EXI.L Regulatory News (EXI)

Exillon Energy plc

Interim results for the first six months of 2015

28 August 2015 - Exillon Energy plc ("Exillon", the "Company" or the "Group") (EXI.LN), a London Premium listed independent oil producer with assets in two oil-rich regions of Russia, Timan-Pechora ("Exillon TP") and West Siberia ("Exillon WS"), today issues its interim results for the first six months to 30 June 2015.

Highlights

• Net profit decreased by 45% to US$13.2 million (US$23.8 million in H1 2014) 

• EBITDA decreased by 40% to US$30.4 million (US$50.7 million in H1 2014)

• EBITDA per barrel decreased by 35% to US$10.2 per barrel (US$15.6 per barrel in H1 2014)

• Production decreased by 7%, with the average production for H1 2015 equivalent to 16,643 bpd

Production 

Our oil production decreased by 7% from 3.22 million to 3.01 million barrels equivalent to a decrease from 17,801 bpd to 16,643 bpd compared to H1 2014, and 6% from 3.19 million to 3.01 million barrels equivalent to a decrease from 17,342 bpd to 16,643 bpd compared to H2 2014.

The decrease of production in Exillon TP was a consequence of waiting for oil wells fracturing treatment and waiting for workovers because of seasonal accessibility of oil wells. The decrease of production in Exillon WS related to the increased level of watercut in nine oil wells located close to oil-water boundary, waiting for fracturing treatment for newly completed oil wells and waiting for workovers because of seasonal accessibility of oil wells.

We publish monthly production data, and, therefore, have already announced details of our production for the period. For reference the monthly data published during the six month period is summarised below.

Dear Shareholders,

The first six months of 2015 were challenging for Exillon. The dramatic drop in global oil prices and significant Rouble depreciation during the last quarter of 2014, which continued in 2015, with continuous substantial volatility of oil prices prevented us from generating the recurring growth of financial results for the period.

Financial Position and Performance

The significant decline in global oil prices during the last quarter of 2014 onwards resulted in our revenue decreasing by 27% from US$148.2 million in H1 2014 to US$108.7 million in H1 2015. Our netback (which we define as revenue less mineral extraction tax, export duty and Transneft charges) reduced by 40% from US$75.6 million to US$45.4 million, despite the change in our sales mix. In H1 2014, 100% of crude oil was sold on the domestic market, while in H1 2015 46% of our revenue was derived from export sales. Our EBITDA decreased by 40% from US$50.7 million to US$30.4 million, with a net profit of US$13.2 million (compared to a net profit of US$23.8 million in H1 2014).

Our EBITDA after allocation of central costs was equal to US$10.2 per barrel compared to US$15.6 per barrel in H1 2014. A 35% decrease was driven by Rouble depreciation, which reduced US dollar equivalent of netback and EBITDA, and lower average prices achieved in H1 2015, reflecting the drastic drop in global oil prices. Expenses associated with export sales, such as export duty and Transneft transportation services, has also contributed to the reduction of netback and EBITDA. The negative effect of revenue decrease was partially offset by the simultaneous reduction of mineral extraction tax per barrel, and the decrease in other expenses nominated in Roubles, as a result of the significant depreciation of Rouble against US dollar in H1 2015 as compared to H1 2014. Another reason for the reduction of mineral extraction tax was oil prices decline, as the tax is linked to average global oil prices. Our EBITDA reached US$12.2 per barrel for the second quarter of 2015, which is a 44% increase in comparison to the first quarter of 2015 results.

In comparison to H2 2014, our EBITDA per barrel decreased by 11% from US$11.5 per barrel to US$10.2 per barrel. The reasons for the reduction are the same as the ones detailed above. However, the scale of the reduction is smaller, as the decline of oil prices and Rouble depreciation started in the last quarter of 2014 and the relevant effect had been already reflected in H2 2014 results.

79% of our oil production was from Exillon WS and 21% from Exillon TP. EBITDA per barrel on an operating level (before central costs) was US$10.7 per barrel in Exillon WS (2014: US$17.9 per barrel) and US$9.7 per barrel in Exillon TP (2014: US$13.1 per barrel).

Our financial position remains strong with US$59.2 million of cash and cash equivalents as at 30 June 2015. A term loan of US$100.0 million taken out in March 2012 is the Company's only debt. As at 30 June 2015, the outstanding debt had reduced to US$54.0 million, as a result of scheduled repayments of principal. Our net cash position was US$5.2 million.

