Caspian Sunrise Regulatory News (CASP)

For immediate release 20 May 2011

Roxi Petroleum plc

("Roxi" or "the Company")

Roxi Petroleum plc, the Central Asian oil and gas company with a focus on Kazakhstan, announces its preliminary results for the year ended 31 December 2010.

Financial Highlights

2010

·; US$57 million BNG farm-out with Canamens

·; US$20 million advance received in respect of the US$50 million Galaz farm-out with LGI

·; US$13 million purchase consideration received from LGI for 40% interest in Galaz LLP

·; US$8 million short-term convertible loans from Altius repaid without conversion

·; US$8 million loan from Kuat Oraziman repaid

2011 to date

·; Completion of US$50 million Galaz farm-out with LGI

·; Cancellation of deal with Canamens resulting in return of 35% effective interest in BNG LLP to Roxi

·; US$23.6 million of loans previously due to Canamens being novated to Roxi in exchange for 1.5% royalty payable by Roxi to Canamens based on future production from BNG LLP

·; New loan facility received for US$6 million from Vertom International NV

Operational Highlights

2010

·; Roxi entered into a sale agreement for its 30% interest in the Ravninnoe Contract Area for US$2.6 million

·; 895km2 of 3D seismic acquired on BNG (a further 46% of Contract Area)

·; South Yelemes wells 805 and 806 successfully drilled

·; 226 barrels per day tested from the Jurassic reservoir in South Yelemes well 805

·; New reserves and production established in Lower Cretaceous reservoir of well 805

·; Pilot production licenses awarded for N.W. Konys and South Yelemes

2011 to date

·; Extension of license area of Galaz granted

·; NW Konys (Galaz) license extended of 2 years to May 2013

·; Nearing completion of interpretation of seismic data collected at the BNG Contract Area

Summary of Operations

Roxi held interest in five SubSoil User Contracts in Western and Central Kazakhstan in 2010. The following table summarises the Company's Interests at end of the year.

During 2010 the Group sold its interest in Ravninnoe Oil LLP to Beimar Oil LLP which is expected to be completed in 2011.

Chief Executive , David Wilkes commented :

" We continue to look forward with confidence as both of our core assets move closer to production in 2011, bringing much more stability to Roxi's operations and at the same time we aim to seek out a new partner for the future development of BNG."

Enquiries

Roxi Petroleum plc David Wilkes CEO+7 727 244 0920

Matrix Corporate Capital LLP (NOMAD and broker)Stephen Mischler/ Ed Cozens+44 203 206 7000

Buchanan Communications (Financial PR)Tim Thompson / Ben Romney/ Jonathan Rivlin+44 207 466 5000

Chairman's Statement

For the year ended 31 December 2010 and the first few months of 2011, I have to report both some strong progress and some setbacks.

Galaz

On the positive side, we recently completed the much anticipated farm-out of part of our interest at Galaz to LGI, the Korean multi-national Corporation. The funds released both to develop the Galaz asset and for Roxi day to day use were well timed.

Development work is expected to commence in earnest at Galaz in the second quarter of 2011 following the receipt of a final clearance under the new Kazakh environmental law. We believe that this should allow production to commence by October 2011.

BNG Seismic evaluation

Also on the positive side we have almost completed the interpretation of the seismic data collected at the BNG Contract Area ("BNG") over the past couple of years. This is being evaluated by our external consultants, Gaffney, Cline and Associates Ltd, the results of which should be announced during the second quarter 2011.

Drilling results at BNG

Our drilling activity on South Yelemes has resulted in some positive oil shows from the first three wells drilled there in 2010, for which we received notification of our pilot production license in December 2010.

On the negative side in February 2011 on the North Yelemes, one of our smaller prospects on BNG, we announced that, based on wire logging, there were no zones of commercial interest at Well 135 and that it would be plugged and abandoned. This was clearly a disappointment having drilled to a depth of almost 3,000 metres but the exercise provided a considerable amount of information which we believe will assist in our further development of this area.

