Energy SpA — Interim / Quarterly Report 2013

Jun 30, 2013

HALF YEARLY REPORT

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

Highlights 2

Calgary, 19 August 2013: Caracal Energy Inc. ("Caracal", "the Company" or "the Group") (LSE: CRCL) announces its half year results for the six months ended 30 June 2013.

2013 Half-yearly results summary:

Caracal had a successful first half of 2013. The Badila development project was completed in early June. The Group was able to test new reservoir horizons successfully, and apply modern 3D seismic techniques over the Badila and Mangara developments and surrounding exploration opportunities. The Group continues to undertake intensive analysis of the exploration portfolio opportunities. Caracal achieved a significant milestone with the admission of its common shares to the premium list on the London Stock Exchange on July 9, 2013.

2013 Operational Highlights:

• Completed construction and commissioning of the first phase of the modular production facilities and gathering system at Badila;
• Completed construction and commissioning of the 17 kilometre pipeline from the Badila facilities to the TOTCO-COTCO export line;
• Completed the interconnection with the TOTCO-COTCO export line;
• Completed and tied-in the Badila-1 and Badila-2 wells;
• Completed a 3D seismic survey covering the Badila field and the adjoining Bitanda Ridge exploration prospect. Bitanda Ridge exploration prospect is targeting 277 million bbls unrisked P mean, 648 million bbls unrisked P10;
• Filed an application for the 25 year development license for the Kibea field;
• Drilled the Badila-3 well to a total depth of 2,150 meters, with test results indicating production of approximately 2,400 bopd;
• Drilled and cased the Mangara-5 development well, then deepened it to explore and test the lower Cretaceous E sands;
• Spudded the Krim exploration target on August 6, 2013;
• Received delivery of a second drilling rig (Rig-96) in Chad and spud Badila-4 on August 8, 2013.

Corporate Highlights:

• Admitted to the premium listing segment of the Official List of the Financial Conduct Authority and began trading July 9, 2013 on the London Stock Exchange's main market for listed securities;
• Completed the Farm-in Agreement with GlencoreXstrata plc ("Glencore");
• Increased net entitlement proven plus probable reserves ("2P") by 59 percent to 50.6 million barrels of light oil and proven plus probable plus possible reserves ("3P") by 41 percent to 89.8 million barrels of light oil;
• Increased mean unrisked gross lease prospective resources to 4.1 billion barrels and mean risked gross lease prospective resources to 833 million;
• Increased Caracal's 2P Net Present Value to \$1,413 million (discounted at 10% after tax) and 3P to \$2,533 million (discounted at 10% after tax);
• The Group's convertible bonds issued in September 2012 were admitted to the official list of the Luxembourg Stock Exchange and have been admitted to trading on the Euro MTF market;
• Appointed Peter Dey as independent director;
• Exited the second quarter with working capital of \$178.2 million including cash and cash equivalents of \$78.6 million;
• Achieved a UK Classification by the FTSE Nationality Committee for purposes of Caracal's application to be included on the FTSE index series.

Outlook:

• Bitanda exploration target well to spud in the third quarter of 2013;
• Complete the testing of the Cretaceous E sands at Mangara-5 well;
• Complete and commission the Southern Processing Terminal ("SPT"). The SPT will remove any remaining water or sediment from Mangara production just prior to allocation measurement and blending with Badila oil production. The terminal construction is underway and expected to be completed and commissioned in Q4 2013;
• Complete and commission the blending and shipping facilities required to bring Mangara onstream;
• Exit 2013 at a forecasted gross production rate of 20,000 to 23,000 barrels oil per day.

OPERATIONS REVIEW

Badila Development

Caracal has full 3D coverage of the Badila field, and the results of the initial processing of the 3D seismic are incorporated in the mid-year reserves update. The results suggest extension of the Cretaceous D sands to the east of the previously understood field limits, and this extension will be confirmed by further drilling commencing with the Badila-4 well. The Badila-4 was spudded on August 8 and is expected to take 20-25 days to drill.

Badila-3

Badila-3 was drilled to test the flank of the field structure at the Cretaceous C and D levels. Drilling and petrophysical analysis suggested the Cretaceous D sands may contain additional moveable oil, therefore, three additional well tests were added. Results are encouraging, and suggest economic reserves may be produced from the C1a, C3, D6 and D8 zones as follows:

ZONE	COMMINGLED TESTING		INDIVIDUAL TESTING		POTENTIAL RATE WITH ESP
	Fluid Rate	Oil Cut	Fluid Rate	Oil Cut	Fluid Rate	Oil Rate
	(BBL/day)	%	(BBL/day)	%	(BBL/day)	(BBL/day)
C1a	1,734	6%	697	11%	311	99
C3			1,438	5%	4,446	218
D4, D5			1,492	0%	7,500	0
D6			1,655	36%	6,834	2,434
D8			854	22%	2,641	585

Notes: Productivity Index was estimated from swab tests, and used to estimate ESP (Electric Submersible Pump) rates at an intake pressure of 1,350 psi (~35% drawdown)

The oil gravity of the D6 and D8 zones is ~36 degrees API. With only the D6 and D8 zones completed with an electric submersible pump, the well is capable of ~2,400 barrels of oil per day commingled from these two zones. However, since this oil comes with ~5,100 barrels of water per day, these zones will be produced when additional processing and water injection facilities are available.

Badila Production

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The first phase of the modular Badila production facilities was completed on schedule at the end of May 2013. President Idriss Déby inaugurated the Badila facilities on June 9,

2013 by opening the production shipping valve.

First production from Badila is expected imminently.

