7 1.0

Revenues m

8.4 down 48%

2010 2011 2012 2013

3.5 1 5.6 1 16.3 8.4

Financial review

Chris KelsallFinance Director

Presentation of 2013 FinancialStatementsOn 6 September 2012, the Groupannounced the divestment of non-core exploration and production gasassets onshore Italy (Assets Held forSale), which belong to the subsidiariesMedoilgas Italia SpA and MedoilgasCivita Limited, to Canoel InternationalEnergy Limited (CIL). In July 2013, theCompany announced completion ofthe divestment of the Assets Held forSale to CIL. In accordance with IFRS 5

Non-current assets held for sale anddiscontinued operations, the assetsare presented in the ConsolidatedStatement of Financial Position asnon-current assets held for sale (referNote 6(b) for further information) andin the income statements asdiscontinued operations.

On 28 February 2013, the transactionthat was announced on 23 August2012 for Genel Energy plc (Genel)to acquire a 75% working interest inoffshore Malta Area 4 ProductionSharing Contract (the Malta PSC) wascompleted. The Groups total interest inPhoenicia Energy Company Limited(PECL) was disclosed at the end of2012 as an asset held for sale in thestatement of financial position inaccordance with the provisions of IFRS5. Following the adoption of IFRS 11,

Joint Arrangements, the Group hasaccounted for this transaction as adivestment of a 75% interest of PECL,as a disposal of a subsidiary resultingin a joint operation (refer Note 6(a) forfurther information). Therefore, all ofthe carrying amount has not beende-recognised and a gain on disposalof the 75% interest only has beenrecorded. The remaining carryingamount, representing 25% of theinterest in the Malta PSC, has beenincluded in Intangible Assets.

2013 highlights> Cash and cash equivalents at

year-end 12.4m (2012: 8.7m)> Group revenue from sales of gas

and gas condensate andoperatorship income 8.4m,excluding discontinued operations(2012: 16.3m)

> Group loss from operations of4.4m, excluding discontinuedoperations (2012: profit of 4.1m)

> Net cash outflows from operatingactivities of 1.2m, excluding

discontinued operations(2012: inflow 6.5m)

1 Includesproductionfromdiscontinuedoperations

1 Includesproductionfromdiscontinuedoperations


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RevenueExcluding discontinued operations, asnoted above, significant reductions ingas and gas condensate productionto 27.6 MMscm (2012: 47.7 MMscm) or0.97 Bcf (2012: 1.69 Bcf), resulted in a48% decline in revenues to 8.4m(2012: 16.3m). Operatorship incomeincreased to 0.6m in the period (2012:0.15m) as a consequence of timewriting for work undertaken in relationto the interest held at the Malta PSC.This is not expected to be repeated in2014, given the latest agreed structurewith the Companys joint venturepartner, Genel, which is the operatorof the Malta PSC.

The events surrounding the shut inof the wells at the Guendalina Field,and the subsequent resumption ofproduction, are discussed in theCEOs Report on pages 10 to 15.The Guendalina Field is currentlyproducing approximately 36,000 scmper day net to MOG.

The Groups average realised gas salesprice in 2013 was 0.30/scm (USD 11.2/Mcf). The gas sales contract for theGuendalina Field, signed in March2013 with Repower Italia, has beenextended to include the bulk of ourItalian gas production and MOG ispleased to have the contract in placewith Repower Italia until the end of thecurrent thermal year, which endson 30 September 2014.

Income From Operations

Loss from operations in 2013 was 4.4m(2012: profit of 4.1m). The decline wasprimarily attributable to the combinedeffect of a reduction in 2013 revenues,an increase in the cost of sales to4.2m (2012: 3.8m) and an increasein total administrative expenses to9.2m (2012: 8.5m). This arose asa consequence of the decline inthe depreciation, depletion andamortisation charge to 2.6m(2012: 4.5m) being more than offsetby a combination of the 600,000impairment charge (2012: nil)arising at the Guendalina Field and

an increase in other administrativeexpenses to 6.0m (2012: 4.0m).