Canamens

In March 2011 we announced that Canamens BNG BV ("Canamens"), our farm-out partner at BNG and before that at Ravninnoe, had informed us that they would not be making the final payments due under the farm-out arrangements approved by Roxi shareholders in November 2009. These amount to some $12 million.

We had been aware for some time that the principal shareholders in Canamens were conducting a strategic review of Canamen's investments and future commitments. While we thought that Canamens's shareholders may not wish Canamens to fund the development of the BNG asset following the end of the arrangements entered into in November 2009, we were surprised they have decided not to pay the amounts set out in the agreement signed at that time.

Under the terms of the farm-out agreement the failure by Canamens to make these payments results in the forfeiture of 6.23 percent of BNG LLP, the entity owning the rights to BNG. Accordingly Roxi's interest in BNG LLP would have increased from 23.41 per cent to 29.64 percent and Canamens would have fallen from 35 percent to 28.77 percent.

In the short term Canamens' decision not to advance the funds for the development of BNG has had little operational impact as much of the seismic acquisition and processing work has been completed and as mentioned above the publication of an audited portfolio of BNG prospectivity is expected in the second quarter of 2011.

On 10 May 2011, we announced that we had agreed with Canamens to cancel the original BNG farm-out. Accordingly Roxi will own 58.41 percent at the BNG Contract Area. Additionally Canamens have agreed to novate its loans from BNG Ltd LLP to Roxi, other than US$ 2.5 million which will be repaid by BNG Ltd LLP, in return for Roxi granting a 1.5 percent royalty on its gross value of future production from the BNG Contract Area. I am delighted to report that as well as regaining majority control of this asset Roxi has resumed operational and financial control of all development operations at the BNG Contract Area.

The significance of this for Roxi, is that BNG Energy BV can now seek a new farm out partner by farming out an interest in BNG LLP in exchange for the new partner providing additional funding into the operating asset. This will allow for the BNG to explore some of the deeper horizons identified from recently performed 3D seismic work carried out across the license area. Roxi will also now be entitled to US$23.6 million of loans that were previously due to Canamens, representing their share of historical funding provided to the BNG asset, which have now been novated to Roxi as part of the deal.

Management

As previously reported during the year under review we strengthened the board by the appointment in February 2010 of Edmund Limerick, as a non executive director and in June 2010 of Hyunsik Jang, as Chief Operating Officer. I am pleased to report that they are making a strong contribution to the running of the company and that in David Wilkes we have a very competent Chief Executive well equipped to lead us through some potentially challenging times.

Kazakhstan

During the period under review there have been important changes to both the subsoil and taxation legislation. In addition there have been changes in the senior personnel at some of the regulatory authorities with which we deal. Inevitably, such a scale of change has resulted in delays in receiving regulatory approvals and consequently, our operations.

What has been pleasing is the way in which our team has responded to these challenges. I believe this is a direct result of our policy of employing principally Kazakh nationals and of working with our Kazakh partners to develop our assets. We continue to maintain good relations with both our local partners and the local authorities; this remains core strength of our business.

Employees

Once again I would like to thank all of our employees for their continued hard work. It is never easy working for a company such as ours in difficult times. The progress that has been made is principally the result of their sustained efforts in uncertain times.

Outlook

Now we have concluded an acceptable exit from the current arrangements with Canamens on BNG, we look forward to developing our principal assets to move both into production later in 2011.

Clive Carver

Chairman

19 May 2011

Chief Executive's Statement

I am very pleased to be able to present my second report as Chief Executive Officer.

Update

In summary, I would say that we have consolidated our position during 2010 and have made steady progress in moving the development of our core assets forward. At the same time we have de-risked our portfolio by moving away from those non-core assets that presented higher risked returns at higher costs than we could realistically afford.

We faced some challenges with delays in obtaining the necessary licenses to move our core asset's operations forward during the year, particularly for Galaz, due to the re-organization at the Government's Ministries that occurred part way through the year, which added to the normal timeframe for obtaining the necessary approvals to progress our projects. We also more recently were informed by our partner Canamens that they decided not to provide all of the funding under their agreement to acquire an interest in BNG LLP. This presents us with some short term challenges in meeting our immediate cash obligations which will be met through an additional financing arrangement that we have now agreed with Vertom International NV via a new loan facility of US$ 6 million.

