29 August 2008

Salamander Energy plc

("Salamander" or the "Company")

Interim Results

For the six months ended 30 June 2008

Salamander Energy, an independent upstream oil and gas exploration and production company focused on Asia, announces interim results for the six months ended 30 June 2008.

HIGHLIGHTS

FINANCIAL 

OPERATIONS 

Commenting on the results, Salamander's Chairman Charles Jamieson said: 

"The first half of 2008 has been one of continued expansion with successful drilling, M&A and portfolio development activity. Following the start up of production from the Bualuang oil field, Gulf of Thailand, production is expected to increase significantly in the second half of the year. With the Kambuna development continuing to progress we are forecasting further production growth in 2009. 

The Company is in a healthy financial position following a strong first half year performance, the completion of the debt refinancing and subsequent equity fundraising. These factors combined with an active drilling programme over the next 18 months, put the Company in an excellent position to deliver strong growth in shareholder value."

(2) All reserves and production are working interest unless otherwise stated

Enquiries:    

  Salamander Energy Plc

Interim Results for six months ended 30 June 2008

Chairman and CEO's Review

The first half of the year has seen Salamander grow its reserves, production and acreage positions. Average production for the period was approximately 8,200 boepd, an increase of approximately 6.5 per cent on the same period last year. In addition, the portfolio was expanded both organically and through the completion of the acquisition of GFI Oil & Gas Corporation, whilst the appraisal drilling programme yielded a number of positive results. In addition, the Company refinanced its prior borrowings and acquisition bridge financing through the closing of a new reserve based lending facility, providing greater, long term financial flexibility. 

Our financial position has since been further strengthened with the completion in August 2008 of a $200 million Placing and Open Offer. This funding will enable the Company to accelerate its growth plans and take full advantage of a wide range of opportunities presently available across Asia that will provide visibility on near term production growth and exploration drilling.

Financial Results

The Group made a loss after tax of $6.6 million (H1 2007: profit of $3.8 million) on revenues of $46.8 million (H1 2007: $32.3 million). These figures included an exploration write off of $10.2 million (H1 2007: nil), attributable to the Gurame-1X well on the Seruway PSC, North Sumatra. The underlying financial performance was strong with EBITDAX of $29.7 million (H1 2007: $20.5 million). Average realisations of $111.31 per bbl (H1 2007: $58.95) and $4.80 per Mscf (H1 2007: $3.59) were achieved in the first half. The increase in gas realisation was driven by Sinphuhorm gas, which is indexed to the oil price. The Group had a net debt position of $102.0 million at 30 June 2008 (30 June 2007: net cash of $129.6 million). 

During the past year, Salamander has taken on a number of operatorships, including its two large near-term development and production assets, the Bualuang oil field and the Kambuna gas-condensate field. As a result, we have significantly more control of ongoing expenditure and hence cash flows, which provides commensurate levels of visibility and flexibility. 

Operational Progress

The drilling programme that commenced in December 2007 with the successful appraisal of the South Sembakung field in the Simenggaris PSC, East Kalimantan, Indonesia continued in the first half of 2008. Four appraisal wells were completed in the first half, two of which - Tutung Alpha-1 and Dong Mun-3 - were successful. The second half of 2008 will see a shift in emphasis towards higher impact exploration. We recently announced that the Lumba Lumba-1 well in the Philippines was unsuccessful (this well will be written off in the second half of 2008), but believe that this block has significant further potential. Looking forward our Asian exploration drilling program will see us test a variety of play types in a number of different basins, which reflect the breadth and diversity in our portfolio.

Portfolio Development

The acquisition of GFI Oil & Gas Corporation was completed in March 2008, while the Company also added interests in the Bengara-1 PSC, East Kalimantan and the Champasak & Saravan PSC in Lao PDR during the first half of the year. The opportunities available in Asia remain varied and significant, as demonstrated by a number of transactions announced in July 2008. These have seen Salamander expand its position in the Glagah-Kambuna TAC, offshore North Sumatra, (where we have also assumed the operatorship), and agree to acquire a 23.4 per cent interest in the Kutai PSC, East Kalimantan, Indonesia and an additional 20 per cent interest in the Bontang PSC, also in the Kutei basin, East Kalimantan. Business development activity continues apace and the Company is investigating further expansion into new Asian basins. 