Although Guendalina productionroyalties and gas treatment costs werelower, in line with the lower 2013production, other operating costsassociated with the onshore Italyconcessions were stable, whileincremental maintenance costsassociated with work undertaken toresume production at the GuendalinaField were higher, at 1.4m in 2013(2012: 0.6m). Total staff costs (referNote 9), including those attributed tocost of sales, were 4.5m (2012: 3.6m)included a cash and share-basedbonus payment to employees, inrespect of a robust corporateperformance in 2012, that was paidand therefore recognised, in 2013.

Other administrative expensesincluded legal fees of 1.0m, up from0.2m in 2012, that were incurred bythe Company in relation to thedefence of the legal claim brought byLeni Gas & Oil Plc (LGO) and Leni Gas& Oil Investments Limited (LGOI).

The reduction in depreciation, depletionand amortisation charge to 2.6m (2012:4.5m) arose primarily a consequenceof lower production at Guendalinawhich is depreciated on a unit ofproduction basis. As a result of theproduction interruptions at theGuendalina Field, an impairmentcharge of 1.8 million was recognised inthe six month period ended 30 June2013. Following issuance of independentanalysis by ERC Equipoise in February2014 which identified additional gas

bearing intervals and a larger reservoirprofile than had previously beenestimated, management have partlywritten back the value of the asset by1.2m, resulting in a net impairment ofGuendalina in the period of 0.6m(2012: nil).

The Group has recorded a gain of2.8m from the disposal of the 75%interest in the Malta PSC (refer Note6(a) for further information).

The basic and diluted earningsper share on continuing operations

were a loss of 1.41 cents per share(2012: earnings of 0.41 cents pershare). No dividend is proposedto be paid for the year ended31 December 2013 (2012: nil).

Cash FlowNet Group cash outflow fromoperating activities was 1.2m(2012: 6.5m inflow), which reflects thesignificant decline in production atthe Guendalina Field, relative to 2012.

The 8.9m proceeds for the disposalof the 75% interest in the Malta PSCto Genel were received in 2013.Following completion of the sale ofnon-core onshore assets to CIL inJune, a payment of 1.25m wasmade and is reported as part of thecash flows from discontinuedoperations.

The Groups total capital expenditureon assets of 2.5m (2012: 1.7m)was mainly related to developmentof the Aglavizza field, geologicaland geophysical studies and otheractivities for Ombrina Mare, and theacquisition of a 40% working interestin offshore Malta Area 3.

Statement of Financial PositionCash and cash equivalents atyear-end were 12.4m (2012: 8.7m).Among non-current assets, keymovements from 2012 included areduction in property, plant andequipment to 16.7m (2012: 20.4m).This decline resulted from thedepreciation and impairment chargeassociated with the Guendalina Field.Exploration assets increased to24.1m (2012: 19.8m), reflectinginvestments and the inclusion of thecarrying amount of the 25% interest

in the Malta PSC. Financial liabilitiesat year end were nil (2012: nil).At the end of 2013, net assets stoodat 50.5m (2012: 53.1m), andnon-current assets were 43.3m(2012: 44.1m).

Key Performance IndicatorsThe Groups key financialperformance indicators are revenueand the consolidated results. Its keynon-financial performance indicatorsare the level of production andreserve and resources replacement(discussed in the Chief Executives

Report Oil & Gas Reserves andResources on page 11) and thehealth, safety and environmentalperformance (discussed in the ChiefExecutives Report Health, Safetyand the Environment, on page 15).


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Financial review continued

HedgingDuring 2013, the Group did not haveany oil and gas price derivatives inplace (2012: no oil and gas pricederivatives in place).

Cautionary StatementThis financial report contains certainforward-looking statements that aresubject to the usual risk factors anduncertainties associated with the oiland gas exploration and productionbusiness. While the Directors believethe expectation reflected herein to bereasonable in light of the informationavailable up to the time of theirapproval of this report, the actualoutcome may be materially dif ferentowing to factors either beyond theGroups control or otherwise within theGroups control but, for example,owing to a change of plan or strategy.Accordingly, no reliance may beplaced on the forward-lookingstatements.

Chris KelsallFinance Director24 February 2014

The share price movement during thetwelve month period to 31 December2013 ranged from an intra-day high of13.00p, to an intra-day low of 4.77p.The share price at close on31 December 2013 was 5.50p.

