Statement from the CEO

I am pleased to announce that the positive development continues. During the quarter, we increased oil production by 7 per cent compared to the previous quarter. The operating profit, adjusted for the positive effect of the investment in Tomsk Refining, amounts to SEK 5 million and is almost 50 per cent higher than the fourth quarter last year. The previously announced reformed production taxes in both Russia and Ukraine have now been implemented and we can see the effect in our income statement.

Shelton Petroleum’s prioritized objective is to continue to increase production volumes in both Ukraine and Russia. As part of the work program on the Lelyaki field in Ukraine, we have during the quarter completed five workovers and taken one new well into production. During the second half of 2012, we intend to start drilling the first sidetrack, a cost efficient alternative to drilling new wells, on this field.

On Rustamovskoye in Russia, the company has completed a workover of the well RS#1, implemented a new pumping system in RS#2 and performed extensive analysis of available geological data and technical production data. The objective has been to implement measures to counteract the natural depletion that all wells are exposed to, and also to maximize information on reservoir characteristics in order to determine drill locations and optimize drilling technology. We plan to finalize this work during the summer and then conclude drilling contracts and commence mobilization and assembly of the rig. Shelton Petroleum will announce a schedule for the drilling once the drilling contract has been concluded and access to a rig has been confirmed.

Whilst Shelton Petroleum’s prioritized objective is to increase production, I would also like to highlight the company’s exploration potential of over 300 million barrels of oil equivalent. In parallel to our production activities, we are also taking cost-effective steps in the exploration of these opportunities. We will also continue to pursue expansion opportunities. The recently signed memorandum of understanding with the state partner Nadra of Ukraine is an example of our efforts. The activity on the oil and gas market in Ukraine is very high, and we are continually taking steps to strengthen our position.

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