Mangara Development

Mangara-4

The Mangara-4 development well spudded on March 13, 2013 and was drilled to a total depth of 2,471 meters. Petro-physical results show 40-60

meters of estimated oil pay in the lower Cretaceous C & D sands. The well was suspended due to hole instability, and will be re-entered in the near future and completed as a producer. Depending on the testing results of Mangara-5, Mangara-4 may be deepened and completed as a dedicated lower Cretaceous E sands producer.

Mangara-5

The Mangara-5 development well was drilled and cased as a lower Cretaceous C & D sands producer. The well was also deepened to 3,339 meters to test the Cretaceous E sands, a new exploration horizon below the Mangara field.

Recent 3D seismic acquired over Mangara, which has been subjected to specialized processing and interpretation techniques, suggests the sands within the lower Cretaceous E could hold significant hydrocarbons. From drilling and petrophysical analysis, preliminary Mangara-5 results suggest this well has a potential range of 150-230 meters of estimated net oil pay in the Cretaceous E sands. The first of a series of planned tests was across a 25 meter interval and achieved a maximum oil rate during this period of 815 bopd. The interval produced a total of 200 barrels of 39 degree API oil with no water over the 16-½ hour test period. Testing of the additional identified pay is

ongoing with results expected in early September.

Exploration

Caracal completed a 3D seismic program covering 320 km2 of the Badila field, as well as the adjoining Bitanda ridge, where multiple exploration prospects had previously been identified on 2D seismic.

The 3D seismic confirmed closure of the Bitanda structure against a basin bounding fault, moving the priority of this exploration prospect near the top of the Group's drilling sequence. The Bitanda prospect is scheduled to spud in Q3 2013 targeting unrisked mean prospective resources of 277 million bbls as per the Group's recent reserves and resources evaluation dated effective June 30, 2013 from McDaniel & Associates Consultants Ltd. (the "Competent Persons Report", or "CPR").

On August 6, 2013 Caracal spudded the Krim exploration well targeting unrisked mean prospective resources of 29 million bbls exploration based on the CPR. The Krim prospect is immediately adjacent to the Mangara field, with the implication that a discovery here could be brought on stream in an expedited manner.

Kibea Development

Caracal filed an Exclusive Exploitation Authorization ("EXA") application on April 25, 2013 and was deemed conditionally approved on May 25, 2013 pending submission of an Environmental Impact Assessment ("EIA"). The EIA is underway, and potential pipeline routes are being surveyed. A 3D seismic survey over the Kibea field and nearby exploration prospects is scheduled to commence in the 4th Quarter of 2013 or 1st Quarter of 2014. Based on well drilling sequence and concentration on west side of the E sands in the Mangara structure, the Kibea appraisal well that was originally scheduled for Q4 2013/Q1 2014 may be delayed until Q3 2014, after the rainy season. The appraisal well will test deeper horizons and obtain core and fluid samples for development planning and facilities design.

Outlook

The first half of 2013 has been transformational for Caracal.

With the closing of the Glencore transaction and with production commencing in the very short term, Caracal is in an enviable position to develop its existing world class asset base while pursing accretive opportunities. Caracal is forecasting to exit 2013 in the range of 20,000 to 23,000 bopd (gross).

Finance Review

Half-year 2013 results overview

In 2013, the Group completed the procurement and construction of facilities necessary to bring on production from Badila, with initial production of 14,000 bopd. Through the completed farm-in with Glencore and the commencement of oil production, the Group believes it will have sufficient funds available to complete the Mangara facilities by the end of 2013, ramping up production to exit 2013 in excess of 20,000 bopd and 2014 in excess of 45,000 bopd. In addition to the acceleration of its development program aimed at ensuring that Caracal is well funded, there are sufficient funds to start the exploration drilling campaign by the end of 2013, and expand the program significantly through 2014 to 2016.

Operating performance

Salaries and benefits increased by \$4.7 million for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The increase is related to the increase in employees hired in order to meet the high level of activity anticipated in 2013 and beyond.

General and administrative costs decreased by \$11.8 for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. During the period ended June 30, 2012, the Group accrued \$9.5 million to provide for potential penalties and fines related to the Special Investigation. Legal fees relating to the Special Investigation were also significantly higher during 2012 as the Special investigation was finalized at the beginning of 2013. The Group also expensed \$1.8 million in financing fees in the form of a share issuance. These expenses are considered to be non-recurring in nature.

Travel increased by \$1.4 million from the comparative period due to increased personnel traveling to Chad.

Listing fees of \$9.0 million relate to the non-offering prospectus recently filed by the Group. As the Group did not raise any capital, these fees were expensed.

Finance expenses increased by \$15.3 million from the prior period. The increase is primarily due to interest on the unsecured convertible bonds.

Cash flow and capital expenditures/dispositions

Cash used in operating activities was \$68.2 million in the six-month period ended June 30, 2013 compared to \$21.4 million in the six month period ended June 30, 2012.

During the six months ended June 30, 2013, the Group had net capital dispositions of \$25.5 million which was made up of \$222.6 in capital expenditures and \$247.3 in asset disposals. The following major work programs were undertaken during the six months ended June 30, 2013 which make up the capital expenditures for the period:

• 3D seismic program for the Badila EXA lands and additional exploration targets;
• Drilled and completed Badila-2 and Badila-3;
• Drilled Mangara-4 and commenced drilling of Mangara-5;
• Badila-2 workover;
• Construction of the 12 inch pipeline, central processing facility, blending facility and SPT;
• Arrival of a second drilling rig in the Badila field; and
• Completion of the early production facilities, measurement facilities and hot tap.