Events after the Reporting PeriodOn 9 January 2014, the Companyentered an agreement with theGovernment of Malta for a six monthextension to the Malta PSC coveringoffshore Malta Area 4. This extension willenable the contractors to the MaltaPSC to have sufficient time to completethe exploration drilling activities that areforecast to start in Q1 2014. With thisextension, the expiry of the firstexploration period to the Malta PSC isnow 17 July 2014. The MalteseGovernment also gave its consent forPhoenicia Energy Company Ltd(PECL), which wholly owned the rightsto the Malta PSC, to assign 25% of itsinterest in the Malta PSC to MelitaExploration Company Ltd (MECL),a wholly owned subsidiary of MOG.Concurrently with this assignment,MOG transferred its remaining 25%interest in PECL to Genel EnergyHoldings Ltd. Consequently, PECL is nowa wholly owned subsidiary of GenelEnergy Holdings Ltd. MECL and PECLhave entered into a Joint OperatingAgreement, in which PECL has beenappointed Operator on behalf of thejoint venture parties. Following thesetransfers, PECL will hold a 75% workinginterest in Area 4 and MECL a 25%working interest in Area 4 and are jointly

the contractors to the Malta PSC.

Other events occurring after thereporting period are set out in Note25 to the Financial Statements.


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Strategic report

Section 414C of the Companies Act2006 (the Act) requires that theCompany inform members as to howthe Directors have performed theirduty to promote the success of theCompany, by way of a Strategic Report.

Set out below are the applicablereporting requirements under the Actfor the purposes of the StrategicReport, together with guidance toother applicable sections of the 2013Annual Report, which are incorporatedby reference into the CompanysStrategic Report.

Fair review of the business(Section 414C (2) (a) of the Act)

This information is contained in pages8 and 9 of the Chairmans Statement,pages 10 to 15 of the Chief ExecutivesReport and the Finance Review onpages 16 to 18.

Principal risks and uncertainties(Section 414C (2) (b) of the Act)

This information is contained in thePrincipal Risks and Uncertainties, onpages 20 and 21.

Analysis of the development andperformance of the business(Section 414C (3) of the Act)

This information is contained in pages8 and 9 of the Chairmans Statement,pages 10 to 15 of the Chief ExecutivesReport and the Finance Review on

pages 16 to 18.

Analysis of the position of the business(Section 414C (3) of the Act)

This information is contained in page 8and 9 of the Chairmans Statement,pages 10 to 15 of the Chief ExecutivesReport and the Finance Review onpages 16 to 18.

Analysis using key financialperformance indicators(Section 414C (4) (a) of the Act)

This information is contained in theFinance Review on pages 16 to 18.

Analysis using other key performanceindicators(Section 414C (4) (b) of the Act)

This information is contained in theChief Executives Report on pages 10to 15 and on Our strategy section onpages 6 and 7.

Approval of the Board(Section 414D (1) of the Act)

This strategic report contains certainforward-looking statements that aresubject to the usual risk factors anduncertainties associated with the oiland gas exploration and productionbusiness. While the Directors believethe expectation reflected herein to bereasonable in light of the informationavailable up to the time of theirapproval of this report, the actualoutcome may be materially dif ferentowing to factors either beyond theGroups control or otherwise within theGroups control but, for example,owing to a change of plan or strategy.Accordingly, no reliance may beplaced on the forward-lookingstatements.

By order of the Board.

William HiggsChief Executive24 February 2014


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Principal risks and uncertainties

ExplorationThere is no assurance that ourexploration activities will identify acommercial discovery among theexisting portfolio. The Group mitigatesexploration risk through the experienceand expertise of our specialists, theapplication of appropriate technology,and the selection of prospectiveexploration assets. The Groupsobjective is to acquire additionalexploration assets, which will diversifyexploration risk. Furthermore, we seek

to employ individuals and contractorswith strong technical skills andexperience in the areas in which theGroup operates. Where appropriate,we work with joint venture partners whohave demonstrable technical skills andexperience in similar projects. Furtherinformation on exploration assets is setout in Note 5 to the FinancialStatements.

OperationsThe nature of oil and gas operationsmeans that the Group is exposed tothe risk of equipment failure, wellblowouts, fire, pollution and badweather. In order to mitigate theserisks, we implement recognisedindustry operating and safetystandards, maintain sufficient levels ofindustry-specific insurance cover andwork only with joint venture partners,operators and contractors who candemonstrate similar high standards of

safety, operating and financialcapability.