Current Trading and Outlook

Production from the Bualuang oil field commenced on 27 August 2008. The field is expected to contribute around 3,000 boepd of additional production (net to Salamander) for the remainder of 2008, enabling us to target an average production rate of approximately 9,000 boepd for 2008. Also in August, we were pleased to receive confirmation that a plan of development for the South Sembakung field in the Simenggaris PSC, Indonesia, was approved by the Indonesian authorities, that is expected to see production commence towards the end of 2010, further expanding and diversifying Salamander's production base. 

The Board strongly believes that there are a number of opportunities, both new and within the existing portfolio, to accelerate the growth of the Company. The proceeds of the Placing and Open Offer will enable Salamander to accelerate and expand its planned activity above and beyond that previously outlined. With the commodity price environment remaining robust and a new oil field on-stream, Salamander is on course to deliver a strong performance in the second half of the year that will result in increased production plus potential reserve growth from an active exploration drilling programme. Overall, the Company's future growth prospects remain excellent. 

Charles Jamieson    James Menzies

Chairman                  Chief Executive Officer

28 August 2008         28 August 2008

Review of Operations

The first half of 2008 has been notable for a marked increase in the level of operational activity. Salamander has been busy progressing its first operated development project, which culminated with production at the Bualuang oil field commencing in August 2008; carrying out an appraisal drilling programme that saw four wells completed in the first six months of the year; and interpreting and gathering data in readiness for the active exploration drilling programme that commenced in July 2008 and will continue for at least the next 18 months. 

Health, Safety and the Environment

It is pleasing to report that, despite a marked increase in the number of man-hours worked as the level of operational activity increased, we maintained our record of zero lost time incidents during the period.  

Production and Reserves

Production for the first half of the year was 8,200 boepd and comprised 44% liquids and 56% gas. This figure is expected to increase in the second half of the year as the Bualuang oil field, which came on stream on 27 August 2008, makes its first contribution. Average production for the full year is expected to be in the region of 9,000 boepd.

Salamander started the year with 56.6 MMboe (on a pro-forma basis including GFI Oil & Gas Corporation) of proved and probable (2P) reserves. Following completion of development drilling, RPS Energy conducted independent reserve reviews of the Kambuna and Bualuang fields. This review resulted in reserve upgrades to both fields. The 2P reserves estimate for the Bualuang oil field increased from 15 MMbo to 20 MMbo, adding 3 MMbo of reserves net to Salamander. The 2P reserves in the Kambuna field were increased from 25 MMboe to 29 MMboe, adding a further 1.2 MMboe of reserves net to Salamander.

In July 2008, we announced a transaction with Serica that provided Salamander with an additional 15% interest, and operatorship, of the Glagah-Kambuna TAC. This adds a further 4.4 MMboe of net 2P reserves. 

2P reserves at 30 June 2008 were approximately 60 MMboe and proforma 2P reserves at 30 June 2008, including the additional equity interest in the Glagah-Kambuna field, 64 MMboe.

Greater Mekong Region

Thailand

The Bualuang oil field development was completed in the first half of the year with the drilling of six development wells on the field, five producers and one water injector. Following the arrival on location of the FPSO in late July, production commenced on 27 August 2008 from the BA-05 well.  Following a period of multi-rate testing of this well, the other producers will be brought on-stream sequentially in early September 2008.

During the period Salamander acquired the existing 2D seismic data for Block B8/38 and initial interpretation of this data indicates that, in addition to the previously identified Bualuang East prospect, there are at least two further prospects that appear to be analogous to the Bualuang field itself. Up-dip potential in Bualuang has been defined and deeper reservoir targets under the main reservoir are also present. Salamander intends to conduct a 3D seismic survey over the B8/38 concession area in early 2009 and to drill development, appraisal and exploration wells during the year.