As of 27 August 2015 our cash and cash equivalents had decreased to US$38.9 million resulting in a net debt position of US$15.6 million. The decrease in cash and cash equivalents was a consequence of the purchase of short-term interest-bearing bank bills of exchange for a total consideration of $21 million.

Capital expenditure during the period was US$29.1 million (2014: US$17.6 million), 7% of which was incurred in Exillon TP, 57% in Exillon WS and 36% in corporate companies that are managed at the Group level (2014: 11% in Exillon TP and 89% in Exillon WS, respectively). Of this total, US$4.0 million was attributable to drilling, US$13.2 million to infrastructure and US$1.3 million to seismic data acquisition and interpretation (2014: US$0.3 million was attributable to drilling and US$17.3 million to infrastructure). The remaining US$10.6 million related to the purchase of an aircraft, which was subsequently leased to an unrelated third party for a period of ten years at a monthly lease payment of $130 thousand, with the retained right to use the aircraft for the Company's needs on commercial payment terms. The aircraft was acquired in order to improve the efficiency of time-management of the Company Directors and management of the Group.

Drilling Update

During the period we drilled five producing and one exploratory well. The drilling was carried out only at Exillon WS and the drilling results were successful for all wells.

Alexander Suchkov

Chief Executive Officer

FINANCIAL REVIEW

The interim condensed consolidated financial information of Exillon Energy plc for the six month period ended 30 June 2015 has been prepared in accordance with IAS 34 "Interim Financial Statements". The condensed consolidated financial information and notes on pages 8 through to 25 should be read in conjunction with this review which has been included to assist in the understanding of the Group's financial position at 30 June 2015 and financial performance for the six months then ended.

Revenue

Our revenue for the six months ended 30 June 2015 decreased by 27% compared to the same period in 2014, reaching US$108.7 million (2014: US$148.2 million), of which US$50.1 million or 46% came from export sales of crude oil and US$58.6 million or 54% came from domestic sales of crude oil (2014: 100% came from domestic sales of crude oil). This change in revenue is attributable to:

· a decrease in production leading to an 8% decrease in sale volumes from 3,247,256 bbl in 2014 to 2,972,066 bbl; and

· a change in average commodity prices: we achieved an average oil price of US$29.7 per barrel (2014: US$45.7 per barrel) for domestic sales. In 2015 we achieved US$50.1 per barrel for export sales.

The decrease in our revenue was primarily a consequence of the dramatic decline in global oil prices beginning in the last quarter of 2014. Although the achieved average price for export sales significantly exceeds that of domestic sales, the difference diminishes when taking into account the expenses associated with export sales, such as export duty and transportation services provided by Transneft. Accordingly, our netback on total sales decreased by 40% from US$75.6 million for the six months ended 30 June 2014 to US$45.4 million for the same period in 2015.

Operating Results

Cost of sales excluding depreciation and depletion expenses for the first six months of 2015 decreased to US$54.2 million (2014: US$85.9 million), along with the decrease in production by 7% to 3,012,458 bbl (2014: 3,222,006 bbl). The difference between the production volumes and sales volumes is due to the change in the oil inventory balance during the period. The depreciation of Rouble against US dollar is the main reason for the decrease in production costs, all of which are nominated in Roubles. Consequently, the major reduction occurred in mineral extraction tax from US$71.7 million in 2014 to US$45.0 million in 2015. The increase of the base tax rate from Rouble 493 per tonne of crude oil in 2014 to Rouble 766 per tonne in 2015 was offset by mutual effect of Rouble depreciation, rapid decline in average crude oil prices used in the calculation of the tax and the decrease in production volumes.

Depreciation, depletion and amortisation ("DD&A") costs primarily relate to the depletion of proved and probable reserves and other production and non-production assets. These costs amounted to US$10.4 million for the six months ended 30 June 2015 compared to US$14.3 million for the same period in 2014. The decrease in DD&A costs was a result of mutual effect of lower production volumes and Rouble depreciation, since most of DD&A costs are nominated in Roubles.