Health, Safety and Environment (HSE)The Group conducts operations incountries in Europe and theMediterranean region. There is a risk ofincidents in our operations that havethe potential to impact the healthand safety of staff, contractors, andcommunities, and/or the environment.Such incidents may have a negativeimpact on the Groups reputation.This risk is mitigated throughthe implementation of our HSE

management system, training ofstaff and selection of contractors.

The Group is subject to various risksand uncertainties, including thosewhich derive from its oil and gasexploration, development andproduction activities. These risks anduncertainties may have a materialimpact on our performance and couldcause future results to differ materiallyfrom expected and historical results.

The Groups principal risks anduncertainties are set out below,together with a summary as to how

they are mitigated. The relativeimportance of the risks faced by theGroup is likely to change over time aswe implement our growth strategy andas a consequence of external political,regulatory and macroeconomicdevelopments.


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We are extremely conscious of theenvironmental risks that are inherent inthe oil and gas industry. We ensurethat all relevant environmental impactstudies are undertaken in advance ofany proposed seismic or otheroperations it undertakes and best-in-class industry environmental standardsand practices are adopted in all of ouroperations. While the Group can neverfully mitigate the cost, delays and otherimplications of future changes inenvironmental legislation andregulation, we establish strong workingrelationships with the local authoritiesin the countries in which we operate,to be best able to work through anypotential significant changes thatcould arise in the future.

Funding and FinancingThe nature of the Groups businessmeans that there are significant costsassociated with seismic, drilling, anddevelopment campaigns. We managethis risk by a number of means. Weclosely monitor the Groups cashposition and each month produceupdated cash flow forecasts to helpdetermine appropriate strategies tofund short and medium-termoperations. We also ensure that theGroup always has adequate levels ofcash on deposit, with varying terms ofmaturity, to match the items ofexpenditure as they become due.Further information on pricing, liquidityand credit risk is set out in Note 18 tothe Financial Statements.

CurrenciesThe functional currency of the Groupand its subsidiaries is the Euro and asignificant proportion of its currentportfolio of assets and near-termforecast revenue and expenditure isalso in Euro. Certain expenditures arerequired to be funded in PoundsSterling and US Dollars and we monitorthe forecast expenditure profile andmaintain sufficient levels of cashresources in Pounds Sterling andUS Dollars to pay these expenses.Although in the period ended31 December 2013, we accrued aforeign exchange loss of 674,000 inthe Euro value of our cash balances,we do not believe, at this moment, thatthe Group is particularly exposed tolarge currency fluctuations. We holda significant proportion of our cashreserves with banks which have aminimum credit rating of A. Furtherinformation on currency risk is set outin Note 18 to the financial statements.

RegulationRegulations may change with aconsequential adverse effect on theGroups exploration and productionassets. Regulatory risk is mitigated bymonitoring the regulatory and politicalenvironment within the countries inwhich we hold assets, engaging inconstructive dialogue where andwhen appropriate, and introducingthird-party expertise if this may assist inresolution of issues affecting our assets.Our objective is to acquire additionalassets both for the exploration and

production portfolio, which may assistin diversifying country-specificregulatory risk.

Risk ManagementThe Directors regularly monitor theprincipal and other related risks, usinginformation obtained or developedfrom external and internal sources,and will take action as appropriateto mitigate the Groups exposure.The main elements of the riskmanagement system include regularBoard review of the business, adefined process for preparation andapproval of the annual workprogramme and budget, ethical andAnti-Bribery procedures, and HSEmanagement systems.

We review the Groups business risksand management systems on aregular basis and, through thisprocess, the Directors have identifiedthe principal risks. We manage somerisks by maintaining a portfolio ofprojects and ensuring the Group is incompliance with the terms of all itsagreements, through the applicationof appropriate policies andprocedures and via the recruitmentand retention of a team of skilled andexperienced professionals.

The nature of our operations andholding structures means that theGroup may be exposed to potentiallitigation. We are very conscious ofour legal and regulatoryresponsibilities in all jurisdictions inwhich we operate and seek to ensurethat at all times we act in accordancewith local legislation and regulation.The Board will take appropriate legal

advice from reputable legal firmswhen the need arises in order tomitigate such risks and, whereappropriate to do so, will rigorouslycontest claims made againstthe Group.


