Interim report January - March 2014 (for full report, see

(for full report, see attached file) Over 80% increase in Q1 production compared to last year   • Total revenue for the period: SEK 32 (23) million • Operating result for the period: SEK 9 (6) million • Operating margin: 29% (25%) • Basic earnings per share: SEK 0.55 (0.35) • Diluted earnings per share: SEK 0.53 (0.35)   ┌───────────────┬──────┬──────┬───────┬──────────┬──────────┬─┬─┐ │ │Q1 │Q1 │Q1-Q4 │ │ │ │ │ │Oil production │ │ │ │Q1-Q4 2012│Q1-Q4 2011│ │ │ │ │2014 │2013 │2013 │ │ │ │ │ ├───────────────┼──────┼──────┼───────┼──────────┼──────────┼─┼─┤ │Barrels │84,760│46,750│248,870│177,850 │77,300 │ │ │ ├───────────────┼──────┼──────┼───────┼──────────┼──────────┼─┼─┤ │Barrels per day│942 │519 │682 │486 │212 │ │ │ └───────────────┴──────┴──────┴───────┴──────────┴──────────┴─┴─┘   Statement from the CEO Shelton Petroleum continues to record strong profitability. The operating margin in the first quarter amounted to 29%, which is a significant improvement compared to 25% in the first quarter last year. The improved profitability is a direct effect of the increase in production by over 80% from 519 to 942 barrels per day following the successful drillings in Bashkiria. In February, Shelton Petroleum published a geologic update highlighting the very encouraging implications of the latest #12 well on the Rustamovskoye oil field in Russia. The new well demonstrated a significantly larger net pay compared to previous wells. It also extended the known oil column to 45 meters. If the thickening pay can be demonstrated in new wells, then the economics of future wells and total field potential in terms of reserves and resources will improve significantly. The production at Lelyaki amounted to 370 barrels per day net to Shelton Petroleum, which is the highest that the company has recorded since the acquisition of its interest in the field. The operations at Lelyaki are unaffected by the recent geopolitical events in Ukraine. The Russian annexation of Crimea, on the other hand, has led to an increased risk regarding potential future benefit from our Joint Investment Agreement (JIA) with Chornomornaftogaz. The JIA accounted for 0% of revenue in the first quarter and 2% of the assets in the balance sheet as of 31 March 2014. The recent presidential election with Petro Poroshenko receiving a majority of the votes in the first round could well be considered an important step in the normalization of the Ukrainian political situation. In April, Shelton Petroleum completed the public offer to the shareholders in Petrogrand, making it the largest shareholder with 29% of the shares. Petrogrand has in turn announced a cash offer, conditional on certain factors, to the shareholders in Shelton Petroleum expiring 1 July. The disputes and strained relationship with Petrogrand are negatively affecting Shelton Petroleum and its shareholders. The management and board believe that it is in the interest of both companies to solve our differences and instead focus on developing our respective license portfolios. Having said that, I am pleased with the operational performance during the first quarter with increased production and strong profitability.   Robert Karlsson   January - March 2014 Financial development Revenue from oil sales amounted to SEK 32 (23) million. During the period, Shelton Petroleum sold 74,370 (43,410) barrels of oil and produced 84,760 (46,750) barrels of oil. The production has increased in both Russia and Ukraine compared to the same period last year. The prices of oil in USD in both Russia and Ukraine were slightly lower compared to the same period of 2013. The average daily production during the period amounted to 942 barrels compared to 519 barrels in 2013 and 455 barrels in 2012. The company reported an operating result for the period January – March 2014 of SEK 9 (6) million. The group held SEK 28 million in cash and cash equivalents at the end of the period compared to SEK 34 million at 31 December 2013. Cash flow for the period was SEK -5 (-8) million. Cash flow from operational activities was SEK 5 (2) million for the period. In January Shelton Petroleum paid back a convertible loan to Petrogrand in the amount of SEK 185 million. The cash used to pay back the loan was held on a blocked account. The company’s accounts receivable, included in other current receivables in the balance sheet, amounted to SEK 43 (38) million. At the end of 2013 the accounts receivable amounted to SEK 49 million of which SEK 15 million is outstanding as of 29 May 2014. SEK 41 million of the accounts receivable balance at the end of March is related to sale of oil from the Lelyaki field, where the buyer of the oil makes payments with delays. The validity and the outstanding amount as of 31 March 