Selling expenses for the six months ended 30 June 2015 amounted to US$20.3 million (2014: US$3.4 million) and comprised of export duties expenses of US$14.7 million, transportation services of US$5.4 million and other selling expenses of US$0.2 million (2014: represented entirely by transportation services). The major reason for the increase in selling expenses was export duty incurred as a result of change in our sales mix. Transportation services included services provided by Transneft and trucking services from the infield oil filling station to our oil terminal at Transneft. During H1 2014 services provided by Transneft of US$0.9 million related to domestic sales of crude oil. From the second quarter of 2014 domestic customers have been paying for these services directly to Transneft. During H1 2015 services provided by Transneft of US$3.8 million related to export sales of crude oil and were incurred due to the change in our sales mix. The reduction in Rouble nominated trucking expenses from US$2.5 million in 2014 to US$1.6 million in 2015 was a result of depreciation of Rouble against US dollar.

Administrative expenses for the first six months of 2015 (excluding depreciation and amortization, share-based compensation expenses and employee benefits) amounted to US$4.2 million in comparison to US$7.6 million for the same period in 2014. In 2015, savings were achieved in salary and related taxes and consulting services.

Interest income from cash held on short-term and long-term deposits reduced to US$1.4 million (2014: US$3.4 million) as a result of decrease in cash and cash equivalents.

A foreign exchange loss of US$4.2 million (2014: US$3.3 million) has been included in our net profit arising from the revaluation of foreign currency monetary items (cash and cash equivalents, accounts receivable and payable, other assets) using the closing rate at the reporting date. The foreign exchange loss recognised during H1 2014 was a result of the exchange rate increase from 32.7292 Russian Roubles to one US dollar (Rouble/US$) as of 31 December 2013 to 33.6306 Rouble/US$ as of 30 June 2014. The foreign exchange loss for H1 2015 was mostly attributable to US dollar nominated cash and cash equivalents held by Russian subsidiaries and was a consequence of the exchange rate decrease from 56.2584 Rouble/US$ as of 31 December 2014 to 55.524 Rouble/US$ as of 30 June 2015. During the H1 2015 the exchange rate was substantially more volatile compared to the gradual growth during the same period in 2014: the highest rate of 69.664 Rouble/US$ was achieved on 3 February 2015, while the lowest rate of 49.1777 Rouble/US$ was achieved on 20 May 2015. A foreign exchange gain of US$4.4 million (2014: loss of US$10.5 million) has been recognised in other comprehensive income as part of the translation reserve.

As a result of the above, net profit for the first six months of 2015, which includes depreciation costs, foreign exchange translation effects and result from disposal of non-current assets, amounted to US$13.2 million compared to net profit of US$23.8 million for the six months ended 30 June 2014.

Financial position

We ended the period with US$59.2 million of cash and cash equivalents and outstanding borrowings of US$54.0 million (31 December 2014: US$94.5 million and US$69.4 million, respectively). The current portion of borrowings relates to the principal of US$30.8 million and accrued but unpaid interest of US$0.1 million. According to the repayment schedule this portion will be repaid within 12 months after the reporting date, with the principal repayable in equal quarterly instalments. During the six months ended 30 June 2015 principal of US$15.4 million has been repaid in compliance with the repayment schedule.

The additions to the property, plant and equipment of US$30.0 million included aircraft acquisition of US$10.6 million, with the remaining amount attributable to the drilling of oil wells and further development of infield infrastructure in Exillon WS and Exillon TP. This was partially offset by depreciation and depletion of US$10.4 million, while the positive effect was enhanced by the translation difference of US$4.8 million, due to the appreciation of Rouble against US dollar at the reporting date (the rate was 56.2584 Rouble/US$ as of 31 December 2014 and 55.524 Rouble/US$ as of 30 June 2015).

Principal risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group are set out on pages 18 to 21 of the Directors' Report section of the Annual Report for the year ended 31 December 2014, a copy of which is available on the Company's website at www.exillonenergy.com. The Board continually assesses and monitors the key risks of the business. The principal risks and uncertainties that could have a material impact on the Group's performance over the remainder of the financial year have not changed from those that were set out in the Group's 2014 Annual Report.