Asset disposals amounting to \$247.3 million relate to completion of the Farm-in agreement with Glencore in which it transferred a one third working interest in each of the Group's PSCs and related agreements.

Finance Review

Commitments

Under the terms of its individual production sharing contracts ("PSCs"), the Group has committed to various work programmes. The agreed-upon minimum work requirement amounts to \$115.0 million for the three PSCs over five years. As at June 30, 2013, \$76.8 million is yet to be spent with three more years remaining in the agreements.

Other commitments consist of training of Chadian Nationals and employees of the Energy Ministry as well as office lease commitments in both N'Djamena, Chad and Calgary, Alberta.

Liquidity

The Group's available cash resources as at June 30, 2013 and 2012 were \$78.6 million and \$100.7 million respectively. The Group exited the second quarter with working capital of

\$178.2 million. The Group entered into the Glencore Farm-in agreement in 2012 which closed in June 2013. This transaction provided approximately \$330.8 million in liquidity and reduces future capital requirements by reducing the Group's working interest in the PSCs.

Historically, the Group financed its capital resource needs through the sale of its common shares, convertible bonds and farm-outs with the objective of the acquiring prospective oil and gas assets and maximizing long-term financial returns to its shareholders. The Group may consider additional debt, the issuance of equity and other farm-outs in the future, if available on reasonable terms, in order to accelerate exploration drilling on its existing lands or pursue accretive opportunities.

Principal risks and uncertainties

Information regarding the Group's risk factors may be found under the headings "Risk Factors" in the Group's final Canadian prospectus dated July 2, 2013 available under the Caracal's profile on SEDAR (www.sedar.com) and the final UK prospectus dated June 28, 2013 available on the Group's website (to non-Canadian viewers).

Strategy

The strategy of the Group is to increase shareholder value through sustained growth in production, cash flow and reserves. Reserves growth targets include optimum development of six known discoveries on lands in Chad, as well as reinvestment of cash flow for exploration of 80 identified prospects on lands in these licenses.

The Group intends to lead the development and operate infrastructure in the regions in which it develops and produces oil and gas. The PSCs offer significant near-term production and long-term exploration opportunities with substantial resource potential. The combination of the Group's existing asset base and experienced technical management team will contribute significantly to the Group's growth and aim of being a leading independent international oil Group. The Group is able to manage expenditures on its development of Mangara and Badila, through the completion of the \$330.8 million Farm-in with Glencore. The Group remains focused on bringing Mangara on production and have commenced the engineering of the expansion of both the Badila and Mangara facilities. These two fields will provide the Group the required cash flow to fund its exploration program.

UK Classification for FTSE UK Index Series Inclusion

On August 13, the FTSE Nationality Committee allocated Caracal a UK classification for FTSE UK index series inclusion purposes. As part of its application to be indexed, Caracal agreed to commit to adhere to the UK Takeover Code to the extent reasonably practicable. At the next shareholder meeting, Caracal will amend its articles of incorporation to include this commitment. With this classification determined, the FTSE Committee will consider Caracal's application to be included in the FTSE index at its quarterly meeting on September 11, 2013.

The tables below summarize certain information contained in the independent reserves and resources reports prepared by McDaniel & Associates Consultants Ltd. ("McDaniel") as at June 30, 2013 (collectively, the "McDaniel Report" or the "Report"). A statement of the Reserves and Resources consistent with an NI 51-101F1 (defined below) can be found at www.caracalenergy.com or www.sedar.com, under Caracal's profile.

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The McDaniel Report was prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101").

The Net Present Values included in the table below were based on oil price forecasts, effective July 1, 2013, provided by McDaniel.

SUMMARY OF CRUDE OIL RESERVES

AS AT JUNE 30, 2013

SUMMARY OF UNDEVELOPED RESERVES (IN MMB)(1)

			Gross (100%)(2)(5)		Participating Interest(3)(5)	Group's Net		Group's Net Entitlement(4)(5)
	1P	2P	3P	1P	2P	3P	1P	2P	3P
Asset
Mangara Field	18.9	61.9	131.0	9.5	31.0	65.5	8.1	21.7	38.1
Badila Field	15.8	45.5	85.0	7.9	22.7	42.5	4.7	11.4	19.3
Kibea Field	–	45.9	105.0	–	23.0	52.5	–	17.5	32.5
Total Reserves	34.7	153.3	321.0	17.4	76.7	160.5	12.9	50.6	89.8

Notes:

(1) All of the Group's proved, probable and possible reserves have been classified as light and medium crude oil. The Company has no heavy crude oil. Based on current market conditions in Chad, neither reserves or values have been attributed to gas or natural gas liquid volumes. However, the Company has rights to monetise gas volumes and is currently discussing and assessing this market potential for the future.

(2) Gross is the total marketable reserves assigned to the Company's concessions.

• (3) The Government of Chad has elected to acquire a 25 percent participating interest in the Badila and Mangara EXAs and McDaniel has assumed, for the purposes of estimating the Company's participating interest in any future EXAs which may be granted under each PSC, that the Government of Chad will continue to elect to acquire a 25 percent participating interest in each EXA. Accordingly, the Company's participating interests have been assumed to be 50 percent of the gross lease interests.
• (4) Net reserves are the Company's share Cost Oil recovery and Profit Oil. Under the COGE Handbook, using the economic interest method, "Net" as depicted above is equivalent to "company net" and, in the particular case of the Company's PSCs, "company gross".
• (5) Columns may not add due to rounding.

