Madagascar Oil Ltd : Proposed New Financing Transaction

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN
15 January 2013

MADAGASCAR OIL LIMITED

("Madagascar Oil" or the "Company")

Proposed New Financing Transaction and Adjournment of Special General Meeting

Madagascar Oil is pleased to announce that the Company has received a detailed proposal for an alternative financing transaction (the "New Financing Transaction") to the financing transaction announced on 18 and 20 December 2012 (the "Original Financing Transaction"), details of which were set out in the circular dated 28 December 2012 (the "Circular").
Accordingly, the Board has adjourned the Special General Meeting in order fully to explore the proposed New Financing Transaction, which is seeking to raise gross proceeds of up to US$65 million from a pre- emptive issue of new Common Shares (the "Pre-Emptive Share Issue").
The Pre-Emptive Share Issue would be undertaken at a subscription price of US$0.29 (18 pence) per Common Share (the "Subscription Price") and firm commitments have been received in respect of subscriptions in an amount of US$33.4 million (gross) from investors including a number of existing institutional Shareholders. Further discussions between the Company and other substantial Shareholders are continuing with regard to their participation in the New Financing Transaction and a further announcement will be made as and when appropriate.
The existing Bridge Loan of US$15 million, which was provided by Persistency and BMK on 21 December
2012 (the "Original Bridge Loan") remains in place and the Company is in discussions to obtain an extension to the current repayment date of 31 January 2013, pending conclusion of the Pre-Emptive Share Issue. The Board is confident that should such an extension not be forthcoming, the Company will be able to refinance the Original Bridge Loan prior to its expiry.
It is envisaged that the Original Bridge Loan, or any replacement bridge loan, will be repaid from the proceeds of the issue of new Common Shares at the Subscription Price, pursuant to the Pre-Emptive Share Issue.
As previously disclosed, a break fee of US$3 million will become payable to BMK and Persistency if the
Original Bridge Loan is repaid through the New Financing Transaction.
The Company has opted to adjourn the Special General Meeting convened in relation to the Original Financing Transaction, as the Board believes that, if completed, the terms of the New Financing Transaction would represent the most attractive financing option for the Company. However, the Board would note that the Original Financing Transaction remains available, subject to approval by Shareholders at the adjourned Special General Meeting.

Pre-Emptive Share Issue

The Company is seeking to raise gross proceeds of up to US$65 million under the Pre-Emptive Share Issue, which will be made available to Shareholders, pro rata to their existing shareholdings in the Company, subject to certain usual exclusions, permissible under the Bye-Laws for legal and regulatory reasons, in order to ensure that the New Financing Transaction can be actioned as promptly as possible. Full details of the New Financing Transaction will be set out in a circular to be sent to Shareholders in due course.
The Company has received binding commitment letters from certain existing Shareholders, to subscribe for approximately 115 million new Common Shares to raise gross proceeds of US$33.4 million. Further discussions between the Company and other substantial Shareholders are continuing with regard to their participation in the New Financing Transaction and a further announcement will be made as and when appropriate.
It is expected that the Pre-Emptive Share Issue will be completed by 18 February 2013 and that the Original Bridge Loan or any replacement bridge loan will be repaid from the proceeds of the issue of new Common Shares at the Subscription Price under the Pre-Emptive Share Issue.
All parties are currently working to complete the relevant documentation in connection with the New Financing Transaction, such that should the Board proceed with the New Financing Transaction, it can do so as expeditiously as possible.
A further announcement will be made in respect of these matters in due course.

General

The Directors believe that, if completed, the terms of the New Financing Transaction would represent the most attractive financing option for the Company and, accordingly, the Special General Meeting, to be convened at 10.00 a.m. on 15 January 2013, has been adjourned until 10.00 a.m. on 30 January 2013.

Board Appointments

In accordance with the terms of the Relationship Agreement, the Benchmark Parties have the right to appoint an additional director to the Board and the Company is currently awaiting notification from the Benchmark Parties as to the identity of the proposed second designated director, so that the due diligence required under the AIM Rules can be commenced and, accordingly, his appointment will be delayed until completion of this process.
In addition, the Company is in ongoing discussions with its Shareholders with regard to further increasing the number of independent directors on the Board and a further announcement on this matter will be made as and when appropriate.

Paul Ellis, Chief Executive Officer of Madagascar Oil, commented:

"We are pleased to have received these financing proposals and look forward to progressing these discussions such that the Company can access the most attractive financing package possible and we are grateful for the support we have received from our Shareholders.

With a strengthened balance sheet the Company can continue its operational progress with the Steam

Flood Pilot where cyclic steam stimulation (CSS) will shortly commence."

All defined terms in this announcement have the meanings given to them in the announcement of 18
December 2012 and the Circular, unless stated otherwise or the context so requires.

Contact Information:

Madagascar Oil Limited Andrew Morris, Non Executive Chairman Paul Ellis, Chief Executive Officer	[phone]
Strand Hanson Limited Stuart Faulkner Angela Hallett David Altberg	[phone]
Mirabaud Securities LLP Rory Scott	[phone]
Pelham Bell Pottinger Mark Antelme Henry Lerwill	[phone]