As well as the new financing arrangement that we have put in place with Vertom, we have also recently agreed with Canamens to cancel the sale of the 35% interest in BNG. This was considered to be in the best interests of both parties and will allow Roxi to seek alternate financing solutions for the continued development of the BNG asset. Canamens also agreed to novate their loans back to Roxi Plc in return for Roxi agreeing to pay to Canamens a form of royalty payment based on future production achieved from BNG LLP. All of these arrangements will ensure that we are able to achieve our aim to further develop the potential from the BNG asset and at the same time clear the way for a new financing solution to be put in place for BNG.

We also recently received final approvals for the extension of the NW Konys license area as well as the exploration license itself has been approved and extended for a further two years as well as the pilot production license being awarded to us, so we are well placed together with our new farm-out partner LGI, to move this asset to production later this year. We are in a similar position on BNG with our pilot production license on South Yelemes recently being awarded to us. Our plan is to move both assets to pilot production, as soon as the emissions licenses have been granted to us by the Ministry of Oil and Gas.

We are still waiting for final approval and completion for the sale of our interest in Ravninnoe and expect that this will complete during 2011. In respect of the sale of Munaily, we are currently re-negotiating the sale to BTC which when first negotiated, wanted to acquire 59% of Munaily. We are now looking to sell our entire interest in this asset and are re-negotiating our terms with the buyer. The Group's remaining focus will be on Beibars where we plan to farm-out part of our interest to an investor willing to fund the drilling of exploratory wells that will enable us to assess the potential of this asset.

We continue to maintain our focus on cost reduction initiatives and are currently reviewing the possible restructuring of our holding companies structure in 2011. This will enable a much more efficient and transparent legal structure going forward and should enable further cost reductions to be achieved in addition to those put in place in 2010.

Strategy

Our strategy in the near-term remains committed to funding new farm-out partners for BNG and Beibars as well as achieving production from BNG and Galaz, which are now close to achieving pilot production, with oil discoveries having already been made on both assets and with the majority of the licensing and associated permits now in place to start pilot production in the latter part of 2011. This will allow us to develop Galaz and move onto exploration of deeper horizons in BNG where we believe much greater potential can be exploited based on the results from our recent 3D seismic work completed.

As we move to pilot production from our two core assets we will also look for further acquisitions into producing assets in Kazakhstan.

Financing Arrangements

The completion of the previously announced LG deal in January 2011 provided not only the funding necessary for the further development of the NW Konys field but also funds that helped Roxi repay some of its short term loans as well as much needed additional short-term financing for Roxi's fixed costs going forward.

In terms of the financing of BNG, now that we have cancelled the deal with Canamens this will allow us to find an alternative financing solution for the BNG project. This will remain a priority in the near term to enable us to fund the exploration and development of the BNG operations going forward.

Financial Highlights

The Consolidated Income Statement still reflects the fact that we have historically been an exploration company with no commercial production to date. The results for the year were impacted by the impairment of our Ravninnoe asset after our decision to sell our Ravninnoe interest. Additionally the partial disposal of our interest in BNG to Canamens released some of the unrealized currency translation losses that had been capitalized prior to the devaluation of the national currency.

The advances received from the LGI deal which completed in January 2011 enabled us to repay some of our loans to shareholders that fell due during the course of 2010. This was important to protect shareholder value and prevent the possibility of further dilution of the shareholder interests in Roxi. At the same time the proceeds from the disposal of the 40% interest in Galaz and Company LLP, provided useful cash injection into the Group that will sustain us whilst we prepare for pilot production from our two core assets in the latter part of 2011. These factors, together with the cost reduction initiatives put in place during 2010, will mean that we are in a much better position to finance our transition to production and cashflows than in the past and have managed to convert some of our historical short term financing arrangements to longer term debt with our partners that will be repaid out of initial production from our assets.