Sinphuhorm is now established as a stable producing gas field and average production in the period was 86 MMscfd. The South Phu Horm-1 appraisal well was drilled in April 2008 to test the potential extension south into the surrounding L15/43 concession. The well tested gas at rates that would not support commercial production from this drilling location and has been suspended pending further evaluation and studies whereupon the forward programme for the well and southern extension to the Sinphuhorm field will be determined. The field partners have commenced planning for a 3D seismic programme over the Sinphuhorm field in order to better image the reservoir.

The Dong Mun-3 appraisal in Block L27/43 was drilled in the Q1 2008 and encountered gas in the primary reservoir objective, the Pha Nok Khao carbonates, and in several shallower clastic zones. The well has been suspended pending further evaluation and the shallow gas shows have highlighted the potential of the large Phu Kheng prospect immediately to the north of Dong Mun. When mapped, the Phu Kheng structure covers an area of approximately 125,000 acres and is thought to have the potential for multi-Tcf resources in place. An exploration well on the Phu Kheng prospect is planned for Q4 2008.

Following soon after the Phu Kheng well, will be the appraisal of the Si That discovery in block L13/48, Northeast Thailand. Si-That 1 was drilled by Esso in 1983 and the well flowed substantial quantities of water on test, indicating good reservoir quality, but only minor quantities of hydrocarbons. Current mapping shows it was drilled outside of closure. In 1997, Cairn Energy plc drilled the Si That-2 well in a more crestal location, encountering poor quality reservoir and flowing at 1.25 MMscfd. Si That-3 aims to appraise the mapped structure, targeting the Pha Nok Khao formation in a crestal location where seismically defined faulting should add to the permeability of the Pha Nok Khao reservoir.

Lao PDR & Vietnam

During the first half of the year a seismic survey commenced over the Non-Chan prospects in the Savannakhet PSC. This survey has now been completed and is presently being interpreted in-house to finalise the drilling location for Salamander's first exploration well in Lao PDR which is expected to be drilled on one of the two extensive gas prospects in Q1 2009. This well will be followed by another, which is likely to be on the Xe Bhangiang oil prospect to the northeast. 

Salamander expanded its acreage position in Lao PDR when it reached an agreement with PetroVietnam E&P to swap a 25% interest in the Savannakhet PSC for a 20% interest in the Champasak & Saravan PSC. The Champasak & Saravan PSC is adjacent to the south of the Savannakhet PSC.

Plans for a seismic survey in the Salamander operated DBSCL-1 block in Vietnam were finalised in H1 2008 and the survey commenced early in the second half ahead of drilling in 2009. The Company is also at an advanced stage of applying for a second PSC in Vietnam, offshore Block 31. Salamander expects to have a 60% operated interest in Block 31 which is located immediately adjacent to DBSCL-1. 

Indonesia and Philippines

Salamander's interests in Indonesia are located in East Kalimantan, Offshore North Sumatra, Offshore Northwest Java and Southeast Sumatra. The Company has been actively expanding its position in this region and in the first half of 2008 interests were acquired in the Glagah-Kambuna TAC and Seruway PSC, both located offshore North Sumatra, and the Bengara-1 PSC, East Kalimantan. In July 2008 Salamander agreed to acquire a 23.4 per cent interest in the Kutai PSC and an additional 20 per cent interest in the Bontang PSC. In August 2008 Salamander is completing the acquisition of an additional 15 per cent interest and operatorship of the Glagah-Kambuna TAC.

East Kalimantan

East Kalimantan is a core strategic area for Salamander and the Company has been highly active in this region during the first half of the year.

On the drilling front, the Tutung Alpha-1 appraisal well in the Bontang PSC was completed in February 2008. The well encountered multiple hydrocarbon bearing sandstones with a net pay thickness of at least 16 metres and a potential column height in excess of 60 metres. In August 2008 the rig returned to drill the Tutung Alpha-2 ("TA-2") well.

The TA-2 well was designed to test the limit of the closure to the northeast of the structure. The well reached total depth within the target section with gas shows in an overpressure zone seen in both the discovery well and the TA-1 appraisal well. The TA-2 well was then sidetracked and TA-2ST encountered the top of the reservoir package on prognosis. 

