US Oil & Gas (USOPY)

[Sionica]

Annual Financial Report
U.S. Oil & Gas Plc.
27 February 2015

Consolidated Audited Annual Results for 30 September 2014

The Company is pleased to report its final results for the year ended 30 September, 2014.

Operational Highlights

- Geophysical and geochemical survey of the full acreage
- Field Development Plan
- 3D basin modelling study
- Drill targeting study
- Consolidation of online Data Room

Corporate highlights

- Continuing dialogue with partners
- Suspension by GXG Markets

Financial Highlights

Administration expenses $492k (2013: $1,601k). The decrease in expenditure was primarily due to the reduced exploration activity over the period and reduced legal and professional fees.

Total comprehensive loss $492k (2013: $1,599k) and cash and cash equivalents $520k (2013: $986k). As a result of VAT refunds, the cash and cash equivalents on hand as at 31 December 2014 amount to just over $358k. The Company is debt-free.

A detailed cash flow based on present resources indicates that the Company has sufficient working capital for 12 months. This sum is excluding a repayable Bond of $100,000 lodged with US regulatory authorities to cover possible future well reclamation costs, part or all of which may be recoupable.

Review of the year ended 30 September 2014

The twelve months to 30 September 2014 saw intense activity in both exploration and corporate spheres. Additional data sets were collected on the land acquired in 2012, and a significant marketing effort was undertaken leading to intensive partnership discussions.

On May 23, 2013, the Company announced the findings of an independent Competent Person's Report (CPR) prepared by Forrest Garb & Associates (FGA). Although the Eblana-1 well was not commercial, it did establish the presence of hydrocarbons. Best Estimate (P50) of Total Prospective Recoverable oil for the Company's full acreage was 57.2 million barrels. Contingent Recoverable oil for the immediate area of the Eblana #1 well (P50) was estimated at 19.256 million barrels. The High estimate (P10) for the Hot Creek Valley Prospect was 3,342,163 million barrels.

Since the publication of the CPR, we have followed FGA's recommendation that further surveys be undertaken to establish the direction of 'updip' from Eblana-1. In late 2013 and into 2014, the Company undertook a reconnaissance Geochemical survey of its hitherto unsurveyed acreage and carried out Gravity Magnetic and Geochemical surveys of the area around the Eblana #1 well.

Results from the surveys were reported in May 2014. The data collected were used to complete a full geological model of the target area and have provided the structural information required for provisional targeting of the next drills. The data also confirms that the oil reservoir previously identified, and targeted by the Eblana-1 well, extends significantly further South to South West into the Company's acreage. The survey of the wider acreage suggests the possibility of a large-scale field in Hot Creek Valley.

A Field Development Plan was also completed in 2014. The plan modelled exploration and production factors, resource and infrastructure requirements as well as potential economic performance for a number of different development scenarios and has since proved invaluable in discussions with potential industry partners.

Corporate and Planning

The primary focus of the Company's corporate activity has been to establish the strategic partnerships necessary to develop the Hot Creek Valley discovery. The Company engaged in dialogue with several potential partners about farm outs, investments, joint ventures, loans and other options. A comprehensive Data Room was established to facilitate discussions.

Post Balance Sheet Events

Industry environment

Since the end of this reporting period, the Oil and Gas industry has been shaken by a precipitous fall in the oil price. This followed on from a year in which escalating production costs in the US had already led many Companies to divest themselves of peripheral assets and consolidate their activities in core regions.

Partnership discussions
In spite of a turbulent environment and the GXG Markets suspension (see below), partnership discussions continue.

Drilling programme

As previously announced, drilling activities the Company hoped to carry out in Q4 of 2014 were dependent on partnership and/or further funding being finalised within the required time-frame. Since that did not occur, further drilling was deferred until such time as a partnership or funding agreement is achieved.

GXG Market

On December 15th 2014, trading in the Company's shares was suspended on the GXG Markets. The basis for the suspension, as communicated to the company by GXG Markets, was 'a disorderly market' seemingly connected to letters of complaint, including anonymous letters, internet comment and the breaking of unspecified market rules.

GXG requested that 'clarifications' be sent to them by January 5th 2015. The Company submitted its clarifications on 23 December, 2014, supported by documentation. On February 10, 2015, GXG Markets announced that a Due Diligence Report on US Oil and Gas would be requested. The Board of US Oil and Gas unreservedly welcomes this exercise and hopes that the process is expedited in the interests of the Company and shareholders. The Board expects that the Due Diligence Report will effectively and finally put an end to a sustained campaign of vilification and defamation directed against the Company.

Outlook

Given the unpredictable nature of oil and gas exploration in terms of time and cost, and especially in the light of current industry turbulence, the Board's policy of minimising fixed costs and conserving funds has been entirely vindicated. This approach has placed an enormous burden on the team and has delayed certain desirable developments in terms of recruitment and company infrastructure but has undoubtedly contributed to the company's financial stability to date.

I believe that US Oil & Gas has, in this last period, made excellent progress in a difficult environment. The overriding Company objective remains to drill further wells in Hot Creek Valley, to progress the project towards a commercial find, to move our Contingent Resources further up the value chain to Proved Reserves, to further delineate the extent and size of the oil system, and to achieve an industry partnership allowing the further development of the asset.

Brian McDonnell
Chairman