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Corporate responsibility

Buildinga responsiblebusiness

Code of Ethics/Anti-BriberyWith the corporate Code of Ethicsand Anti-Bribery Policy, we adopt theprinciples of legitimacy, fairness,transparency and verifiability on whichour conduct, as well as that of oursubsidiaries, must rest. By making sucha commitment, we aim to be publiclyregarded as a responsible and reliableenterprise, values which in our view are key elements to our success andto the promotion of our image.

The provisions set out in our Code ofEthics and Anti-Bribery Policy apply,without exception, to anyone involvedin the activities carried out by theCompany and therefore to ourDirectors, managers, employees, hiredfreelancers, suppliers as well as thosewho work for it directly or indirectly, onboth a regular basis or temporarily.

Ethical PrinciplesOur activities must be carried out in fullcompliance with local laws and withthe principles of impartiality, honesty,transparency and fairness towardsemployees, shareholders, partners,governments and local communitiesthat the Company comes into contactwith when carrying out its activities.

Our Key PrinciplesCompliance with Laws, Rules andProceduresWe are committed to complying withthe laws and regulations in force incountries in which we operate,upholding the Code of Ethics, following

the Group Anti-Bribery Policy and thecorporate procedures and observingthe articles of association.

In no case may the pursuit ofcorporate interests justify the breachof our principles and procedures andCompanys representatives areexpected to maintain compliancewith the letter and spirit of all lawsgoverning the jurisdictions in whichthey perform their duties day by day,in particular on:

1. Human Rights Laws

2. Privacy Laws3. Health and Safety Laws4. Environmental Laws5. Securities Laws6. Competition Laws

We are committed topromote a culture ofhonesty, integrity andaccountability and tooperate in accordancewith the highest ethicalstandards andapplicable laws and

regulations.


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Conflict of InterestWe will endeavour to avoid any conflictof interest arising when undertakingany of our activities and in all therelationships we establish.

A conflict of interest exists both when:(a) either a corporate body or one of itsmembers or a shareholder, or anemployee, holds an interest whichcontrasts with the one pursued by theCompany; and (b) when therepresentatives of commercial partners,external consultants, or private or publicinstitutions have a personal interestwhich contrasts with the one they holdin relation to their office or function.

ConfidentialityWe ensure that the information we holdis confidential and that no confidentialdata will be collected, disseminated orused unless an explicit authorisation bythe information owner is granted andthe Regulations in force are fullycomplied with.

Top managers, commercial partnersand consultants must use maximumdiscretion, even when not withinbusiness hours, in order to protect theknow-how of our Company.

Relationship with ShareholdersMOG promotes equal information andprotects its interests and the interests ofits shareholders from any attempt byother shareholders or coalitions ofshareholders to further their personalinterests before others.

In addition, we undertake best effortsso that our economic and financialperformance preserves and increasesthe Companys value, and ourshareholders investments achieveappropriate returns.

The Value of Human ResourcesEmployees, advisers and consultantsare key to achieving corporate success.For this reason, the Company protectsand promotes the value of its humanresources in order to improve andincrease experience and knowledge.

We also guarantee that the Companywill provide the proper workingconditions where human dignity andpersonal beliefs and opinions are fullyrespected in a safe and secureworking environment.

Fairness in Employee RelationsEmployee relations must be guided byfairness, collaboration, loyalty andmutual respect at all levels. Authoritymust be exercised with fairness, respectand moderation, avoiding any abuse.

In particular, any action which islikely to impact on the dignity orindependence of employees, advisersor contractors must be avoided.Moreover, any choice regarding workplanning must always safeguard thevalue of individual contributions.

Non-discriminationIn taking its decisions affecting externaland internal parties, MOG avoids anydiscrimination based on age, sex, sexualorientation, health, race, nationality,political opinions, religion or any othercriteria interfering with the fundamentalrights and freedoms of individuals.

Quality of ServicesWe aim to satisfy and protect ourcontractual counterparts, whileholding in high regard any requestwhich is likely to improve the quality ofthe services and products supplied.

Environmental ProtectionThe environment is our main assetand we must protect it.

Consistent with this principle, theplanning of MOGs activities looksforward to striking the right balancebetween the commercial activities ofthe Company and the protection of

the environment in which we work.