A Drill Stem Test conducted in the Middle Miocene Pulubalang formation at TA-1 flowed at a rate of approximately 14 MMscfd and 475 barrels of condensate per day from a zone between 2,993 metres and 3,002 metres subsea. This flow rate was constrained by the testing equipment. 

TA-1 and TA-2 have been suspended and post well evaluation is ongoing, including the integration of the new data with the transition zone seismic. The results of this work, together with the data from the original discovery well, Tutung-1 which tested at a rate of 10 MMscfd and 613 barrels of condensate per day, will be used to determine the resource potential and forward programme on the Tutung discovery. 

Following interpretation of the 3D seismic survey shot in 2007 on the offshore part of the Bontang block, the Company is finalising drilling targets ahead of an initial two well exploration programme that will commence late in Q4 2008. Drilling targets will be in the 20 to 40 MMboe range. 

Further to the successful appraisal of the South Sembakung gas discovery in December 2007, a plan of development was submitted to the Indonesian authorities in Q1 2008 and formally approved in August 2008. This will see the development of approximately 110 bcf of gas, with production to commence late in 2010 at 15 MMscfd for the first twelve months, before increasing to a peak of 25 MMscfd that is expected to be maintained for eleven years. 

In the Bengara-1 PSC preparations were undertaken for drilling in Q4 2008 on the Sebuku structure. Sebuku is an oil prospect estimated to contain approximately 30 MMbbl of potential recoverable reserves. 

The second half of 2008 will also see a 3D seismic survey conducted in the Kutai PSC in preparation for exploration drilling in 2009. It is expected that structures contained in this acreage will be similar to those in the Bontang PSC. 

North Sumatra

Development drilling on the Kambuna gas-condensate field was undertaken in the first half of the year with the drilling of the Kambuna-3 and -4 wells and the re-completion of Kambuna-2. These wells were flow tested and produced at rates above initial expectations. They have now been shut in whilst development activity continues. Heads of Agreements have been signed with gas buyers for an aggregate of 40 MMscfd and a further 10 MMscfd remain to be marketed. It is expected that the average gas price realised will exceed $6.0 per Mcf with a 3 per cent annual inflation factor. Production is expected to commence in the first quarter of 2009. As part of the transaction with Serica, Salamander will have a 50 per cent interest and will operate the Kambuna field. 

In April 2008, the Company participated in the drilling of the Gurame-1X appraisal well in the Seruway PSC. The well encountered hydrocarbons in two zones but the formation displayed low permeability characteristics and was found to be tight at this location. The well has been plugged and abandoned, although Salamander believes that the Gurame structure and the remainder of the PSC still has good exploration potential. A 2D seismic survey was acquired in mid-2008 and it is currently being processed for use in the further evaluation of the acreage.

Offshore Northwest Java/Southeast Sumatra

Production increased in the ONWJ PSC with the commencement of the Pupuk Kujang gas sales agreement. A ten well drilling programme in ONWJ commenced in the second quarter and will continue through the year. Similar to the drilling programme in the SES PSC this campaign will see a mixture of infill drilling and small scale exploration and appraisal drilling. 

Philippines

Salamander completed a 3D seismic survey in 2007 and processed and interpreted this data in the first half of 2008. Multiple leads, mostly amplitude supported, have been identified and screened in the Upper Miocene slope fairway. The Lumba Lumba-1 exploration well was spudded on 21 July 2008. The well was targeting multiple stacked sandstones in a large inversion structure. Due to operational difficulties total depth was called early after the well had only penetrated the shallower horizons. Elevated gas readings were seen in the shallow section; however, no reservoir quality sandstones of any significant thickness were encountered. The data from the Lumba Lumba-1 well will now be analysed and integrated with the existing data as the partners continue to mature a number of other prospects in deeper water and stratigraphic prospects where there is more evidence of thicker sandstones being present.