SUMMARY OF GROSS LEASE PROSPECTIVE RESOURCES

AS AT JUNE 30, 2013

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PROSPECTIVE RESOURCES – CRUDE OIL(5) / PROPERTY GROSS PROSPECTIVE RESOURCES(3)

	Unrisked Resources(1)(2)
	# of Prospects/ Leads (4)	Low (MMB)	Median (MMB)	Mean (MMB)	High (MMB)	Mean (MMB)
Sub-Total DOB Block	18	32.1	143.3	286.1	666.0	84.3
Sub-Total DOI Block	15	76.7	293.7	550.3	1,267.9	90.4
Sub-Total DOH Block	8	34.9	149.4	318.3	738.7	66.3
Sub-Total Borogop Block	4	34.7	118.6	200.9	447.4	32.3
Sub-Total Doseo Block	35	548.1	1,747.0	2,714.8	5,839.4	559.7
Total (3)	80	726.6	2,452.0	4,070.4	8,959.5	833.0

Note:

(1) There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be economically viable or technically feasible to produce any portion of the resources.

(2) These are partially risked prospective resources that have been risked for chance of discovery, but have not been risked for chance of development.

(3) Total and Sub-Total based on the probabilistic aggregation of zones within a prospect and arithmetic aggregation of the individual prospects to the Total and Sub-Total level.

(4) There are Prospective Resources recognized within entities that Caracal have declared as either EXAs or as Discoveries in zones that do not have Reserve nor Contingent Resource assignments.

(5) Columns may not add due to rounding.

OIL RESERVES EVALUATION SUMMARY: SUMMARY OF CRUDE OIL RESERVES AS AT JUNE 30, 2013 - FORECAST PRICES AND COSTS

	Light & Medium Crude Oil (1)
Reserves Category	Gross Lease(2)(5) (MB)(6)	Participating Interest(3)(5) (MB) (6)	Company's Net Entitlement(4)(5)
Proved Undeveloped
Mangara	18,941	9,470	8,149
Badila	15,784	7,892	4,710
Kibea	–	–	–
Total Proved	34,725	17,362	12,859
Probable Undeveloped
Mangara	43,001	21,501	13,579
Badila	29,672	14,836	6,668
Kibea	45,916	22,958	17,464
Total Probable	118,589	59,295	37,711
Total Proved plus Probable	153,314	76,657	50,569
Possible Undeveloped
Mangara	69,089	34,544	16,332
Badila	39,497	19,748	7,932
Kibea	59,127	29,564	14,998
Total Possible	167,713	83,856	39,262
Total Proved plus Probable plus Possible	321,027	160,513	89,831

Notes:

• (3) The Government of Chad has elected to acquire a 25 percent participating interest in the Badila and Mangara EXAs and McDaniel has assumed, for the purposes of estimating the Company's participating interest in any future EXAs which may be granted under each PSC, that the Government of Chad will continue to elect to acquire a 25 percent participating interest in each EXA. Accordingly, the Company's participating interests have been assumed to be 50 percent of the gross lease interests.
• (4) Net reserves are the Company's share Cost Oil recovery and Profit Oil. Under the COGE Handbook, using the economic interest method, "Net" as depicted above is equivalent to "company net" and, in the particular case of the Company's PSCs, "company gross".
• (5) Columns may not add due to rounding.
• (6) "MB" refers to thousands of barrels.

⁽¹⁾ All of the Company's proved, probable and possible reserves have been classified as light and medium crude oil. The Company has no heavy crude oil. Based on current market conditions in Chad, neither reserves or values have been attributed to gas or natural gas liquid volumes. However, the Company has rights to monetize gas volumes and is currently discussing and assessing this market potential for the future.

⁽²⁾ Gross lease are the total marketable reserves assigned to the Company's concessions.

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SUMMARY OF NET PRESENT VALUE OF FUTURE NET REVENUE (US\$)

AS AT JUNE 30, 2013 - FORECAST PRICES AND COSTS

Reserves Category				Before and After Income Tax(1)(2)(3) Discounted at (\$MM)	Unit Value Before Deducting Income Taxes Discounted at 10%/year
Before and After Taxes	0%	5%	10%	15%	20%	(\$/boe)
Proved Undeveloped
Mangara	396	322	267	226	194	32.76
Badila	285	265	248	234	221	52.65
Kibea	–	–	–	–	–	–
Total Proved	681	587	516	460	415	40.09
Probable Undeveloped
Mangara	623	500	414	351	303	30.49
Badila	378	316	269	232	204	40.34
Kibea	513	334	215	133	75	12.31
Total Probable	1,513	1,150	898	716	582	23.80
Total Proved plus Probable	2,195	1,737	1,413	1,176	997	27.94
Possible Undeveloped
Mangara	971	657	469	348	268	28.72
Badila	578	400	289	216	165	36.43
Kibea	852	543	363	251	178	24.20
Total Possible	2,402	1,601	1,120	815	611	28.52
Total Proved plus Probable plus Possible	4,596	3,338	2,533	1,990	1,608	28.20

Notes:

(1) For the purposes of estimating the Company's net present value of future net revenue, McDaniel assumed that the Government of Chad will continue to elect to acquire a 25 percent participating interest in each EXA. Accordingly, the Company's participating interests have been assumed to be 50 percent of the gross lease interests.

(2) Pursuant to the terms of the DOB/DOI PSC and the Doseo/Borogop PSC, the Government of Chad's Profit Oil allocation is inclusive of income tax.

(3) Columns may not add due to rounding.