2014 have been confirmed by the counterparty. Management believes that the receivables will be settled in full and monitors the situation closely. Shelton Petroleum’s wholly owned Canadian subsidiary has received approximately SEK 8 million in dividends from Kashtan Petroleum, operator of the Lelyaki field, during the period January – May 2014 that can be used freely within the Shelton Petroleum group for investments and working capital. Investments in exploration and development activity amounted to a total of SEK 8 (10) million for the period. Non-current financial assets amounted to SEK 80 million at the end of the period compared to SEK 0 million at 31 December 2013, and consisted of shares in Petrogrand. As of 31 March 2014 Shelton Petroleum had acquired 10,051,912 shares in Petrogrand, see below. Shareholders' equity per share at 31 March 2014 was SEK 21.25 (26.20) and the equity to assets ratio was 83 (55) %. In January 2014 Shelton Petroleum settled the convertible loan from Petrogrand AB which increased the equity to assets ratio. During the first quarter of 2014 the currencies of Russia and Ukraine have weakened against the Swedish Krona. As of 31 March 2014 the Russian Rouble depreciated by 8% and the Ukrainian Hryvnja by 22% against the Swedish Krona compared to the exchange rate at 31 December 2013. As a result of the weakened local currencies Shelton Petroleum reports translation differences in other comprehensive income of SEK -52 (-2) million in the first quarter. The translation differences arise when the income statement and balance sheet of the Russian and Ukrainian entities’ are translated from local currency to SEK.  The translation differences mainly relate to intra-group loans and fixed assets that do not affect cash flow. See note 7 for a table of exchange rates that have been used. Shelton Petroleum’s wholly owned subsidiary Shelton Canada Corp is party to a Joint Investment Agreement (JIA) with Chornomornaftogaz (CNG) regarding three licenses in the Azov Sea and Black Sea to which CNG is the license holder. Following a referendum on 16 March 2014, Crimea has declared independence from Ukraine and requested to be part of the Russian Federation, which has been granted by the Russian President and the Russian Parliament. The new Crimean Prime-minister has declared that the CNG interests on Crimea have been nationalized by the Crimean Republic. It has been reported that private interests and agreements will be respected. Neither the referendum nor the nationalization of CNG, which is in violation of the Ukrainian constitution, has been recognized by the government in Kiev or the Western community. Due to the events described above, the board of directors of Shelton Petroleum perceives an increased risk regarding potential future financial benefit from the JIA with CNG. The company will continue to closely monitor the developments and believes that a potential adjustment of the values can be made only when the situation has normalized. The JIA accounted for 0 per cent of Shelton Petroleum’s revenue and profit in the first quarter 2014 and approximately 2 per cent of total assets in the balance sheet as of 31 March 2014. The carrying value of the JIA was SEK 10 million, net of deferred taxes, as of 31 March 2014.   Public offer to the shareholders of Petrogrand AB In January 2014 Shelton Petroleum announced a public offer to the shareholders of Petrogrand AB (“Petrogrand”). Initially Shelton Petroleum offered 0.3 shares of series B in Shelton Petroleum for each share in Petrogrand. The offer was subsequently raised to 0.34 and finally to 0.44 shares. On 14 April 2014 Shelton completed the offer. On the completion date Shelton Petroleum had received 11,585,308 shares in Petrogrand and in exchange for those shares issued 5,097,534 shares of series B in Shelton Petroleum. On 21 March, Petrogrand announced an offer to the shareholders of Shelton Petroleum.   Russian operations Shelton Petroleum’s production of oil in Russia during the first quarter amounted to 51,500 (17,655) barrels. Production per day amounted to 572 (196) barrels, which is an increase of 192% compared to the same quarter last year. Revenue in the first quarter for the Russian segment amounted to SEK 12 (4) million and operating profit to SEK 5 (1) million, corresponding to an operating margin of 42% (25%). The higher operating margin compared to previous periods is due to the economies of scale that the incremental production provides. During the quarter, Shelton Petroleum announced a geologic update on the company’s new and improved view on its Russian oil fields following the positive drilling results of the recent #12 well. The well demonstrated a net pay of nine meters compared to up to three meters in previous wells. It also extended the known oil column to 45 meters. If the thickening pay can be demonstrated in new wells, then the economics of future wells and total field potential in terms of reserves and resources will improve significantly.   