Mike Buck

MD, South East Asia

28 August 2008

  Financial Review

Overview

In the first half of 2008 the Group's production rose to 8,200 boepd and the Group completed the drilling of four exploration and appraisal wells, two of which were successful and one is suspended for further evaluation. The period also saw record oil prices with Brent trading at a June high of $141.28 /bbl and averaging $109.08/bbl throughout the period against $67.73/bbl for the same period last year and $73.78/bbl for full year 2007. Additionally, the Group's gas realisations continued to rise.

The period also saw the portfolio expand with the completion of the acquisition of GFI Oil & Gas Corporation ("GFI"), whose assets in Thailand and Indonesia have significantly strengthened the Group's asset base. Against a backdrop of relatively turbulent financial markets, the Group's financial capacity was strengthened with a refinancing of its debt, resulting in a new $200 million reserves based lending facility. 

Key Performance Indicators

Group performance against key performance indicators for the period is summarised below:

    1.    Operating cash flow per entitlement boe is based on operating cash flow prior to working capital

     2.    Calculated as exploration, appraisal and acquisition spend, net of deferred tax gross-up, divided by net additions to 2P
            reserves in the period

     3.    Calculated as debt divided by debt plus equity

Income Statement

First half 2008 revenues increased to $46.8 million (H1 2007: $32.3 million, full year 2007: $69.6 million) and were driven by both higher production volumes and higher oil and gas prices in the first half compared to the same period of 2007. The Group realised $111.31 per bbl (H1 2007: $58.95, full year 2007: $71.75) for oil and liquids and $4.80 per Mscf (H1 2007: $3.59, full year 2007: $4.31) for gas. Gross profit increased accordingly to $21.1 million (H1 2007: $11.2 million, full year 2007: $21.7 million).

Other operating charges for the period totalled $18.0 million (H1 2007: $5.0 million, $10.5 full year 2007). These other operating charges included: written off exploration expenses of $10.2 million (half year 2007: nil, full year 2007: nil), pre-licence exploration costs of $3.1 million (half year 2007: $3.1 million, full year 2007: $5.9 million) and administrative expenses of $4.6 million (half year 2007: $2.0 million, full year 2007: $4.6 million). The exploration write off resulted from the drilling of the unsuccessful Gurame-1X well on the Seruway PSC, Indonesia which was plugged and abandoned in April 2008. Preߛlicence exploration costs represented the Group's continued effort to secure new business in Asia. The increase in administrative expenses arose from the Group's expanded activities and the acquisition of GFI in March 2008. GFI's Houston headquarters are not required to support future activities and are in the process of being closed.

Interest revenue of $3.9 million (half year 2007: $3.9 million, full year 2007: $7.7 million) was predominantly derived from the Group's pre-acquisition loan to GFI that enabled GFI to meet its capital commitments prior to the take-over by Salamander. In contrast, the half year and full year 2007 interest revenue amounts were predominantly interest arising on the investment of the Group's surplus funds at that time. The finance costs of $2.7 million (half year 2007: $1.1 million, full year 2007: $2.3 million) were principally interest payable and fees payable in respect of the Group's borrowings, which increased during the period with the closing of the interim $125 million bridge debt facility, which was refinanced by a $200 million senior facility. Other financial losses of $0.5 million (half year 2007: gain of $1.0 million, full year 2007: gain of $1.4 million) predominantly arose from the revaluation of the Group's non-US Dollar denominated monetary assets at period end.

Taxation of $10.5 million (half year 2007: $6.2 million, full year 2007: $13.4 million) arose on the Group's foreign income in Thailand and Indonesia which is taxable at 50% and 41.5% respectively. The half year 2008 charge also included a deferred tax provision of $1.8 million (half year 2007: $0.9 million, full year 2007: $1.3 million) against the Group's Thailand and Indonesia production. The higher effective tax rate was driven by the amortisation charges relating to the purchase cost of these assets not being deductible for tax above the substantially lower tax book values for the assets.

As result of the above, the Group reported a loss after tax of $6.6 million (with an exploration write off of $10.2 million) compared to a profit after tax for the six months ended 30 June 2007 of $3.8 million, and a profit after tax for the full year 2007 of $4.6 million.

