Max Petroleum : Corporate and Operational Update

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

FOR IMMEDIATE RELEASE

27 October 2014

 Max Petroleum Plc

("Max Petroleum" or the "Company" and

together with its subsidiaries, the "Group")

Corporate and Operational Update

Max Petroleum Plc, an oil and gas company focused on Kazakhstan, announces today an corporate and operational update.

Subscription by AGR Energy

On 4 August 2014, Max Petroleum announced that it had raised conditionally approximately £37.1 million before expenses by way of a cash subscription by AGR Energy Limited No. I ("AGR Energy") for 2,264,093,462 new Ordinary Shares at a price of 1.64 pence per Ordinary Share (the "Subscription"), such that AGR Energy would hold 51% of the Enlarged Issued Share Capital immediately following completion of the Subscription. AGR Energy is a vehicle owned by the Assaubayev family established for the purpose of the Subscription.

Discussions between the Company and AGR Energy continue in respect of certain terms of the Subscription. Further updates will be provided in due course, as appropriate.

Debt position and liquidity

The Group is highly geared, with US$82.8 million currently outstanding under the Sberbank Facility Agreement, due to be repaid in full by 27 November 2017. As announced on 20 August 2014, the Group was in breach of certain banking covenants related to production and reserves at 31 March 2014. Subsequently, the Group filed an application with Sberbank to reset the production and reserves covenants to reflect the lowered expectations of the Group based on the RSC estimation of total 2P reserves of 9.5 mmboe as at 31 March 2014. Sberbank has now approved the reset of the production and reserves covenants with effect from September 2014 and the Group is currently in compliance with its loan covenants. The Group has paid all interest and principal payments due under the Sberbank Facility Agreement, each of which has been paid in full when due.

The 2014 Annual Report and Accounts of the Company noted the risk that the necessary approvals to complete the Subscription may not be obtained, and the consequent uncertainty about whether the Subscription proceeds of £37.1 million will be received by the Group. In the event that the necessary approvals are not received and the Subscription (or a similar infusion) does not proceed, it is not certain that an alternate source of additional debt or equity financing will be available. Further, the Group is due to make a US$3.2 million principal payment under the Sberbank Facility Agreement in December 2014 and a further US$6.8 million principal payment in March 2015. Thereafter, quarterly principal repayments of US$6.6 million are required to be made through November 2017, such that total principal payments required to be made during calendar year 2015 amount to US$26.6 million.

In the event that the Subscription does not complete and no additional funding is procured, the Group's projected level of cash flow, after taking into account its debt servicing costs, will be insufficient to allow the Group to recommence its capital programme.

The 2014 Annual Report and Accounts of the Company also stated that: "based on the Group's cash flow forecasts and assuming the suspension of its capital programme, the directors believe that the Group will be able to continue servicing its interest and principal payments under the Sberbank Facility Agreement as they fall due. However, these forecasts are necessarily based on the achievement of timing and targets, some of which, although believed to be reasonable by the directors, are nevertheless outside the Group's direct control. If significant delays or underperformance of production or revenue targets were to take place, these may render the Group's cash resources insufficient."

In addition, since the date of publication of the 2014 Annual Report and Accounts of the Company in August 2014, Brent crude oil prices have fallen significantly, which has had an adverse effect on the Group's current cash flows and, if oil prices remain at or below current levels, will have an adverse effect on future cash flows. Assuming both that Brent crude oil prices remain at or below current levels and that the Group's capital programme remains suspended, the Group's current cash flow forecasts (using a nominal US$85/bbl Brent crude oil price) indicate that the Group will not be able to continue servicing its interest and principal payments under the Sberbank Facility Agreement as they fall due, starting with the US$3.3 million principal payment due in December 2014. The directors intend to enter into discussions with Sberbank with a view to seeking to agree, as soon as possible, a moratorium on principal payments, including the US$3.3 million principal payment due in December 2014, and the restructuring of the Sberbank Facility Agreement.

Even if Sberbank and the Company agree a moratorium on principal payments under the Sberbank Facility Agreement, any further significant delays or underperformance of production or revenue targets or timing would require the Group to obtain additional debt or equity capital to continue in operation.

Review of strategic options and formal sale process

The review of strategic options and the formal sale process announced on 22 July 2014 continues. Its purpose remains to elicit competing, superior proposals to the Subscription. A broad process has been undertaken and as of today no such deliverable proposal has been put forward to the Board. In addition there can be no certainty that any such proposal will be made nor as to the terms on which any such proposal might be made. Parties with a potential interest in making an offer for, merging with or proposing other forms of corporate transaction with, Max Petroleum should contact the Blackstone Group International Partners LLP (see contact details below).