TOTAL COMPANY FUTURE NET REVENUE (UNDISCOUNTED) (US\$)

AS AT JUNE 30, 2013 - FORECAST PRICES AND COSTS

Category	Revenue (\$MM)	Operating Costs (\$MM)	Capital and Abandonment Costs (\$MM)	Future Net Revenue Before Tax (\$MM)	Tax(1) (\$MM)	Future Net Revenue After Tax (\$MM)	Future Net Revenue Discounted @ 10% (\$MM)
Proved Reserves	1,095.2	286.1	127.9	681.2	–	681.2	515.6
Proved Plus Probable Reserves	4,281.4	1,366.4	720.5	2,194.5	–	2,194.5	1,413.0
Proved Plus Probable Plus Possible Reserves	8,122.1	2,573.2	952.3	4,596.5	–	4,596.5	2,532.9

Note:

(1) Pursuant to the terms of the DOB/DOI PSC and the Doseo/Borogop PSC, the Government of Chad's Profit Oil allocation is inclusive of income tax.

FUTURE NET REVENUE BY PRODUCTION GROUP (US\$)

AS AT JUNE 30, 2013 - FORECAST PRICES AND COSTS

Category	Production Group(2)	Future Net Revenue Before Income Taxes (discounted at 10% year) (\$mm)	Unit Value(1) (\$/boe)
Proved Reserves	Light and Medium Crude Oil (including solution gas and other by-products)	515.6	40.09
Proved Plus Probable Reserves	Light and Medium Crude Oil (including solution gas and other by-products)	1,413.0	27.94
Proved Plus Probable Reserves Plus Possible Reserves	Light and Medium Crude Oil (including solution gas and other by-products)	2,532.9	28.20

Notes:

(1) The unit values are based on the Company's net reserve volumes.

(2) All of the Company's proved, probable and possible reserves have been classified as light and medium crude oil. The Company has no heavy crude oil. Based on current market conditions in Chad neither reserves or values have been attributed to gas or natural gas liquid volumes. However, the Company has rights to monetize gas volumes and is currently discussing and addressing this market potential for the future.

PRICING ASSUMPTIONS

The forecast cost and price assumptions assume changes in wellhead selling prices and take into account inflation with respect to future operating and capital costs. McDaniel has employed the following price and inflation rate assumptions as of July 1, 2013 where evaluating the Company's reserves data:

	Brent Reference		Inflation
Year	Price(1) (US\$/bbl)	Realized Price(1)	Rates(2) %/Year
2012 (historical)	111.60	N/A	N/A
2013	102.50	87.82	2
2014	101.00	86.21	2
2015	101.40	86.39	2
2016	100.80	83.26	2
2017	100.10	80.49	2
2018	102.20	81.56	2
2019	104.20	82.99	2
2020	106.30	84.54	2
Thereafter	+2%/year

Notes:

(1) McDaniel has assumed a reference price of Brent (in US\$) and utilized the McDaniel July 1, 2013 Price Forecast. The realized price is forecast to be 95 percent of Brent minus the estimated pipeline transportation tariff of US\$8/bbl and the variable ITA Badila/Mangara and ITA East Doseo tariffs. The realized price given is the average for all the properties in McDaniel's 2P case. There is no production history for any of the PSCs and therefore no realized price is quoted for 2012.

(2) Inflation rates for forecasting expenditure prices and costs.

[ Expressed in US\$ thousands, unless otherwise stated ]

BASIS OF PRESENTATION

The following Management's Discussion and Analysis (the "MD&A") dated August 16, 2013 is a review of the results of operations and the liquidity and capital resources of Caracal Energy Inc. (the "Group" or "Caracal") for the six months ended June 30, 2013 and 2012. The discussion and analysis is a review of the financial results of the Group based upon accounting principles prepared in accordance with International Financial Reporting Standards ("IFRS"). This MD&A should be read in conjunction with the June 30, 2013 interim financial statements, the 2012 annual MD&A and the audited consolidated financial statements for the years ended December 31, 2012, 2011 and 2010. The reporting and functional currency of the Group is the United States dollar ("US\$"). All financial references in this MD&A are in United States Dollars unless otherwise noted.

Readers should also read the Forward-Looking Statements section at the end of this document which provides further information on statements throughout this report that are not historical facts and may be considered "forward-looking statements".

Use of Estimates and Critical Accounting Policies

The preparation of the interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates and affect the results reported in these interim consolidated financial statements.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the interim consolidated financial statements are as follows:

The calculation of deferred income tax assets and liabilities is based on management's interpretation of applicable laws, regulations and relevant court decisions, and in the case of deferred income tax assets, projections of future earnings to be applied against loss carry forward positions.

The recoverability of property, plant and equipment and intangible exploration and evaluation assets is based on numerous assumptions including estimated reserves, forward commodity price forecasts, development plans, political and social uncertainties, discount rates and various other factors. The recoverability of the intangible exploration and evaluation assets is also impacted by the policy election permitted under IFRS as to the level exploration and evaluation assets are tested for impairment.

A number of the Group's accounting policies and disclosures require the determination of fair value, both for financial and nonfinancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.

When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

The fair value of share-based compensation is based on estimates relating to option life, volatility, share price and the outcome of performance conditions.

CARACAL'S BUSINESS, STRATEGY AND OUTLOOK

Caracal's Business

Founded in 2009, the Group is an independent oil and gas exploration, appraisal and development group of companies with exclusive rights to explore and develop oil and gas reserves and resources over an area of approximately 26,103 square kilometres (6.4 million acres) in southern Chad. This area is comprised of three Contractual Zones, the rights to which were granted to the Group in 2011 pursuant to a production sharing contracts (each, a "PSC") that it entered into with the Government of Chad.