Renouncing Bribery and CorruptionWe have implemented an Anti-BriberyPolicy and we are committed to reportingany corruption that we encounter duringour dealings with others.

Protecting People and the EnvironmentThe Company has a firm policy ofadhering to strict industry standardsrelating to the protection of people andthe environment. We have implementedHealth, Safety and Environment (HSE)management systems and policies that

govern our expectations.

Industry practices to operate safelyand to protect the environment haveevolved significantly in the past fewdecades. Improvements in technologyenable us to conduct many aspects of

our operations far more efficiently thanjust a decade ago. This efficiencytranslates to smaller footprints (theamount of surface area disturbed),less waste generated, cleaner andsafer operations, and greatercompatibility with the environment.

Oil and gas companies have developedand implemented sophisticatedmanagement systems that spell out theprocedures that are required byemployees and contractors to operatesafely and to protect the environment.These management systems have beenextended to include social responsibilityand ethical considerations. TheCompany pursues a policy of sustainabledevelopment to balance economic,environmental, and social challenges.

The industry has shown repeatedly thatenergy production and environmentalprotection are not mutually exclusive.The industry can produce the oil andgas needed to give consumers thefreedom and mobility they demand,the warmth and light needed tosurvive, and still preserve the naturalbeauty of the environment. We arecommitted to contributing to this goalthroughout our operations.

We have had two incidents in ourhistory, both of which have beeninjuries that required time off work. Ourmost recent injury was a slip, trip andfall incident in the first half of 2012.

Safe and Reliable Operations

Safe and reliable operations are keyto protecting people and theenvironment as well as producingreliable energy for our customers.

We use our management structure,operational procedures andcommitment to the training anddevelopment of our employees toensure the highest standards ofoperations across our businesses.

Key areas of focus:> Meeting or exceeding customers

expectations

> Implementing and adhering toStandard Operating Procedures> Developing and disseminating our

risk management plans

> Achieving full certification for allregulated equipment andemployee training


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Financialstatements

3. Mr. Sergio MorandiChief Operating OfficerSergio Morandi was Chief Executive Officerof the Company from late 2007 to May 2011.He has over 30 years experience in oil & gasgeophysics, exploration, development,production, operations and E&P businessmanagement. He has worked at ENI,Coparex, ELF, Enterprise Oil, Shell Italia E&Pand Shell International E&P. From 1997 to2003, he was Professor of Applied Seismologyat Basillicata University in Italy and since 2002he is a Board Member of the Italian NationalUpstream Association (AssociazioneMineraria Italiana). Sergio holds a First ClassHonor Degree in Geological Science fromthe University of Rome and is a registeredGeologist in Italy.

4. Mr. Chris KelsallFinance DirectorChris Kelsall, appointed as Finance Directorof Mediterranean Oil & Gas Plc in July 2009,has 23 years commercial and corporateexperience, which includes 14 years infinancial services, advising clients in relationto capital markets, privatisation andcorporate finance projects in Sydney,

London and Hong Kong. Prior to joiningMediterranean Oil & Gas Plc he was aDirector, Equity Capital Markets at DeutscheBank. He spent 1991 to 1994 working as acorporate/commercial solicitor in Perth andSydney. Mr Kelsall holds a Masters in Financefrom London Business School, and degreesin Economics and Law from the University ofWestern Australia. In addition, he holds aGraduate Diploma in Applied Finance andInvestment from the Securities Instituteof Australia.

5. Dr. Peter JacksonNon-Executive DirectorPeter Jackson is currently Vice President

Upstream Research at IHS CERA and hasover 30 years of geoscience, operational,asset management, strategic planning,research and consulting experiencecovering many of the worlds keyhydrocarbon producing areas. Prior tojoining IHS CERA Peter Jackson spent22 years working in the internationalexploration and production sector, initiallywith Britoil plc, and then 16 years withEnterprise Oil plc where his roles includedVP of Exploration & Production, and thenPresident, for Enterprise Oil USA, ChiefGeologist in London, and ExplorationManager in Italy. Dr. Jackson holds a BScwith Honours in Geology from St AndrewsUniversity and a PhD from Edinburgh

University.

