Cadogan Updates License and Operations

Cadogan provides the following update with respect to the license challenge regarding Pirkovskoe and the latest status on key operations.

Legal Update

• As previously announced, on 25 February 2009, the Higher Administrative Court of Ukraine (the "Court") found in favour of Poltavanaftogazgeologiya (PNGG) in the appeal hearing in relation to the transfer of the Pirkovskoe license to Nadra Ukryainy (Nadra) in June 2007 (the "Decision")
• Notwithstanding this decision, Cadogan's license to operate the Pirkovskoe field remains valid and there has to date been no direct legal challenge to Cadogan's interest in this license
• Cadogan has been advised that new legal proceedings would need to be brought against Cadogan and would need to succeed before Cadogan's interests in its licenses would be affected
• The Ministry of Environmental Protection of Ukraine, has written a letter in support of Cadogan's position to the Court.
• Cadogan is still awaiting the written text of the judgement relating to the Decision which is expected during March
• Cadogan has yet to receive a date for the PNGG initiated appeal hearing with respect to the Zagoryanska license

As noted above, Cadogan's licenses remain valid and effective despite the Decision. The Board remains firmly of the view that the challenge to the antecedent license is wholly unwarranted and, were it to succeed, would pose an unacceptable risk to Cadogan. Accordingly, the Board believes that it is in shareholders' interests to take all necessary steps to defend the Company's title to its licenses all of which were acquired in accordance with all applicable regulations. Following extensive consultation with its legal advisers, the Board expects to lodge an appeal against the Decision at the Supreme Court of Ukraine. The Supreme Court of the Ukraine represents the highest judicial body in Ukraine.

Operations Update

Cadogan's operations are currently focused on the development of five wells, all of which are expected to yield test results within the next six weeks:


• Pokrovskoe #2 - currently drilled to 5,048m. Tests are currently being undertaken on the Visean (V23 and V24) with results expected mid March. Subject to the results of this testing program, drilling to target depth ("TD") of 5,400m will be carried out.
• Pokrovskoe #1 - currently drilled to 4,820m. The Visean (V21 and V22) is currently being prepared for testing with results expected within five weeks. Subject to the results of this testing program, drilling to target depth ("TD") of 5,400m will be carried out.


• Borynya #3 - currently drilled to 3,653m with significant gas shows encountered in mud. The hole is currently being prepared for testing in the Golovetsky formation at 3,600m with results expected within five weeks


• Pirkovskoe #1 - Testing on the V26 proved inconclusive with initial intermittent gas flows of circa 90,000 M3/day. As a result of these flow rate test results, the Tournasian has therefore been re-entered and Cadogan is preparing to undertake a hydraulic fracture of the Tournasian with results expected within four weeks.


• Zagoryanska #3 - the lower section of the V26 has been tested and results have shown intermittent flow rates with initial rates at circa 100,000m3/day. As a result of these flow rates being lower than initial expectations, the zone has been isolated and a hydraulic fracture will be undertaken in the upper V26. Results are expected within six weeks.

The tests are intended to demonstrate commercial flow rates and provide greater certainty as regards the production potential from these fields. In addition, sustainable commercial flow rates should aid in the conversion of current resources to reserves, work in relation to which is ongoing.

Cash Position

As at 1st March 2009, Cadogan's cash position is £61.1 million, (£74.5million 1st January 2009). This reflects recent expenditure levels in line with the forecast in our update of 18 December 2008. Cash is almost entirely held in the United Kingdom. During the first half of 2009, Cadogan has further committed expenditure of £55.6 million split between:

• Field appraisal and development - £ 18.9million
• Gas plant payments - £29.1 million
• Opex Costs £4.5million
• G&A costs - £ 3.1million

Next Steps

As set out in this statement, the Board is expecting significant operational news during March and April, particularly from the Pokrovskoe and Borynya fields, neither of which is subject to any legal dispute.

Following the decision of the High Court in the Ukraine, the Board has given careful consideration to the risks and benefits of continuing to invest in its assets in the Ukraine versus ceasing to operate there. Following this review, the Board has unanimously decided that it is, on balance, in the interests of shareholders to continue to develop the assets for the time being, given the expected near-term news flow from drilling operations and the legal advice it has received as to the likely outcome of its appeal to the Supreme Court of the Ukraine. In the event of a negative outcome in either of these respects, the Board will consult with shareholders concerning the options for the recovery of shareholder value. In the meantime, the Company will remain focussed on the conservation of cash to the greatest extent possible until the decision of the Supreme Court and current drilling results are known.

Mark Tolley, Chief Executive commented:

"It is unacceptable that the ongoing legal dispute initiated by PNGG continues to cast a shadow over our Pirkovskoe and Zagoryanska licenses. We continue to take steps to prevent any direct challenge to our interests in these licenses.

"Significant resources have been expended to date to commercialise our asset base. All our assets are within weeks of providing critical operational newsflow which will help determine their potential value and enable the Board to decide on the appropriate future strategy to realise it."