·    Licence 61 as at 31 December 2015 (Ryder Scott report as at 1 January 2016).

·    Reserves reflect just PetroNeft's 50% share of reserves for each licence.

·    All oil in discovered fields is in the Upper Jurassic section.

·    Reserves were determined in accordance with the Society of Petroleum Engineers ("SPE") Petroleum Resources Management System ("PRMS") rules.

·    Licence 67 will be co-developed with Arawak Energy and the reserves above reflect PetroNeft's 50% share as per the most recent Ryder Scott report as at 1 January 2011.

Engagement with Natlata

Following extensive engagement with our largest shareholder, Natlata Partners Limited ("Natlata"), during 2015 and in connection with their requisitioned EGM, in April 2016 we announced that we reached an agreement on a new Board composition and structure. This involved the appointment Maxim Korobov as non-executive Director and Anthony Sacca and David Sturt as independent non-executive Directors. David Sanders, Gerry Fagan and Paul Dowling left the Board. Mr. Dowling remains CFO of the Company. The agreement includes a commitment from Natlata that it will support the newly constituted Board for a period of two years.

Also, Pavel Tetyakov of Natlata has joined the Company and will be responsible for new business development in Russia.

I would like to thank David Sanders, who was a founder of the Company, and Gerry Fagan for their many years of service to the Company. I would also like to thank Vakha Sobraliev, who resigned from the Board in September 2015 for his contribution to the Company over the previous ten years.

Review of PetroNeft loss for the year

The loss after taxation for the year was US$8,474,383 (2014: US$8,784,385). The loss included a foreign exchange loss on intra-group loans of US$0.3 million (2014: US$2.4 million) the share of joint venture's net loss in WorldAce Investments of US$8,765,055 which was after an impairment loss within WorldAce of US$4.55 million (US$9.1 million gross). The loss on the disposal of a subsidiary of US$5.6 million in 2014 relates to the farmout of Licence 61 and more details can be found at Note 4 to the financial statements. Finance costs in 2014 of US$1.6 million relate to interest on the loans from Macquarie and Arawak for the period to 3 July 2014 when the loans were repaid in full.

As mentioned above, the Licence 61 Farmout was completed on 3 July 2014. For accounting purposes the results of the WorldAce Group are fully consolidated in the PetroNeft Income statement up to that date. After that date PetroNeft must account for its share of the results of the WorldAce Group using the equity method of accounting. Furthermore, interest receivable on loans to the WorldAce Group, which up to 3 July 2014 would have been eliminated on consolidation, is included as income in the PetroNeft consolidated income statement after that date. The 2015 numbers reflect the new arrangements in full.

Revenue

Revenue in 2015 includes income as operator of both licences and the revenue of PetroNeft's wholly owned subsidiary, Granite Construction in respect of construction services provided in relation to both joint ventures. Revenue in 2014 includes revenues from oil sales for the period to 3 July 2014 of US$17.5m and income as operator of both licences of US$1.7 million.

Income of PetroNeft Group as Operator of Licence 61 and Licence 67

In the joint venture agreements related to both Licence 61 and Licence 67, PetroNeft is designated as the operator of each Licence. This means that PetroNeft employees and management are responsible for the day to day running of both Licences. Major strategic and financial decisions relating to the Licences require unanimous approval by both shareholders in the respective joint venture agreements.

As PetroNeft management and employees are responsible for day to day matters in both Licences, PetroNeft is entitled to recover a portion of its expenses from the joint ventures. In that regard we established a management group of key Russian employees who are employed by the PetroNeft subsidiary Dolomite. Both PetroNeft and Dolomite invoice for their services to the joint ventures based on rates pre-agreed with our respective joint venture partners. The costs associated with this revenue are included in cost of sales.

In 2015 PetroNeft Group charged a total of US$1.6 million (2014: US$1.2 million) to the joint ventures in respect of management services. PetroNeft also owns a small construction company, Granite Construction, which carries out small ad hoc construction projects such as well pads and on-site accommodation on both Licences. In 2015 Granite Construction charged the WorldAce Group US$0.8 million (2014: US$0.5 million) in respect of these services.

Finance Revenue

Most of the finance revenue relates to Interest receivable on loans to joint ventures. During 2015 PetroNeft had interest receivable of US$2,826,303 (2014: US$1,415,202) on its loans to WorldAce Group and US$205,189 (2014: US$117,120) on its loans to Russian BD Holdings B.V.