For reference we summarise below the principal risks and uncertainties:

· we could be adversely affected by a substantial or extended decline in the prices for crude oil;

· our business depends on exploration and production licences issued by the Russian authorities, which could be suspended, restricted, terminated or not extended;

· significant capital expenditures may be needed to increase production levels and overall efficiency, and any inability to finance these and other expenditures may have a detrimental effect on our business, prospects, financial condition and results of operation;

· drilling and the introduction of new technology involved numerous operational risks, which may result in losses, and we may not achieve our planned production targets;

· we are dependent on senior management personnel and on maintaining a highly qualified skilled workforce;

· Exillon may be unable to manage its growth or to execute or integrate acquisitions;

· fluctuations in currency exchange rates may materially and adversely affect our financial results and condition;

· we rely on the services, including transportation services, of third party providers;

· the crude oil we produce in Exillon WS is transported via a single pipeline system operated by an external provider - Transneft;

· our oil fields are located in areas subject to variable weather conditions which may limit the production during certain times of the year;

· we could be subject to claims and liabilities under environmental, health, safety and other laws and regulations;

· we face drilling, exploration and production risks and hazards which may prevent us from realising profits and may result in substantial losses;

· the oil industry is intensively competitive and may also be adversely affected by global economic conditions;

· we do not carry the types of insurance normally carried by a business of our size and nature;

· negative net assets of some companies in the Group could lead to their forced liquidation;

· social, political and economic instability in the Russian Federation may have a material adverse effect on our business, the results of operations, financial conditions and prospects;

· crime and corruption could disrupt our ability to conduct our business and could materially adversely affect our financial condition and results of operations;

· there are high levels of inflation in Russia;

· Russian physical infrastructure is in poor condition, which could disrupt normal business activity;

· changes in the foreign policy of the Russian Government and changes in its key global relationships could adversely affect the Russian political and economic environment in general;

· the Russian legal system and Russian legislation are still being developed and this may create an uncertain environment for investment and business activity;

· we are subject to tax audits by the Russian tax authorities, which may result in additional tax liabilities;

· Russian tax law and practice are not fully developed and subject to frequent changes;

· the difficulty of enforcing court decisions and the discretion of governmental authorities to file and join claims and enforce court decisions could prevent the Group or investors from obtaining effective redress in court proceedings;

· foreign and court judgments may not be enforceable against the Group's Russian subsidiaries;

· as a consequence of the international financial crisis and the resulting downturn in Russian economy, an increased presence of the Russian state has been observed in the private sector. In case of the expropriation or nationalisation of any of the Group's or its subsidiaries' assets without fair compensation, it might have a material adverse effect on the Group's business, prospects, financial condition and results of operations;

· wage increases in Russia could increase our costs and negatively affect profitability;

· shareholder liability under Russian legislation could cause the Company to become liable for the obligations of its Russian subsidiaries.

Directors

A full list of Directors is maintained on the Group's website: exillonenergy.com.

Related parties

Related party transactions are given in Note 22.

Statement of directors' responsibilities

The Directors of the Company hereby confirm that to the best of their knowledge:

(a) the condensed consolidated interim financial statements have been prepared in accordance with IAS 34; and

(b) the interim management report includes a fair review of the information required by DTR 4.2.7 (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year) and DTR 4.2.8 (being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period).

On behalf of the Board of Directors of Exillon Energy plc.

Alexander Suchkov

Chief Executive Officer

Disclaimer

This document may contain forward-looking statements concerning the financial condition and results of operations of the Group. Forward-looking statements are statements of future expectations that are based on the management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. The Company does not undertake any obligation to update publicly or revise any forward-looking statement as a result of new information, future events or other information.

INDEPENDENT REVIEW REPORT TO Exillon Energy PLC

Introduction

We have been engaged by the Exillon Energy PLC (the "Company") to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 which comprises the interim consolidated statement of comprehensive income, interim consolidated statement of financial position, interim consolidated statement of changes in equity, interim consolidated statement of cash flows and the related notes 1 to 23. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual consolidated financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our Responsibility

Our responsibility is to express to the Company a conclusion on the interim condensed consolidated set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLC

Chartered Accountants

Douglas

Isle of Man

28 August 2015

INTERIM consolidated statement of comprehensive income

INTERIM consolidated statement of changes in equity

Total interest paid during the six months ended 30 June 2015 comprised $2,176 thousand (the six months ended 30 June 2014: $3,031 thousand).

notes to INTERIM condensed consolidated financial statements (UNAUDITED)

1. Background

The principal activity of Exillon Energy plc (the "Company" or the "Parent") and its subsidiaries (together "the Group") is exploration, development and production of oil. The Group's production facilities are based in the Republic of Komi and the Khanty-Mansiysk Region of the Russian Federation. The Group's structure is provided in Note 23.

