In June 2010 Kulczyk Oil Ventures has completed the acquisition of an effective 70% interest in KUB-Gas LLC (“KUB-Gas”). KUB-Gas is one of the largest private gas producers in the Ukraine and its principal assets consist of four producing gas fields, two service rigs and four gas processing facilities. The KUB-Gas licenses (Vergunskoye, Olgovskoye, Makeevskoye, North Makeevskoye and Krutogorovskoye) are situated in the north-eastern part of Ukraine in the Dnieper-Donets Basin and Pripyat Graben. The area accounts for 90% of the oil and gas production of Ukraine and is well served by transport infrastructure.

Highlights:

Production:

• Gas production has averaged 8,579 Mcf/d (70% net: 6,006 Mcf/d) for the year 2011. Gas production in the fourth quarter of 2011 was 12,061 Mcf/d (70% net: 8,443 Mcf/d).
• Average production in the fourth quarter of 2011 was more than double the average production rate in 2010.

Wells:

        In the eighteen months since KOV acquired the interest in Ukraine, 7 wells have been drilled, including 5 wells drilled in 2011.

Makeevskoye

• M-19: the first well drilled since the acquisition of KUB-Gas by KOV, commenced production in July 2011 at a rate of 5 MMcf/d.
• M-21: drilling was completed in March 2012. The well, which was drilled to a TD of 2,210 metres, encountered two potential gas-bearing zones. Production testing of the M-21 well is expected to commence in the second quarter of 2012.

Olgovskoye

• O-6: drilling was completed in 2008.  The first well tested in our fracture stimulation program in September/October 2011, it flowed gas at a rate of 2.3 MMcf/d. Production commenced in February 2012 at a rate of 1,5 MMcf/d.
• O-7: drilling was completed in Q4 2009 on this first development well to be drilled in cooperation with KOV technical team.  The well commenced production in November 2010 at a rate of ca. 1.5 MMscf/d;
• O-8: drilling was completed in the first quarter of 2011.  The second well in the fracture stimulation program, the O-8 well was tested in November 2011 and flowed gas at a rate of 1 MMcf/d. Production commenced in March 2012 at a rate of 1 MMcf/d.
• O-9: drilling was completed on April 4 2011 and the well commenced production in September 2011 at a rate of 2 MMcf/d.
• O-12: drilling was completed in early September 2011 and the well commenced production in January 2012 at a rate of 4,6 MMcf/d.
• O-14: reached TD in July 2011 and cased as a potential gas well.
• O-18 drilling completed on 4 November 2011. Production commenced in March 2012 at a rate of 1 MMcf/d.

Seismic:

• The Company commenced a 3D seismic survey of the Olgovskoye and Makeevskoye fields in the first half of 2011. Processing and data interpretation was completed during the third quarter of 2011 and defined a number of potential locations for further development on both licenses. Most notably, it illustrated a potential areal extent of approximately six square kilometres for the new gas zone discovered by the M-19 well and defined two new locations, M-21 and M-16.
• A 71 kilometre 2D seismic program over this license was completed in second quarter 2011, and data interpretation has defined the first drilling location on this license. The first exploration well (NM-1) is expected to be drilled in the first quarter of 2012.