Infrastructure

Roxi's activities are run out of our principal office in Almaty.

Staffing

The Roxi Group now employs in total 86 staff, all of whom are based in Kazakhstan. We have 62 in Almaty and 24 in the regional and field offices. Of these employees 9 are technical staff, 17 are financial staff, 14 are operational staff and 46 fulfil other activities. 79 of our staff are Kazakh nationals.

Changes to the board and executive management team have been summarized in the chairman's report. 

Social Programmes

Under Kazakh regulations part of our obligations under various work programmes on the assets in which we have interest are paid in the form of contributions to local social programmes. In 2010 Roxi made significant contributions to:

·; Kyzylorda region social fund $ 211,500 (Galaz)

·; Mangistau regional social obligation fund $ 625,000 (BNG).

These contributions, while mandatory, help secure the good standing of the Company with the local regional authorities and with centrally based regulators. Roxi is pleased to have assisted in the developments of these projects.

Environmental

No significant environmental issues have surfaced at any of the properties acquired to date. Compliance with environmental regulatory bodies is being managed from both the Kyzyl-Orda and Almaty offices.

Kazakhstan

Kazakhstan continues to develop and is constantly improving its legal framework and tax legislation to achieve the right balance between the need to encourage new investment into Kazakhstan and existing companies who operate business in Kazakhstan and the State. Operating in Kazakhstan in such times of evolution can from time to time present challenges.

As a Kazakh based operation, with a majority of Asian investors we believe we are ideally placed to deal with any issues as they arise and see, in the medium term, some of the difficulties being encountered by other less integrated international companies as an opportunity for growth.

Outlook

We look forward with confidence as both of our core assets move closer to production in 2011, bringing much more stability to Roxi's operations going forward. We will continue to be challenged with finding the right financing solutions for the exploration of some of the deeper prospects on BNG, however, we believe that with this in place, together with the ongoing development of the NW Konys field, the transformation process for Roxi will be complete, moving us from an exploration company to an oil producer and ultimately realizing value for our shareholders.

David Wilkes

Chief Executive Officer

19 May 2011

All of the results of the Group during the year relate to continuing activities.

No interim or final dividend has been paid or proposed during the year.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

* Reallocation - reallocation arises as a result of the Company assuming certain costs on behalf of the minority interests.

** Forfeited warrants-arises as a result of the Company's expired warrants during 2010, see note 29

***Purchase of additional share in subsidiary-see note 14

Parent Company Statement of Changes in Equity

These financial statements were approved and authorised for issue by the board of Directors on 19 May 2011 and were signed on its behalf by:

Clive Carver David Wilkes

Chairman of the Board Chief Executive Officer

There were no significant non-cash transactions during the year except as disclosed in note 25 (change in estimates).

Notes to the Financial Statements

General

Roxi Petroleum Plc ("the Company") is a public company incorporated and domiciled in England and Wales. The address of its registered office is 21 John Street, London, WC1N 2BP. These consolidated financial statements were authorised for issue by the Board of Directors on 19 May 2011.

The principle activities of the Group are exploration and production of crude oil.

1 Principal accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

1.1 Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on a going concern basis based upon projected future cash flows and planned work programmes.

On 26 April 2011 the Group entered into a binding unsecured loan agreement with one of its related parties, Vertom International NV, for up to US$6,000,000 (see Note 32.7). In the opinion of the Directors this will cover the working capital needs until pilot production from South Yelemes commences. From this point operations will be cash generative.

In the longer term the Company will need to secure a farm in partner to fund the ongoing work programme on BNG, for which the major part of this is expected to arise in 2013 when the Group drills the deeper horizons identified from the recent seismic work undertaken on the license area.

The Company has taken advantage of section 408 of the Companies Act 2006 and has not included its own income statement in these financial statements. The Group loss for the year included a loss on ordinary activities after tax of US$26,637,000 in respect of the Company which is dealt with in the financial statements of the parent company.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed in note 2.