Exillon Energy plc is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the Isle of Man. The Company was formed on 27 March 2008. Its registered address is Fort Anne, South Quay, Douglas, Isle of Man, IM1 5PD.

As at 30 June 2015, the largest shareholder has 29.99% (2014: 29.99%) in the Company's outstanding issued share capital.

The Group's operations are conducted primarily through its operating segments, Exillon TP and Exillon WS.

2. basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2015 has been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim financial reporting". The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs"). The operations carried out by the Group are not subject to seasonality or cyclical factors.

3. going concern

The principal risks and uncertainties, which are likely to affect the Group's future development, performance and position including financial risk factors set out on pages 5 to 6. The Directors have considered the Group's business, budget, the cash flow forecasts, reasonably possible changes in trading estimates (including oil price), contractual arrangements, committed financing, exposure to contingent liabilities and the principal risks and uncertainties.

Based on the above consideration the Directors believe that the Group is adequately financed to continue in operational existence for the foreseeable future and the Group therefore continues to adopt the going concern basis of accounting in preparing its consolidated interim financial statements.

4. ACCOUNTING POLICIES

Accounting policies - the accounting policies applied are consistent with those of the annual consolidated financial statements for the year ended 31 December 2014.

During the six months ended 30 June 2015 the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Critical accounting judgements and key sources of estimation uncertainty:

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2014, except for the change in certain major assumptions used in estimation of decommissioning costs:

Decommissioning costs

Provision for decommissioning represents the present value of decommissioning costs relating to the Russian Federation oil and gas interests, which are expected to be incurred in a time period between 2025 and 2038. These provisions have been created based on the Group's internal estimates. Assumptions, based on the current economic environment, have been made which management believe are a reasonable basis upon which to estimate the future liability. Those estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.

Major assumptions used in estimation of decommissioning costs are set out below:

Exillon TP:

· as at 30 June 2015, undiscounted value of estimated future cash outflows is estimated at $4,094 thousand (31 December 2014: $4,014 thousand);

· expected timing of future cash outflows - the majority of the expenditure is expected to take place in a range between 2026 and 2038 (2014: between 2026 and 2038);

· discount rate (based on long-term maturity Russian government bonds) - 11% per annum (2014: 12%);

· inflation rate (based on the external analysts' forecasts) - 4-14% per annum (2014: 4-13%).

If the discount rate had increased by 1% to 12% at 30 June 2015, the decommissioning liability would have been $205 thousand lower (31 December 2014: $160 thousand lower).

Exillon WS:

· as at 30 June 2015, undiscounted value of estimated future cash outflows is estimated at $11,443 thousand (31 December 2014: $10,598 thousand);

· expected timing of future cash outflows - the majority of the expenditure is expected to take place in 2025 (2014: 2025);

· discount rate (based on long-term maturity Russian government bonds) - 11% per annum (2014: 12%);

· inflation rate (based on the external analysts' forecasts) - 4-14% per annum (2014: 4-13%).

If the discount rate had increased by 1% to 12% at 30 June 2015, the decommissioning liability would have been $567 thousand lower (31 December 2014: $491 thousand lower).

Estimation of oil and gas reserves

Oil and gas reserves are key elements in the Group's investment decision-making process. They are also an important element in testing for impairment. Changes in oil and gas reserves, particularly proved and probable reserves, will affect unit-of-production depreciation charges in the consolidated statement of comprehensive income.

Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e. prices and costs as of the date the estimate is made. Probable reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves. Estimates of oil and gas reserves are inherently imprecise, require the application of judgement and are subject to future revision. Accordingly, financial and accounting measures (such as depletion charges and provision for decommissioning liabilities) that are based on proved and probable reserves are also subject to change.

Proved reserves are estimated by reference to available reservoir and well information. All proved reserves estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions.

In general, estimates of reserves for undeveloped or partially developed fields are subject to greater uncertainty over their future life than estimates of reserves for fields that are substantially developed and being depleted. As a field goes into production, the amount of proved reserves will be subject to future revision once additional information becomes available through, for example, the drilling of additional wells or the observation of long-term reservoir performance under producing conditions. As those fields are further developed, new information may lead to revisions.