FFD Approval for Asanketken Field

The Group also announces that the Government of the Republic of Kazakhstan has granted regulatory approval to convert the Asanketken Field to full field development ("FFD") status effective immediately. FFD approval will allow Max Petroleum to fully develop and produce the Asanketken Field and sell 80% of crude oil production from Asanketken on the export market under the terms of its Blocks A&E exploration and production contract. Asanketken is currently capable of producing approximately 600 barrels of oil per day from its four productive wells.

Production Update

Production for the six month period to 30 September 2014 averaged 4,239 bopd, up 2% on 4,170 bopd in the six months to 31 March 2014 and up 17% on 3,630 bopd in the six month period to 30 September 2013. Since then, total production has averaged over 4,000 bopd comprising production from fields on continuous production of approximately 3,300 bopd, with the balance contributed by variable Test Production from the Sagiz West and East Kyzylzhar I fields. The Test Production is expected to be shut-in during the course of the remainder of the year as Test Production periods end. The Sagiz West and East Kyzylzhar I fields are expected to commence continuous production under a Trial Production Project in mid-2015.

ENQUIRIES:

Save where the context requires otherwise, capitalised and technical terms used in this announcement shall have the same meaning as ascribed to them in the Company's announcements on 22 July 2014 and 4 August 2014.

Kenneth Hopkins, Chief Operating Officer of Max Petroleum Plc, is the qualified person that has reviewed and approved the technical information contained in this announcement.  Mr. Hopkins holds a Bachelor of Science degree in Marine Sciences and a Master of Science degree in Geology from Texas A&M University and is a certified petroleum geologist with 32 years of experience in the oil and gas industry.

Reserve estimates have been compiled in accordance with the 2011 Petroleum Resources Management System produced by the Society of Petroleum Engineers.

Oriel Securities Limited is acting as sole financial adviser to the Company in relation to the Subscription.

Additional Information

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Oriel Securities Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for Max Petroleum and no one else in connection with the matters referred to in this announcement, and will not be responsible to anyone other than Max Petroleum for providing the protections afforded to clients of Oriel Securities Limited nor for providing advice in connection with the matters referred to in this announcement.

The Blackstone Group International Partners LLP, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for Max Petroleum and no one else in connection with the matters referred to in this announcement. In connection with such matters, the Blackstone Group International Partners LLP, its affiliates and their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person other than Max Petroleum for providing the protections afforded to clients of the Blackstone Group International Partners LLP or for providing advice in connection with the matters described in this announcement or any matter referred to herein.  The Blackstone Group International Partners LLP is acting as financial adviser to Max Petroleum solely in relation to the strategic review and formal sales process announced on 22 July 2014.

Disclosure requirements of the Takeover Code (the "Code")

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Forward-Looking Statements

This announcement contains certain forward-looking statements with respect to a possible subscription by AGR Energy for new Ordinary Shares in Max Petroleum. The words "believe," "expect," "anticipate," "project" and similar expressions, among others, generally identify forward-looking statements. Max Petroleum cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: the possibility that the Subscription will not be completed; failure to obtain necessary regulatory approvals or required financing or to satisfy any of the other conditions to the Subscription; adverse effects on the market price of the Ordinary Shares and on Max Petroleum's operating results because of a failure to complete the Subscription; failure to realise the expected benefits of the Subscription; negative effects relating to the announcement of the Subscription or any further announcements relating to the Subscription or the completion of the Subscription on the market price of the Ordinary Shares; significant transaction costs and/or unknown liabilities; general economic and business conditions that affect Max Petroleum following the completion of the Subscription; changes in global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates; changes in tax laws, regulations, rates and policies; future business combinations or disposals and competitive developments. These forward-looking statements are based on numerous assumptions and assessments made by Max Petroleum in light of its experience and perception of historical trends, current conditions, business strategies, operating environment, future developments and other factors it believes appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. The factors described in the context of such forward-looking statements in this announcement could cause Max Petroleum's plans with respect to the Subscription, actual results, performance or achievements, industry results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this announcement are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this announcement. Max Petroleum undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law or regulation.

Publication on Website                        

no later than 12:00 noon (London time) on the business day following the date of this announcement in accordance with Rule 30.4 of the Code. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.