1.2 Accounting standards issued but not adopted

The IFRS financial information has been drawn up on the basis of accounting policies consistent with those applied in the financial statements for the year to 31 December 2009. The following standards, interpretations and amendments to existing standards have been adopted for the first time in 2010:

International Accounting Standards (IAS/IFRS)

International Financial Reporting Interpretations (IFRIC)

The adoption of these standards, interpretations and amendments did not affect the Company results of operations or financial positions. The presentation of these financial statements incorporates changes arising from adoption of these standards, interpretations and amendments

The IASB and IFRIC have issued the following standards and interpretations which are effective for reporting periods beginning after the date of these financial statements, and which the Group is not early adopting:

The Group has not yet assessed the impact of IFRS 9. Except for the amended disclosure requirements of IAS 24 (the above revised standards), amendments and interpretations are not expected to materially affect the Group's reporting or reported numbers.

* Not yet endorsed by European Union.

1.3 Basis of consolidation

Subsidiary undertakings are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The purchase method of accounting is used to account for the acquisition of subsidiary undertakings by the Group. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

Where the Group holds interests in a number of jointly controlled entities, it accounts for its interests using proportionate consolidation. The share of each of the jointly controlled entity's assets, liabilities, income and expenses are combined on a line-by-line basis with those of the Group. The results of joint ventures are included from the effective dates of acquisition and up to the effective dates of disposal.

Profits and losses arising on transactions between the Group and jointly controlled entities are recognised only to the extent of unrelated investors' interests in the entity. The investor's share in the jointly controlled entity's profits and losses resulting from these transactions is eliminated against the asset or liability of the jointly controlled entity arising on the transaction.

The Group includes the assets it controls, its share of any income and the liabilities and expenses of jointly controlled operations and jointly controlled assets in accordance with the terms of the underlying contractual arrangement.

1.4 Operating Loss

Operating loss is stated after crediting all operating income and charging all operating expenses, but before crediting or charging the financial income or expenses.

1.5 Foreign currency translation

1.5.1 Functional and presentational currencies

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentational currency, unless otherwise stated. RS Munai LLP, Beibars Munai LLP, Munaily Kazakhstan LLP, Galaz and Company LLP, Roxi Petroleum Services LLP and Roxi Petroleum Kazakhstan LLP, subsidiary undertakings of the group and Ravninnoe Oil LLP and BNG Ltd LLP being jointly controlled entities, undertake their activities in Kazakhstan and the Kazakh Tenge is the functional currency of these entities. The functional currency for the Company, RS Munai BV, Beibars BV, Ravninnoe BV, Galaz Energy BV and BNG Energy BV is USD as the significant transactions and assets and liabilities of these companies are in USD.

1.5.2 Transactions and balances in foreign currencies

In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency ("foreign currencies") are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items, including the parent's share capital, that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise.

1.5.3 Consolidation

For the purpose of consolidation all assets and liabilities of Group entities with a foreign functional currency are translated at the rate prevailing at the balance sheet date. The income statement is translated at the exchange rates approximating to those ruling when transaction took place. Exchange difference arising on retranslating the opening net assets from the opening rate and results of operations from the average rate are recognised directly in equity (the "cumulative translation reserve").

1.6 Current tax

Current tax is based on taxable profit for the year. Taxable profit differs from 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.

1.7 Deferred tax

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets and current tax losses have not been recognised since it is uncertain that taxable profits will be available against which deductible temporary differences can be utilised.

1.8 Unproven oil and gas assets

The Group applies the full cost method of accounting for exploration and unproven asset costs, having regard to the requirements of IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Under the full cost method of accounting, costs of exploring for and evaluating oil and gas properties are accumulated and capitalised by reference to appropriate cost pools. Such cost pools are based on license areas. The Group currently has five cost pools.

Exploration and evaluation costs are initially capitalised within 'Intangible assets'. Such exploration and evaluation costs may include costs of licence acquisition, technical services and studies, seismic acquisition, exploration drilling and testing, but do not include costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the income statement as they are incurred.