Cash Flow Statement

Cash flow from operating activity for the period increased to $15.4 million (half year 2007: $3.7 million, full year 2007: $14.4 million). Net operating cash flow from the Group's operations in Thailand of $5.3 million (half year 2007: $5.7 million, full year 2007: $10.9 million) and, Indonesia of $12.7 million (half year 2007: $2.7 million, full year 2007: $12.6 million) were partly offset by administrative and other operating expenditures of $2.6 million (half year 2007: $4.7 million, full year 2007: $9.1 million).

Cash flow used in investing activities of $161.9 million (half year 2007: $20.0 million, full year 2007: $67.7 million) included the cash component of $32.7 million for the acquisition of GFI, pre-acquisition funding to GFI to enable GFI to meet its commitments of $32.4 million and investment in the Group's principal development activities in Thailand and Indonesia plus an extensive exploration and appraisal drilling programme. In addition, the Group made payments of net other receivables of $3.4 million to predominantly provide for bank guarantees issued in respect of its Thailand operations. 

Cash flow from financing activities for the period was $85.6 million (half year 2007: $17.5 million, full year 2007: $16.3 million). Net proceeds from long term borrowings of $90.8 million (half year 2007: nil, full year 2007: nil) included the Group refinancing in March 2008 its SMBC-led senior $37.7 million seven year senior debt facility with a BNP Paribas-led ("BNPP") $125.0 million 15 month bridge facility to partly fund the acquisition of GFI. The BNPP-led $125.0 million facility was in turn refinanced in June 2008 by a new BNPP-led $200.0 million seven year senior facility. The Group also settled borrowings acquired from GFI on acquisition of GFI of $39.5 million (including capitalised interest). The Group drew-down $160.9 million against the BNPP-led facility at the end of June 2008. In addition, the Group incurred costs of $3.5 million to issue new shares to acquire GFI and paid interest of $1.7 million (half year 2007: $1.0 million, full year 2007: $2.3 million) in respect of its various borrowings.

The above cash flows resulted in the Group expending cash of $60.8 million (half year 2007: generating cash of $1.1 million, full year 2007: expending cash of $37.1 million). This in turn resulted in cash balances at 30 June 2008 of $55.6 million (30 June 2007: $154.9 million, 31 December 2007: $116.9 million).

Balance Sheet

Intangible assets increased to $174.8 million at 30 June 2008 (H1 2007: $27.2 million, full year 2007: $54.5 million). This was substantially attributable to the fair value of the intangible exploration and appraisal assets acquired from GFI in March 2008. Additionally, the Group incurred exploration and evaluation expenditure in Thailand, Indonesia, the Philippines, Vietnam and the Lao PDR. The Group applies successful efforts accounting, whereby exploration and appraisal expenditures are carried as intangible assets until determined by the outcome of drilling. The Group wrote off $10.2 million of drilling costs as exploration expenses following the unsuccessful drilling of the Gurame-1X well in the Seruway PSC, Indonesia although the acquisition cost of the licence remains capitalised in intangible assets pending further evaluation activity.

Property, plant and equipment increased to $531.6 million (H1 2007: $123.0 million, full year 2007: $119.9 million) substantially due to the fair value of the GFI acquired production and development assets.

The Group's borrowings at 30 June 2008 were $157.5 million, net of deferred fees (H1 2007: $25.3 million, full year 2007: $25.3 million). The balance at 30 June 2008 represented the drawdown against the Group's $200 million senior seven year facility with BNPP entered into in June 2008 whereas the balances at 30 June 2007 and 31 December 2007 represented drawdown against the Group's prior $37.7 million senior seven year facility with SMBC. 

Post Balance Sheet Events

On 10 July 2008, the Group announced the acquisition from Serica of a further 15% working interest share and operatorship of the Glagah Kambuna TAC (comprising principally the Kambuna gas development) and the acquisition of a 23.4% interest in the Kutai PSC, both located in Indonesia. The consideration for the acquisition totalled $50.75 million plus a $2 million contribution toward historic costs incurred in the Kutai PSC. The Glagah Kambuna transaction is completing on 28 August 2008 and the Kutai PSC transaction is expected to complete in September 2008.