Key Financial Metrics - WorldAce Group

Because of the above accounting implications it is difficult to extract meaningful metrics from the PetroNeft consolidated income statement. Therefore the metrics below are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the performance of Licence 61:

Net Loss - WorldAce Group                              

The net loss of WorldAce Group for the full year increased to US$17,530,110 from US$1,621,345 in 2014. The increase in the loss for the year before taxation can be attributed to higher interest payable on loans from shareholders in 2015 as a result of additional loans provided by Oil India Limited to WorldAce as part of the Licence 61 Farmout. Of the US$5.1 million in interest payable by WorldAce, US$2.8 million is payable to PetroNeft. Due to the lower oil price environment and a reduction in reserves at the Lineynoye oil field an impairment of oil and gas properties in the amount of US$9.1 million was required.

Revenue, Cost of Sales and Gross Margin - WorldAce Group

Revenue from oil sales was US$20,600,188 for the year (2014: US$29,288,078). Cost of sales includes depreciation of US$2,856,469 (2014: US$3,547,979), which was lower mainly because of the weaker Rouble. The gross margin fell during the year primarily due to an increase in Mineral Extraction Tax in 2015 but also due to lower oil prices. Operating costs per barrel produced (Cost of Sales excluding depreciation and Mineral Extraction Tax) was steady at US$11.68 (2014: US$11.67 per barrel). We would expect the gross margin to improve in future periods as our facilities and field operations are fully staffed and can handle additional production from the South Arbuzovskoye oil field under the current cost structure and do not expect to add significant additional costs once Sibkrayevskoye comes online. We produced 737,655 barrels of oil (2014: 728,826 barrels) in the year and sold 761,123 barrels of oil (2014: 704,189 barrels) achieving an average oil price of US$27.00 per barrel (2014: US$41.59 per barrel). All oil was sold on the domestic market in Russia.

Finance Costs - WorldAce Group

Finance costs of US$5,144,634 (2014: US$1,818,438) relate to interest on loans from PetroNeft and Oil India.

Taxation - WorldAce Group

The tax credit in 2014 arose on the reversal of a deferred tax charge of US$2,400,000 in relation to temporary differences in Russia. There is no tax payable in 2015.

Future Funding of PetroNeft Group

PetroNeft is currently debt free. As part of Licence 61 Farmout, Oil India provided exploration and development funding of US$45 million through the jointly controlled entity WorldAce. Oil India has also agreed to provide funding for the development of South Arbuzovskoye and Sibkrayevskoye by way of an unsecured shareholder loan to WorldAce Group, thereby removing the funding requirement from PetroNeft for this work. The first tranche of this funding was agreed by way of an unsecured US$10 million shareholder loan from Oil India to WorldAce in March 2016. Principal repayments on the loan will not commence until October 2019. However, should there be a significant change in the management of PetroNeft while the loan is outstanding then Oil India may seek early repayment in full. In such circumstances Petroneft would need to provide its 50% share of the amount outstanding. It is expected that PetroNeft will commence collection of interest receivable on its loans to WorldAce in the second half of 2017.

Summary

We learned a lot in 2015 particularly in the experience gained in horizontal drilling and the additional upside identified at Sibkrayevskoye and South Arbuzovskoye. After 3 weeks of production the A-214 horizontal well at South Arbuzovskoye is still producing over 850 bopd and the pressure decline is very slow.  We also now have enough production data at A-213 to register the reserves in the new J1-2 oil pool and will add production from the primary J1-1 interval in this well shortly.  Both of these are excellent results. In the near term we look forward to the A-215 horizontal well results at South Arbuzovskoye and the commencement of drilling on the S-374 delineation well at Sibkrayevskoye.  The Company is fortunate in that we have quality assets that are economic in a low oil price environment. With an excellent partner in Oil India we are well placed to exploit these opportunities despite the challenging times for our industry.

Annual Report and AGM

The annual report will be mailed to shareholders and published on the Company's website (www.petroneft.com) by 30 June 2016. The AGM will be held in Dublin on 16 September 2016.

Finally, I know that I speak for all the Directors, management and staff of the Group in giving sincere thanks to our shareholders, both old and new, for your continued support throughout the past year.

David Golder

Non-Executive Chairman