Changes to the Group's estimates of proved and probable reserves also affect the amount of depletion recorded in the Group's consolidated financial statements for property, plant and equipment related to oil and gas production activities. A reduction in proved and probable reserves will increase depletion charges (assuming constant production) and reduce profit.

Proved and probable reserve estimates of the Group as of 31 December 2014 were based on the reports prepared by Miller and Lents Ltd, independent engineering consultants.

As at 30 June 2015, the net carrying amount of oil and gas properties and related cost of production licence was $312,402 thousand (31 December 2014: $310,848 thousand).

Taxation

The Group is subject to income tax and other taxes. Significant judgement is required in determining the provision for income tax and other taxes due to the complexity of the tax legislation incorporated in the Russian Federation. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit matters based on estimates on whether additional tax will be due. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the amount of tax and tax provisions in the period in which such determination is made. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

Net investment in foreign operations

Loans issued to foreign subsidiaries, the settlement of which is neither planned nor likely to occur in the foreseeable future, form part of the Group's net investment in those subsidiaries. In 2014 the Group transferred $43.0 million from Exillon Finance LLC to Kayumneft CJSC through an intercompany loan. The Group did not consider that repayment of this intercompany loan was likely to occur in the foreseeable future. The intercompany loan formed a part of the Group's net investment in Kayumneft CJSC. Foreign exchange differences on the intercompany loan and the corresponding tax effect were recognised in other comprehensive income.

In light of continued decline in oil prices and significant weakening of Russian Rouble leading to the decrease in the Group's profits, in June 2015 management reassessed the judgement and determined that this intercompany loan was expected to be settled to fund repayments of the Group's external debt. Accordingly, from that date, a foreign exchange loss of $773 thousand on the intercompany loan has been recognized in profit or loss.

5. OPERATING SEGMENTS

Management has determined the operating segments based on the reports reviewed by Directors that make the strategic decisions for the Company, who are deemed to be the chief operating decision maker (CODM).

Exillon Energy plc manages its business through two operating segments, Exillon TP and Exillon WS.

· Exillon TP: upstream business based in the Timan-Pechora basin in the Komi Republic in the Russian Federation. The revenue is derived from extraction and sale of crude oil.

· Exillon WS: upstream business based in Western Siberia in the Russian Federation. The revenue is derived from extraction and sale of crude oil.

Segmental information for the Group for the six months ended 30 June 2015 is presented below:

Segmental information for the Group for the six months ended 30 June 2014 is presented below:

The transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties. There were no intersegment revenues during the six months ended 30 June 2014 and 2015.

Unallocated category represents costs of corporate companies that are managed at the Group level.

Management assesses performance of the operating segments based on EBITDA which is calculated as follows: operating result plus depletion and depreciation, plus/minus foreign exchange gains/(losses) and plus/minus other significant one-off income/(expenses). The measure also excludes the effects of equity-settled share-based payments.

Net back is defined as revenue less direct and indirect government taxation. The indicator is calculated as revenue less Mineral Extraction Tax, Export Duty and Transneft transportation services.

Reconciliation of profit/(loss) before income tax to EBITDA for the six months ended 30 June 2015 is presented below:

Reconciliation of profit/(loss) before income tax to EBITDA for the six months ended 30 June 2014 is presented below:

During the six months ended 30 June 2015 the Group earned revenues each exceeding 10% of Group's revenues from three major customers: $17,125 thousand (attributable to domestic sales), $17,318 thousand and $32,798 thousand (both attributable to export sales), reported by Exillon WS and Exillon TP segments.

During the six months ended 30 June 2014 the Group earned revenues each exceeding 10% of Group's revenues from two major customers: $56,229 thousand and $31,191 thousand (both attributable to domestic sales), reported by Exillon WS and Exillon TP segments.

6. revenue

7. cost of sales

8. selling expenses

9. administrative expenses

10. earnings per share

Basic earnings per share ("EPS") is calculated by dividing net profit for the period attributable to ordinary equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

The following reflects the income and adjusted share data used in the EPS computations:

11. Property, plant and equipment

Decommissioning costs of $5,204 thousand and $4,289 thousand were included within oil and gas properties as of 30 June 2015 and 31 December 2014, respectively. Change in estimates relates to the change in the assumptions used in estimation of decommissioning costs (Note 4).