DOB/DOI Contractual Zone (DOB/DOI PSC)

• The DOB/DOI Contractual Zone covers an area of approximately 2,865 square kilometres. It contains two discoveries of commercial interest that the Group is currently developing: the Badila Field and the Mangara Field.
• Exclusive exploitation authorisations (each, an "EXA") to develop and produce from the Badila and Mangara Fields were granted by the Government of Chad in June 2012 and August 2012, respectively, and cover a combined area of 100 square kilometres. The Group anticipates that first production from the Badila and Mangara Fields will commence in Q3 2013 and Q4 2013, respectively.

Doseo/Borogop Contractual Zone (Doseo/Borogop PSC)

• The Doseo/Borogop Contractual Zone covers an area of approximately 22,414 square kilometres. It contains three discoveries that the Group is currently undertaking feasibility studies on: the Maku, Tega and North Sako Fields.
• In addition, in June of 2013, the Group submitted an EXA application for the Kibea field.

DOH Contractual Zone (DOH PSC)

• The DOH Contractual Zone covers an area of approximately 824 square kilometres.
• The DOH Contractual Zone is subject to further exploration. The two wellbores existing within the DOH Contractual Zone, drilled by previous operators, have evidence of oil, but not in quantities of commercial interest that the Group would intend to develop.

Strategy

The strategy of the Group is to increase shareholder value through sustained growth in production, cash flow and reserves. Reserves growth targets include optimum development of six known discoveries on lands in Chad, as well as reinvestment of cash flow for exploration of 80 identified prospects on lands in Chad.

The Group intends to lead the development and control of infrastructure in the regions in which it operates. The PSCs offer significant near-term production and long-term exploration opportunities with substantial resource potential. The combination of the Group's existing asset base and experienced technical management team will contribute significantly to the Group's growth and aim of being a leading independent international oil Group. The Group is able to manage expenditures on its development of Mangara and Badila, through the completion of the \$330.8 million Farm-in with Glencore. The Group remains focused on bringing Mangara on production and have commenced the engineering of the expansion of both the Badila and Mangara facilities. These two fields will provide the Group the required cash flow to fund its exploration program.

RESULTS OF OPERATIONS

Operating Segments

The Group has one operating segment: oil and gas exploration, development and production activities in the Republic of Chad.

Revenues

The Group did not generate any operating revenues during the periods ended June 30, 2013 and 2012.

Expenses

A summary of the expenses incurred by the Group for the periods ended June 30, 2013 and 2012 is presented in the table below:

		Three months ended June 30	Six months ended June 30
	2013	2012	2013	2012
Expenses
Salaries and benefits	4,682	3,126	10,507	5,829
Share-based compensation	2,618	1,906	4,739	4,514
Depreciation	490	266	885	461
General and administrative	4,979	7,267	9,899	21,657
Travel	2,418	1,741	4,405	3,016
Listing fees	9,033	–	9,033	–
Finance expense (income)	7,448	(73)	15,213	(83)
Foreign exchange loss (gain)	517	218	871	(39)
Net and comprehensive loss	\$ 32,185	\$ 14,451	\$ 55,552	\$ 35,355

Management's Discussion & Analysis FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

[ Expressed in US\$ thousands, unless otherwise stated ]

Salaries and benefits

Salaries and benefits were approximately \$10.5 million for the six months ended June 30, 2013 and \$5.8 million for the six months ended June 30, 2012. During 2013, there has been an increase in activity in terms of planning, development engineering, budgeting and exploration and field development activities. With the anticipated high level of activity throughout 2013 and beyond, the Group undertook an aggressive recruiting campaign to attract and retain needed professionals, increasing its headcount from approximately 100 employees at the end June 30, 2012 to approximately 240 employees at the end of June 30, 2013. During the period, the Group capitalized \$3.3 million (2012 – \$1.3 million) of salaries and benefits.

Share-based compensation

Share-based compensation for the six months ended June 30, 2013 was \$4.7 million as compared to \$4.5 million for the same period of 2012. Of the \$4.7 million share-based compensation expense recognized during the period ended June 30, 2013, \$3.6 million relates to stock options granted to employees and the expense related to a new Long Term Incentive Plan (the "Plan") for officers and other key executives of the Group. A total of 1.1 million performance units were granted under the Plan in the first quarter. The Plan was introduced to retain, attract and motivate key executives responsible for executing the long term business strategy. A participant in the Plan is awarded a notional number of units based on a multiple of salary. Upon vesting, a participant can, at their option, receive common shares or a cash payment of equivalent value. The performance units vest after a three-year period based on specific performance targets. The performance targets are as follows:

• i) 37.5% of the units will be subject to targets relating to the Total Shareholder Return ("TSR") of the Group against a group of peer companies;
• ii) 37.5% of the award will be subject to targets relating to net asset value of the Group per share based on proven and probable reserves discounted at 10%;
• iii) The remaining 25% vest at the end of three years subject to the participant being employed by the Group at vesting.

The Group is required to account for the performance unit plan as a liability based award whereby the estimated fair value of grants made under the plan is recorded as a liability each period based on the outstanding vested performance units. The change in the fair value of the liability each period is recorded as share based compensation in the statement of operations.

The fair value of a performance unit is based on the following:

• a) 25% with no performance conditions fair value is based on the underlying value of the Group's common stock.
• b) 75% with performance conditions fair value is based on the underlying value of the Group's common stock adjusted for the probability of meeting the market and non-market performance conditions.

On June 28, 2013, the Group purchased 425,000 shares at C\$6.25 per share for a total consideration of \$2.6 million. The transaction fees on purchase of shares were \$0.1 million. These shares are held in trust by a trustee under the Group's Plan and have not been vested to participants.