Tangible assets acquired for use in exploration and evaluation activities are classified as property, plant and equipment. However, to the extent that such a tangible asset is consumed in developing an intangible exploration and evaluation asset, the amount reflecting that consumption is recorded as part of the cost of the intangible asset.

The amounts included within unproven oil and gas assets include the fair value that was paid for the acquisition of partnerships holding subsoil use in Kazakhstan. These licences have been capitalised to the Group's full cost pool in respect of each license area.

Exploration and unproven intangible assets related to each exploration licence/prospect are not amortised but are carried forward until the existence (or otherwise) of commercial reserves has been determined.

Exploration and unproven intangible assets are reviewed for impairments if events or changes in circumstances indicate that the carrying amount may not be recoverable and as at the balance sheet date. Intangible exploration and evaluation assets that relate to exploration and evaluation activities that are not yet determined to have resulted in the discovery of the commercial reserve remain capitalised as intangible exploration and evaluation assets at cost less accumulated amortisation, subject to meeting a pool-wide impairment test as set out below.

Such indicators include the point at which a determination is made as to whether or not commercial reserves exist. Where the exploration and evaluation assets concerned fall within the scope of an established full cost pool, the exploration and evaluation assets 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 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 the commercial reserves. Where the exploration and evaluation assets to be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and the exploration and evaluation assets concerned will generally be written off in full. Any impairment loss is recognised in the income statement as an impairment and separately disclosed.

If commercial reserves have been discovered, the related exploration and evaluation 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 exploration and evaluation assets is then reclassified as development and production assets within property, plant and equipment. Development and production assets are amortised on a unit of production basis over the life of the commercial reserves of the pool to which they relate.

1.9 Abandonment

Provision is made for the present value of the future cost of the decommissioning of oil wells and related facilities. This provision is recognised when the asset is installed. The estimated costs, based on engineering cost levels prevailing at the balance sheet date, are computed on the basis of the latest assumptions as to the scope and method of decommissioning. The corresponding amount is capitalised as a part of tangible fixed assets and is amortised on a unit-of-production basis as part of the depreciation, depletion and amortisation charge. Any adjustment arising from the reassessment of estimated cost of decommissioning is capitalised, while the charge arising from the unwinding of the discount applied to the decommissioning provision is treated as a component of the interest charge.

1.10 Restricted use cash

Restricted use cash is the amount set aside by the Group for the purpose of creating an abandonment fund to cover the future cost of the decommissioning of oil and gas wells and related facilities and in accordance with local legal rulings. 

Under SSUC contract the Group must place 1% of the value of exploration costs in an escrow deposit account. At the end of the contract this cash will be used to return the field to the condition that it was in before exploration started.

1.11 Property, plant and equipment

All property, plant and equipment assets are stated at cost or fair value on acquisition less depreciation. Depreciation is provided on a straight-line basis, at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life. Expected useful economic life and residual values are reviewed annually.

The annual rates of depreciation for class of property, plant and equipment are as follows:

- motor vehicles over 7 years

- buildings over 10 years

- other over 2-4 years

The Group assesses at each balance sheet date whether there is any indication that any of its property, plant and equipment has been impaired. If such an indication exists, the asset's recoverable amount is estimated and compared to its carrying value.

1.12 Investments (Company)

Non-current asset investments in subsidiary and associate undertakings are shown at cost less allowance for impairment. The cost of acquisition includes directly attributable professional fees and other expenses incurred in connection with the acquisition.

1.13 Financial instruments

The Group classifies financial instruments, or their component parts on initial recognition, as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual agreement.

The Group's financial assets consist of cash, available for sale financial assets and other receivables. Cash and cash equivalents are defined as short term cash deposits which comprise cash on deposit with an original maturity of less than 3 months. Other receivables are initially measured at fair value and subsequently at amortised cost.

The Group's financial liabilities are non-interest bearing trade and other payables, other interest bearing borrowings and warrants. Non-interest bearing trade and other payables and other interest bearing borrowings are stated initially at fair value and subsequently at amortised cost. Warrants are recognised on a fair value through the profit or loss basis.