Cumulative capitalized borrowing costs of $18,225 thousand and $17,480 thousand were included within oil and gas properties as of 30 June 2015 and 31 December 2014, respectively. Total borrowing costs incurred during the six months ended 30 June 2015 period amounted to $2,016 thousand, of which $745 thousand was capitalised. There is no tax relief related to the capitalised borrowing costs.

Exploration and evaluation assets as of 30 June 2015 and 31 December 2014 comprise the ETP VII licence acquired in December 2011. Construction in progress relates to the construction of infield infrastructure and drilling of oil wells commenced in 2014 and 2015.

12. Inventories

Inventories included no obsolete or slow-moving items as of 30 June 2015 (31 December 2014: nil).

13. trade and other receivables

Trade receivables are non-interest bearing. In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Accordingly, the management of the Group believes that there is no further credit provision required in excess of the allowance for doubtful debts.

14. other assets

15. SHORT-TERM LOANS ISSUED

During the year ended 31 December 2014 the Group issued a loan to a third party of $653 thousand maturing in December 2015. The difference between the consideration paid and the carrying value of $429 thousand relates to the interest accrued, which is charged at the rate of 6%, and a translation loss arising on the retranslation of the loan nominated in Roubles into presentation currency at the reporting date.

16. provision for decommissioning

In accordance with the licence agreements the Group is liable for site restoration, clean up and abandonment of the wells upon completion of their production cycle. The provision for future site restoration relates to obligations to restore the oilfields after use. All of these costs are expected to be incurred at the end of the life of wells between 2025 and 2038 (Note 4). They depend on the estimated lives of the wells, the scale of any possible contamination and the timing and extent of corrective actions.

The unwinding of the discount related to future site restoration and abandonment reserve is included within finance costs. Management believes that this estimate of the future liability is appropriate to the size of the fields.

17. trade and other payables

Trade and other payables are non-interest bearing. At 30 June 2015, advances of $114 thousand (31 December 2014: $6,626 thousand) relate to the receipts from customers for the sales in July 2015 (31 December 2014: January 2015).

18. borrowings

There is no material difference between the carrying amount and fair value of borrowings.

Credit Suisse - On 10 September 2010, the Group agreed a loan facility of $50 million with a term of 3.5 years. Interest was charged at LIBOR plus 7%.

In March 2012 the existing loan facility was replaced by a $100 million loan facility with a term of 5 years. The loan bears an interest rate at LIBOR plus 6% and is repayable in equal quarterly installments with the first repayment made in March 2014. The interest is payable quarterly with the first payment made in June 2012. During the six months ended 30 June 2015 principal of $15,385 thousand has been repaid in compliance with the repayment schedule.

The loan is secured by a pledge of the 100% shares of certain Group's subsidiaries (Note 23): Ucatex Oil LLC, Kayumneft JSC, Nem Oil CJSC, Komi Resources CJSC, Ucatex Ugra LLC, Actionbrook Limited, Claybrook Limited, Diamondbridge Limited, Lanarch Limited, Halescope Limited, Vitalaction Limited, Corewell Limited, Touchscope Limited, Silo Holdings Limited and Exillon Finance Limited.

The loan is also secured with future revenue under export contracts.

19. Share capital

The issued share capital of the Company at the date of these consolidated financial statements is as follows:

The total number of allotted ordinary shares is 161,510,911 with a par value of $0.0000125 each. As of 30 June 2015 shares issued include 1,195,702 shares (31 December 2014: 1,195,702 shares), which are not paid and held by the Employee Benefit Trust within the Group for further allocation to employees. There were no new share awards granted to employees during the six months ended 30 June 2015.

20. Risk management

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.

The interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2014.

Major categories of financial instruments - The Group has various financial assets such as trade and other accounts receivable, cash and cash equivalents, interest receivable on bank deposits and short-term loans made. The Group's principal financial liabilities comprise borrowings, trade and other accounts payable, advances received and salary payable.

As of 30 June 2015, Trade receivables related mostly to export sales, which are based on post payment scheme with a letter of credit as collateral.

The major part of cash is held on short-term and long-term deposits placed in financial institutions incorporated in the Russian Federation, which provide premium deposit rates. The financial ability of financial institutions and overall market circumstances are continuously monitored by management based on the information provided by independent rating agencies or other publicly available financial information.