General and administrative

General and administrative costs for the six months ended June 30, 2013 decreased \$11.8 million compared to the six months ended June 30, 2012. During the period ended June 30, 2012, the Group accrued \$9.5 million to provide for potential penalties and fines related to the Special Investigation, and also expensed \$1.8 million. These expenses are considered to be non-recurring and therefore, after considering for these, general and administrative costs for the six months ended June 30, 2013 are relatively unchanged from the comparative period of the prior year. The remaining decrease is related to a decline in legal and professional fees paid during the period ended June 30, 2013 which primarily consisted of fees relating to the Special Investigation and activities in Chad. The Special investigation was finalized in Q1 of 2013.

Travel

Travel increased \$1.4 million from the comparative period primarily due to increased personnel traveling to Chad commensurate with the increase in activity.

Listing fees

Listing fees of \$9.0 million relate to the non-offering prospectus recently filed by the Group. As the Group did not raise any capital, these fees were expensed.

Finance expense

On September 13, 2012, the Group completed a financing through the issuance of \$173.6 million unsecured convertible bonds (the "Bonds") with a maturity date of September 30, 2017. Finance expense increased \$15.3 million from the prior period due to interest on the Bonds. Interest on the Bonds, initially at a rate of 12 percent per annum, is accrued quarterly and compounded and capitalized semi-annually. See Note 9 of the interim consolidated financial statements for further detail.

CAPITAL EXPENDITURES

Additions to exploration and evaluation assets and property and equipment were as follows:

		Three months ended June 30	Six months ended June 30
	2013	2012	2013	2012
Studies and Seismic	7,127	4,463	15,686	6,130
Drilling and Workovers	19,374	8,517	48,912	8,748
Facilities	73,933	24,829	126,883	38,993
Infrastructure, Camps and Land Acquisitions	10,877	8,030	23,642	8,599
Corporate Assets	7,844	1,186	11,612	3,285
Total Cash Capital Expenditures	119,155	47,025	226,733	65,755
Asset Disposal	(248,090)	–	(248,090)	–
Net Capital Dispositions	(128,935)	47,025	(21,357)	65,755
Decommissioning Liability	289	(19)	659	(38)
Depreciation	(469)	(247)	(842)	(423)
Capitalized Share Based Compensation	663	464	1,392	756
Total	\$ (128,452)	\$ 47,223	\$ (20,148)	\$ 66,050

During the six months ended June 30, 2013 the Group completed a 3D seismic program encompassing the Badila EXA lands as well as additional exploration targets. Other studies and seismic work is ongoing as the Group continues to analyze available 2D seismic over all its lands, and prepares to commence another 3D Seismic program over the Kibea discovery and adjacent prospects in late 2013. The Group completed a similar 3D program over the Mangara EXA lands in 2012 covering about half the size of the land of the Badila EXA shoot.

During the six months ended June 30, 2013, the Group continued to advance its drilling program: drilled and completed Badila-2 and Badila-3, drilled Mangara-4, and commenced drilling of Mangara-5. With anticipation of bringing Badila-1 and Badila-2 on production during the third quarter of 2013, a workover of the Badila-1 wellbore was also completed during the six months ended June 30, 2013. Commensurate with the Group's drilling program, a second drilling rig arrived on location in the Badila field in June 2013, subsequently spudding Badila-4 on August 8, 2013.

Included in drilling and workovers are also the costs associated with the preparation of future well leases, construction of well pads, and the purchasing of long lead drilling consumables.

During the six months ended June 30, 2013, the Group completed the early production facilities, measurement facilities, the hot tap into the export line and 43 km out of 116 km of the Mangara sales pipeline. Construction continued on the central processing facilities, blending facilities, and sales facilities.

[ Expressed in US\$ thousands, unless otherwise stated ]

1 6

On March 1, 2013, the Group entered into an Advance Agreement (the "Advance") whereby the Group received \$100 million, a portion of the amount due to the Group pursuant to the Farm-in Agreement on closing.

On May 29, 2013, the Group amended the Advance Agreement to increase the amount of the Advance from \$100 million to \$150 million. All other terms remained unamended. Pursuant to the Advance Agreement as amended, the Group received an additional \$50 million on May 30, 2013.

On June 13, 2013, the Group closed a farm-in agreement with Glencore in which it transferred a one third working interest in each of its PSCs and related agreements. The transaction had an effective date of July 1, 2012 with Glencore being responsible to pay their working share of expenditures from that date upon closing. The following is a reconciliation of the consideration and the value of the assets disposed of:

		Amount
Cash consideration	(i)	247,458
Future farm-in commitment	(ii)	195,547
Decommissioning obligation		1,016
Transaction costs		(10,100)
Disposition of Exploration and Evaluation assets		\$ 443,921

i. Concurrently with the closing, the Group immediately repaid an advance of \$150.0 million to Glencore.

ii. As per the farm-in agreement, Glencore will reimburse up to \$100 million of the Group's share of expenditures on certain of the Group's assets from July 1, 2013 to June 30, 2014 and up to an additional \$100 million from July 1, 2014 to June 30, 2016.

LIQUIDITY AND CAPITAL RESOURCES

The Group does not currently have any revenue from operations and is reliant on its ability to raise funds through the capital markets and/or generating cash flow from its operations in Chad. There can be no assurance that the Group will be successful in raising funds in the future.

Share Capital

The following table summarizes the outstanding common shares, warrants, options and convertible bonds as at June 30, 2013 and 2012.