There are long-term loans between Group entities and from related parties which bear interest at a rate lower than that which the directors consider the Group would bear if the facility had been granted by a third party. Such borrowings are recognised initially at fair value, net of transaction costs incurred, and are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fair value is calculated by discounting the non-current borrowings and receivables using a market rate of interest.

Financial instruments are recognised on the balance sheet at fair value when the group becomes a party to the contractual provisions of the instrument.

1.14 Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. 

1.15 Other provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

1.16 Share capital

Ordinary and deferred shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

1.17 Share-based payments

The Group has used shares and share options as consideration for goods and services received from suppliers and employees. 

Equity-settled share-based payments to employees and others providing similar services are measured at fair value at the date of grant. The fair value determined at the grant date of such an equity-settled share-based instrument is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest.

Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably or excess fair value of the identifiable goods or services received, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. The fair value determined at the grant date of such an equity-settled share-based instrument is expensed since the shares vest immediately. Where the services are related to the issue of shares, the fair values of these services are offset against share premium.

Fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

1.18 Warrants

The warrants are separated from the host contract as their risks and characteristics are not closely related to those of the host contracts. Due to the exercise price of the warrants being in a different currency to a functional currency of the Company, at each reporting date the warrants are valued at fair value with changes of fair value recognised in profit and loss as they arise. The warrants and host contracts are presented under separate heading on the balance sheet, the fair values of the warrants are calculated using Black-Scholes model.

1.19 GEM facility

The GEM facility is classified as an available for sale asset. The asset recognised relates to future economic benefits of the Group being able to obtain funding via share issue to GEM Global Yield Fund Limited at a 10 per cent discount of the market price for the last 15 trading days. This asset has been initially recognized at fair value and at each reporting date the available for sale asset is fair valued with changes of fair value recognised in profit or loss as they arise.

1.20 Revenue

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for oil and gas products provided in the normal course of business, net of discounts, VAT and other sales related taxes to third party customers. Revenues are recognised when the risks and rewards of ownership together with effective control are transferred to the customer and the amount of the revenue and associated costs incurred in respect of the relevant transaction can be reliably measured. Revenue is not recognised unless it is probable that the economic benefits associated with the sales transaction will flow to the Group. Revenues from test production are credited to the unproven oil and gas assets.

1.21 Cost of sales

During test production cost of sales cannot be reliably estimated and therefore a cost of sales equal to revenue is recognised.

1.22 Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments and making strategic decisions, has been identified as the Board of Directors. On this basis the Group has one segment, oil exploration in Kazakhstan.

1.23 Interest receivable

Interest income is recognised using the effective interest rate method.

1.24 Accounts not presented in sterling

For reference the year end exchange rate from sterling to US$ was 1.55 and the average rate during the year was 1.54.

2 Critical accounting estimates and judgements

In the process of applying the Group's accounting policies, which are described in note 1, management has made the following judgements and key assumptions that have the most significant effect on the amounts recognised in the financial statements.

2.1 Recoverability of exploration and evaluation costs

Under the full cost method of accounting for exploration and evaluation costs, such costs are capitalised as intangible assets by reference to appropriate cost pools, and are assessed for impairment on a concession basis when circumstances suggest that the carrying amount may exceed its recoverable value and, therefore, there is a potential risk of an impairment adjustment. This assessment involved judgment as to: (i) the likely future commerciality of the asset and when such commerciality should be determined; (ii) future revenues and costs pertaining to any concession based on proved plus probable, prospective and contingent resources; and (iii) the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value.

2.2 Income taxes

The Group has significant carried forward tax losses in several jurisdictions. Significant judgement is required in determining deferred tax assets based on an assessment of the probability that taxable profits will be available against which carried forward losses can be utilised.

Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income statement in the period in which such a determination is made.

2.3 Decommissioning

Provision has been in the accounts for future decommissioning costs to plug and abandon wells. The costs of provisions have been added to the value of the unproven oil and gas asset and will be depreciated on the unit of production basis. The decommissioning liability is be stated in the accounts at discounted present value and accreted up to the final liability by way of an annual finance charge.