1. Mr. Keith HenryNon-Executive ChairmanKeith Henry, appointed as Chairman ofMediterranean Oil & Gas Plc in January 2012,has a wealth of experience gained duringmore than 35 years in the development,design, construction and management ofprojects and major companies in the oil andgas, power and service industries. During thisperiod he was Chief Executive of NationalPower plc, a FTSE 100 company, Brown &Root Limited, and Kvaerner Engineering &Construction Limited. As a non-executivedirector within the oil and gas sector, Keithhas held the roles of Chairman of BurrenEnergy plc, director of First CalgaryPetroleums Limited, senior independentdirector of Emerald Energy plc, DeputyChairman of Petroleum Geo-Services ASA,Chairman of Petrojarl ASA, and a director ofEnterprise Oil plc. Outside of the oil and gassector, Keith has held a number of other non-executive roles, including Chairman of HeliusEnergy plc, director of South East Water Ltd,and Deputy Chairman of Aegis DefenceServices Limited. Keith is currently theChairman of Regal Petroleum plc, theChairman of Greenko Group Plc, the senior

independent director of Sterling Energy plc,and a non-executive director of HPR HoldingsLimited. A BSc graduate from the University ofLondon and holding a MSc from BirminghamUniversity, Keith is a Fellow of the Institution ofCivil Engineers, and a Fellow of the RoyalAcademy of Engineering.

2. Dr. Bill HiggsChief ExecutiveBill Higgs has over 25 years of globalexploration, development and operationsexperience working with Chevron. Prior tojoining Mediterranean Oil and Gas Plc he wasSenior Vice President of Operations for SaudiArabian Chevron (SAC) in Saudi Arabia/Kuwait. In his role Bill was the senior operationsrepresentative for SAC that, jointly with KuwaitGulf Oil Company, operates exploration,development and production activities for theonshore Partitioned Zone shared by theKingdom of Saudi Arabia and Kuwait. Prior tothis, Bill was Chief Strategist for ChevronCorporation and the secretary of theCorporate Strategy and Planning Committee,where he facilitated strategic dialogue andstrategy setting with Chevrons executiveleaders. Bills previous roles at Chevroninclude Manager of Reservoir Managementfor Tengizchevroil in Kazakhstan, AssetManager for the BBLT development in Angola,Business Development and PlanningManager for Sasol Chevron in Australia,

Geology Manager for WAPET Exploration inAustralia, senior researcher for Chevronsresearch company in California, and leadexploration and development geologist forChevron UK. Bill is a BSc graduate inGeological Science from the University ofLeeds and holds a PhD in Structural Geologyfrom the University of Wales.

6. Mr. Enrico TestaNon-Executive DirectorEnrico Testa has an extensive background inthe energy markets and served as theChairman of the Board of Enel S.p.A., theleading energy provider in Italy, from 1996to 2002. Mr. Testa is presently the Chairmanof the Board of Telit Communications Plc;Chairman of Assoelettrica the ItalianAssociation of Electricity Companies; aVice-Chairman of Idea Capital Fund SGRS.p.A.; and a Director of Cadogan PetroleumPlc. From 2003 to March 2012, he was aDirector of Allianz S.p.A. and from 2004 toAugust 2012, he was Managing Director ofRothschild Italia S.p.A. He was also Chairmanof the Organising Committee for the20th World Energy Congress held in Romein November 2007, from 2002 to 2005, amember of the Advisory Board of CarlyleEurope and Chairman of the Italian NuclearForum, from 2010 to 2011. From 2005 to 2009,Mr. Testa was Chairman of RomaMetropolitane, the Rome council ownedcompany constructing new undergroundlines. Mr. Testa was National Secretary andPresident of the Italian environmentalorganisation Legambiente from 1980 to 1987

and a representative in the Italian Chamberof Deputies from 1987 to 1994.


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Mr. Athar AkramGroup Financial ControllerAthar Akram is a UK CharteredAccountant with more than 30 yearsexperience gained internationally inthe energy sector with BP. He hasexpertise in transactional (M&A)financial due diligence, negotiationsand contacts, integration and changemanagement including systemimplementations, accounting,reporting and control, and treasury.

Ms. Floriana BruciaHead of Accounting and FinanceFloriana Brucia has over 23 yearsexperience in the international oil andgas business. She has worked forvarious E&P companies which includeLasmo UK and Lasmo Mineraria SpaItaly, Forest Oil (USA), Cygam EnergyItalia (CYGAM Group Canada),Grove Energy (Stratic Energy Group UK) covering various roles inaccounting and finance, reportingand managing onshore and offshore

joint venture operations. She holds amasters diploma in accounting,marketing and communicationscience.