On 16 July 2008, the Group announced the acquisition of a further 20% of the equity in its operated Bontang PSC, Indonesia from PT Eksindo, and the transaction is expected to complete in September at a cost of $3.8 million.

On 8 August 2008, the Company completed a placing and open offer of 33.33 million new ordinary shares at an issue price of £3.00 per share, raising proceeds of $190 million net of fees and expenses. The funds were received by the Company during the week of 11 August 2008 and the majority were converted to US Dollars at an average of $1.98/£1.00. 

On the 15 August 2008, the Group announced the drilling results of its Lumba Lumba-1 well in the SC41 PSC, the Philippines. The well was unsuccessful and was plugged and abandoned and the cost of the well will be written off as exploration expenses in the second half of 2008.

Production from the Bualuang oil field commenced on 27 August 2008.

Risks and Uncertainties

The principal risks for the Group remain as described in the 2007 Annual Report and Accounts and include the maintenance of safe and cost effective operations, the management of exploration risk through an active drilling program, the management of volatile oil and gas pricing, and ensuring successful relationships with stakeholders including governments, communities, licence partners, finance providers and shareholders. The commencement of Bualuang production requires the management of development and operating risks as the Group brings this operated asset onstream. Bualuang is expected to have a significant influence on the Group's financial results in the second half of the year.

The Board has established a process for identifying, evaluating and managing the significant risks the group faces. The Group's exposure to commodity price risk is mitigated by the commercial structure of its main agreements and by the derivatives the Group enters into from time to time. The Group's exposure to credit risk is attributable to its trade receivables which are either with host governments or other creditworthy counterparties. The Group has a low liquidity or cash flow risk as it is adequately capitalised and surplus funds are held by recognised counterparties with high credit ratings. The Group's policy on financial risk is as set-out below.

Financial Risk Management

The Group continually monitors its hedged position and may, at its discretion, hedge oil prices for volumes equivalent to up to 50% of exposed cash flow for periods of up to 18 months in advance. The Group did not execute any oil hedges during the period. At 30 June 2007, the Group had one oil hedge in place, namely a put (executed in 2006) against Salamander's Indonesia production for 350 bpd at $55 per barrel (Brent). This put expired on 31 December 2007. 

The Group generally invested its surplus cash funds in money market accounts, with AA or A rated banks. At 30 June 2008 the Group held $25.0 million in money market accounts. Since 30 June 2008, the Group has elected to ensure that surplus cash funds are placed with AA rated banks in money market accounts with a AAA rating.

The Group maintains insurances to reduce the potential impact of the physical risk associated with its oil and gas activities.

The Group was not materially exposed to exchange rate fluctuations during the period and at 30 June 2008 held net assets totalling $2.1 million in currencies other than US Dollars, predominately UK Sterling cash and cash equivalents of $55.6 million to cover the Group's future UK Sterling commitments.

Nick Cooper

Chief Financial Officer

28 August 2008

  Responsibility Statement

We confirm that to the best of our knowledge:

(a)    the condensed set of financial statements has been prepared in accordance with IAS 34
        "Interim Financial Reporting";
(b)    the interim management report includes a fair review of the information required by DTR
        4.2.7R (indication of important events during the first six months and description of principal
        risks and uncertainties for the remaining six months of the year); and
(c)    the interim management report includes a fair review of the information required by DTR
        4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board,

James Menzies                   Nick Cooper

Chief Executive Officer    Chief Financial Officer

28 August 2008                    28 August 2008

  INDEPENDENT REVIEW REPORT TO SALAMANDER ENERGY PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 13. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte & Touche LLP

Chartered Accountants and Registered Auditor

London, UK

28 August 2008

  CONDENSED CONSOLIDATED INCOME STATEMENT

Six months ended 30 June 2008

1.    Certain foreign exchange gains and losses, previously presented with administrative expenses, have been reclassified as other financial (losses)/gains.

  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 June 2008

  CONDENSED CONSOLIDATED BALANCE SHEET

30 June 2008