Ukrainian operations Production in the first quarter amounted to 33,260 (29,095) barrels. Production per day amounted to 370 (323) barrels which is an increase by 16% compared to the same quarter last year. This is the highest production that the company has recorded since the acquisition of its interest in the field. Revenue in the first quarter in the Ukrainian segment amounted to SEK 20 (18) million and operating profit to SEK 8 (8) million, corresponding to an operating margin of 41% (44%). Shelton Petroleum (Zhoda 2001 Corporation) and its partner Ukrnafta, Ukraine’s largest oil and gas company continue the field development program on the Lelyaki field. The objective is to step by step enhance productivity and increase production volumes through a program consisting of new wells, sidetracks and workovers. Significant events occurring after the reporting period On 14 April 2014 Shelton Petroleum finalized and completed the offer to the shareholders of Petrogrand AB. In total Shelton Petroleum acquired 11,585,308 shares in Petrogrand AB, corresponding to 28.8 percent of the votes and shares of Petrogrand AB. On 22 April 2014 the Swedish Companies Registration Office (Sw. Bolagsverket) published a notice for an extraordinary general meeting in Shelton Petroleum to be held on 13 May 2014. The meeting was to appoint a new board of directors in Shelton Petroleum. The extraordinary meeting had been requested by Petrogrand AB on 18 March 2014. Following a ruling by the Administrative Court of Appeal (Sw. Kammarrätten) on 29 April 2014 in favor of Shelton Petroleum, the notice for the extraordinary meeting was cancelled. On 2 May 2014 Shelton Petroleum held an extraordinary meeting that resolved to appoint a minority auditor. On 14 May 2014 Shelton Petroleum repurchased SEK 9.5 million of the outstanding convertible bond 2013/2014 in exchange for shares of series A in Shelton Petroleum. On 19 May 2014 Shelton Petroleum announced a new date for the annual general meeting, which will be held on 30 June 2014.   Change of number of shares   In March 2014 Shelton Petroleum issued 4,422,841 shares of series B and in April 2014 Shelton issued 674,693 shares of series B under the public offer to the shareholders of Petrogrand AB. In May 2014 Shelton Petroleum repurchased part of the outstanding convertible bond 2013/2014 in exchange for shares of series A. As a result the company issued 593,750 shares of series A. Following the issues of shares of series A and B the total number of shares in Shelton Petroleum amounts to 17,854,372, divided into 764,330 of series A and 17,090,042 of series B. The number of votes in the company increased by 11,035,034 the total number of votes amounts to 24,773,342. The share capital in Shelton Petroleum increased by SEK 28,456,420 and amounts to SEK 89,271,860.   The parent company The parent company's total assets as at the period end amounted to SEK 402 (512) million. Cash and cash equivalents amounted to SEK 22 (26) million. The result after tax January – March 2014 was SEK 7 (-1) million.   Annual General Meeting and dividend The annual general meeting will be held on 30 June 2014 in Stockholm. The Board proposes that no dividend is paid for the financial year 2013.   Risk factors and uncertainties A detailed description of the risks facing the company can be found in the 2013 annual report. Risks include exploration risk, oil price risk, exchange rate risk, liquidity risk, credit risk, interest rate risk and political risk, among others.   Upcoming financial reporting Interim Report January – June 2014                                   22 August 2014 Interim Report January – September 2014                          21 November 2014 Annual General Meeting 2014                                            30 June 2014   Publication under Swedish law Shelton Petroleum is publishing this information in accordance with the Swedish Financial Markets Act (Sw. Lag om värdepappersmarknaden) and/or the Swedish Financial Trading Act (Sw. Lag om handel med finansiella instrument). This information was released for publication on 30 May 2014 at 08:10 CET.   This report has not been reviewed by the Company’s auditors.   For more information, please contact: Robert Karlsson, CEO, +46-709 565 141 robert.karlsson@sheltonpetroleum.com                                                                                     Shelton Petroleum AB                  Swedish corporate identity number: 556468-1491 Hovslagargatan 5B                       SE-111 48 Stockholm Tel: +46 8 407 18 50 www.sheltonpetroleum.com info@sheltonpetroleum.com