Mr. Paolo CarugnoPhoenicia Country Manager andMelita Exploration General ManagerPaolo Carugno is a geologist and

joined Mediterranean Oil & Gas Plcfrom ENI, where he worked forapproximately 28 years in oil and gasexploration and production activities.He has extensive experience as an

exploration geologist in Italy, theMediterranean basin, Africa and in theCaspian region. While at ENI, he heldseveral positions and in particular, wasnew venture and exploration projectmanager in Egypt and coordinator ofthe reserves validation team ofworldwide exploration discoveries.From June 2013, Paolo was secondedto Phoenicia Energy Company Ltd, inMalta, as Country Manager and toMelita Exploration Company Ltd (100%owned subsidiary of Mediterranean Oil& Gas plc), as General Manager.

Mr. Lorenzo LippariniExploration and Reservoir ManagerLorenzo Lipparini has over 17 years ofinternational experience in oil and gasexploration and production activities,focused on exploration, geophysicaldisciplines, seismic interpretation andreservoir characterisation. He hasworked with ENI in Italy, Gabon,Indonesia and in the USA. Hecommenced employment atMediterranean Oil & Gas Plc in 2007.He holds a masters degree in Geologyand is the author of severalpublications and presentations givenat international conferences.

Mr. Gian Paolo MusuProduction and Development TeamManagerGian Paolo Musu is a PetroleumEngineer with 10 years previousexperience working on international oiland gas business projects with TotalE&P. He has particular experience infield operations, maintenance,inspection, supply chainmanagement, oil and gas treatmentfacilities till downstream and EPCproject management.

Mr. Antonello RubinoHead of Health, Safety and theEnvironmentAntonello Rubino is an EnvironmentalEngineer with more than 10 yearsexperience working in HSE. He hasparticular expertise on hazardrecognition and assessment,emergency procedures, hydrogen

sulphide emissions, gas detection,personal protection equipment,transportation and management ofhazardous wastes and the conduct ofHSE compliance audits and reporting.Antonello previously worked for twoyears with Saipem (ENI Group) as theHSE supervisor, both for onshore andoffshore hydrocarbon E&P projects.

Ms. Cinzia SalemmeCommercial and ManagementControl CoordinatorPrior to joining Mediterranean Oil &Gas Plc in 2008, Cinzia Salemme had15 years broad industry experience infinancial and commercial analysis,strategic business support andfinancial control. She is currentlyresponsible for the negotiation ofcommercial contracts, including theGroups gas sales agreements. Cinziaholds a diploma in accounting, fromthe Vittorio Veneto CommercialTechnical Institute and a master inContract Administration from LUISSGuido Carli.

Senior management


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Companyoverview

Businessreview

Governance

Financialstatements

Corporate governance report

Companies on the AIM Market of the London StockExchange are not required to comply with the 2012 UKCorporate Governance Code (the Code) and due to itssize, the Company does not seek to comply in full with theCode. While the Company is not required to present aCorporate Governance Statement, as it is not subject to theListing rules of the Financial Conduct Authority, it hasdisclosed here certain information in respect ofCorporate Governance.

The Directors support high standards of corporategovernance. The Company has identified areas of the

Code it considers relevant to the current size and natureof its operations and these are set out below.

Board of DirectorsThe Company has appointed three Non-Executive Directors(including the Companys Chairman) with relevant sectorexperience to complement the three Executive Directorsand to provide an independent v iew to the Board. Thecomposition of the Board ensures that no one individual orgroup dominates the decision-making process.

The Board is responsible to the shareholders for setting thedirection of the Company through the establishment ofstrategic objectives and key policies. The Board meets ona regular basis and considers issues of strategic direction,

approves major capital expenditure, appoints and monitorssenior management and any other matters having amaterial effect on the Company.

The Board receives regular detailed financial andoperational reports from senior management to enable it tocarry out its duties. Each Director is entitled to independentprofessional advice at the Companys expense providedthat the prior approval of the Chairman is obtained. AllDirectors have unrestricted access to management and tosuch Company information as is needed to carry out theirdut

medoil annual report 31 december 2013

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