The Group has potential decommissioning obligations in respect of its interests in Kazakhstan. The extent to which a provision is required in respect of these potential obligations depends, inter alia, on the legal requirements at the time of decommissioning, the cost and timing of any necessary decommissioning works, and the discount rate to be applied to such costs.

2.4 Share-based compensation

In order to calculate the charge for share-based compensation as required by IFRS2, the Group makes estimates principally relating to the assumptions used in its option-pricing model as set out in Note 28.

5 Group Auditor's remuneration

Net book value at 31 December 2010 76,298

Unproven oil and gas assets represent the acquisition cost and subsequent exploration activities in respect of five licenses held by Kazakh group entities. The carrying values of those assets at 31 December 2010 were as follows: Beibars Munai LLP US$ nil (2009: US$ nil), BNG Ltd LLP 23,41% share US$ 35,185,000 (2009 100% consolidated: US$133,959,000), Galaz and Company LLP US$ 41,113,000 (2009: US$37,393,000), Munaily Kazakhstan LLP US$ nil (2009: US$ 428,000) and Ravninnoe Oil LLP 30% share classified as assets held for sale US$ 7,595,000 (2009: US$ 15,828,000).

The directors have carried out an impairment review of these assets on a field by field basis. In carrying out this review the directors have taken into account the potential net present values of expected future cash flows and values implied by farm-in agreements / sale and purchase agreements ("SPA"s) entered into during the current year and following the year end. Due to the early stage of development of these assets, the directors consider the values implied by the SPAs to be the best indicator of value currently available. Accordingly where the value implied by these SPAs is below the net book value, a provision has been made to reduce the carrying value of that asset to the value implied by the relevant SPA.

As a result of military training activities the Group currently cannot access the Beibars license area which resulted in a force-majeure situation. Due to this ongoing force-majeure situation and the uncertainties surrounding the Beibars asset the Directors have made a full provision against this asset.

As a result of the impairment review, the Directors have made provisions of US $ 10,354,000 in respect of the Ravninnoe asset, with an offsetting release of deferred tax of US$1,494,000. In the prior year provisions totaling US$79,294,000 were made, comprising Ravninnoe (US$51,524,000), BNG (US$14,281,000), Beibars (US $11,882,000) and Munaily (US$1,607,000), with an offsetting release of deferred tax of US$11,066,000.

13. Investment (Company) continued

RS Munai LLP, Beibars Munai LLP, Munaily Kazakhstan LLP, Galaz and Company LLP have been classified as subsidiary undertakings rather than as joint ventures since in the opinion of the Directors the Company has operational control of these entities.

Ravninnoe Oil LLP and BNG Ltd LLP are jointly controlled by the Group and Canamens Energy BV and as a result, from 13 July 2009 and 11 January 2010 respectively they have been proportionately consolidated as a jointly controlled entity as disclosed in Note 17. Ravninnoe Oil LLP is classified as asset held for sale on 31 December 2010, see note 15.

15 Assets and liabilities classified as held for sale

In October 2010 the Company announced that it is going to sell its entire 30% interest in Ravninnoe Oil LLP to Beimar Oil LLP (a private company) for US$ 2.6 million. The sales and purchase agreement is subject to the receipt of certain waivers from regulatory authorities. After all necessary waivers are received, the Company will transfer its title to the Ravninnoe interest that is expected to occur in the nearest future. Following the completion of the sale the Company will have no further interest in Ravninnoe Oil LLP.

The assets and liabilities have been classified as held for sale in the consolidated statement of financial position. The following major classes of assets and liabilities relating to these operations have been classified as held for sale in the consolidated statement of financial position on 31 December 2010:

Materials and supplies are principally comprised of concrete slabs, goods and some tubing to be used in the exploration and development of the Group's oil and gas properties in Kazakhstan. All amounts are held at the lower of cost and net realisable value.

19 Other receivables