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CEO's Quarterly Message

“During Q3 2017 we increased average daily production and sales by 24% versus Q2 2017 due to the addition of production from the ZAB-1ST well. Gross (100%) oil production averaged 3,600 bbl/d in Q3 2017 and 3,800 bbl/d in October 2017. All production has been sold via the export pipeline and payments for export sales through the end of July have been received in full. Higher sales volumes combined with higher realised oil prices helped us achieve higher net revenue and our highest quarterly netback since 2015.

In recent weeks we have conducted workovers of the Demir Dagh-8 and Demir Dagh-7 wells attempting to re-complete both wells in the Shiranish formation in the Cretaceous reservoir. Efforts to bring the wells on to production, including acid stimulation, have not yet succeeded and additional efforts are planned in the coming weeks.

We have not experienced any meaningful disruptions to our production operations or delays in receiving sales revenue due to disputes resulting from the Kurdistan Region independence referendum. However, we are delaying further drilling activity until the uncertainty around governance of the oil industry in the Kurdistan Region is addressed and the travel restrictions that restrict our ability to mobilise equipment and personnel are lifted.

Full processing and interpretation of 3D seismic data covering the AGC Central license area is in advanced stages. Initial results are very encouraging with several large prospects identified. Prospect identification and mapping is expected to be completed by the end of 2017 with exploration drilling planned in 2019.

We continue to make progress managing and restructuring legacy obligations and commitments. In recent days we have finalised an agreement with the authorities governing the AGC license areas to relinquish the AGC Shallow license and transfer the unfulfilled work commitment to the AGC Central license area for a modest cost. The agreement allows us to defer a sizable obligation otherwise due in March 2018 to a license where we plan significant activity in the next couple of years. We have also commenced efforts to divest our interests in Congo (Brazzaville).

Our 2018 capital budget is focused on our core license areas: the Hawler license in the Kurdistan Region, and the AGC Central license offshore Senegal and Guinea Bissau. In the Hawler license our program includes the drilling or re-entry of eight wells and has been designed to allow us to significantly increase production and better define the development potential of the three key fields in the license. Our budgeted capital expenditures in the AGC Central license are almost all in the second half of 2018 and include a final payment for the acquisition of 3D seismic data currently being processed and interpreted, and preparations for exploration drilling planned in 2019.

We expect that cash on hand and cash receipts from net revenues will allow us to fund forecasted capital expenditures and operating and administrative costs through late 2018.

We look forward to implementing our plans in 2018 and achieving both higher production in the Hawler license and preparing for an exciting exploration drilling program in the AGC Central license area in 2019.”