	2013	2012
Common shares - basic	115,657	112,761
Liquidity warrants	–	2,084
Agent options	–	1,980
Performance warrants	5,975	6,148
Stock options	7,708	4,205
Performance share plan units	1,094	–
Restricted share units	136	–
Convertible bonds	28,600	–
	\$ 159,170	\$ 127,178

As at the date of this MD&A, there have been no significant changes to the number of outstanding equity instruments since June 30, 2013.

Available Cash Resources

Historically, the Group has financed its capital resource needs through the sale of its common shares, convertible bonds and farm-outs with the objective of the acquiring prospective oil and gas assets and maximizing long-term financial returns to its shareholders. The Group anticipates developing its assets in the Republic of Chad utilizing a combination of existing capital resources and if necessary in the future funds raised from debt and equity, if available and on reasonable terms. Once first production commences, the Group expects to generate internal funds to further expand its asset base and to provide a return on investment to its shareholders. In order to maintain or adjust its capital structure in future periods, the Group may pay dividends, return capital to shareholders, enter into joint venture agreements with third parties, incur long-term debt, issue new shares, sell assets, or execute a combination of the aforementioned items.

The Group's available cash resources as at June 30, 2013 and 2012 were \$78.6 million and \$100.7 million respectively.The Group entered into a farm-in agreement in 2012 which closed in June 2013 which provided approximately \$330.8 million in liquidity and reduces future capital requirements by reducing the Group's working interest in the PSCs.

The Group has set an aggressive development plan, however, the development plan is highly discretionary and can be increased or decreased to match funds available to the Group. There are minimum spending requirements under each of the PSCs, as discussed below, but the Group has sufficient resources available to fund the minimum capital commitments.

Cash resources at June 30, 2013 combined with the farm-out and anticipated cash flow from operations are estimated to be sufficient to fund the Group's planned work program. Should situations arise that reduce the capital available to the Group, the work program can be modified accordingly.

FUTURE COMMITMENTS AND CONTINGENCIES

Pursuant to the PSCs in the Republic of Chad, the Group is required to perform certain minimum exploration activities by the expiry of the Initial Exploration Terms associated with each of the Group's PSCs, all of which are within the next three years:

Concession Name	Expiry Date	Original Minimum Work Requirement	Remaining Minimum Work Requirement as at June 30, 2013
Doseo/Borogop PSC	January 26, 2016	50,000	42,443
Mangara/Badila PSC	April 24, 2016	50,000	20,526
DOH PSC	August 2, 2016	15,000	13,796
Total		\$ 115,000	\$ 76,765

Pursuant to PSCs in the Republic of Chad, the Group is required to pay certain prescribed amounts relating to the training of Chadian Nationals and employees of the Energy Ministry, audits of the State, and the presentation of annual reports to the State. These prescribed amounts under the terms of the PSCs are approximately \$3.75 million per annum.

The Group has office lease commitments in N'Djamena, Chad, and Calgary, Alberta. Non-cancellable future operating lease rentals from 2013 to 2015 are approximately \$1.4 million per annum.

[ Expressed in US\$ thousands, unless otherwise stated ]

SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION

Below is a summary of selected financial data covering the prior eight quarters.

Three months ended (unaudited)	June 30 2013	Mar 31 2013	Dec 31 2012	Sep 30 2012	Jun 30 2012	Mar 31 2012	Dec 31 2011	Sep 30 2011
Income statements:
Revenues	–	–	–	–	–	–	–	–
Expenses	32,185	23,367	22,887	5,771	14,451	20,903	9,796	40,811
Net loss and comprehensive loss	32,185	23,367	22,887	5,771	14,451	20,903	9,796	40,811
Per common share data:
Basic and diluted net loss per share	0.28	0.21	0.20	0.06	0.14	0.22	0.18	0.47
Weighted average number of shares outstanding – basic and diluted	115,657	115,624	112,761	112,761	112,754	95,462	88,009	86,240
Cash flows:
Operating activities	(91,361)	23,112	(8,645)	(25,152)	(11,726)	(9,663)	(6,842)	(10,679)
Investing activities	86,404	(61,799)	(83,902)	(30,391)	(40,760)	(6,246)	(10,320)	51,810
Financing activities	(2,389)	3,899	(91)	167,083	(44)	117,167	995	5,182
Statement of financial position:
Current assets	220,069	97,424	132,121	216,860	102,765	154,664	52,909	65,728
Non-current assets	178,220	407,687	299,383	218,492	176,294	129,072	110,243	107,320
Total assets	398,289	505,111	431,504	435,352	279,059	283,736	163,152	173,048
Current liabilities	41,860	24,493	42,741	33,509	36,275	29,045	7,471	9,267
Non-current liabilities	153,706	246,076	137,590	130,182	2,037	2,015	1,995	1,974
Total liabilities	195,566	270,569	180,331	163,691	38,312	31,060	9,466	11,241
Total shareholders' equity	202,723	234,542	251,173	271,661	240,747	252,676	153,686	161,807

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2013, the Group adopted new standards with respect to consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests in other entities (IFRS 12), fair value measurements (IFRS 13) and amendments to financial instrument disclosures (IFRS 7). The adoption of these standards had no impact on the amounts recorded in the consolidated financial statements as at January 1, 2013 or on the comparative periods.

FINANCIAL INSTRUMENTS

The financial instruments entered into by the Group consist predominately of cash, convertible bonds and accounts receivable. The majority of the Group`s cash is held outside of Chad in a major international financial institution.

CAUTIONARY STATEMENTS

Certain information contained in this press release constitutes forward-looking information or statements including, without limitation, information and statements respecting: drilling operations, anticipated cash flow, future investment objectives, anticipated oil and gas pricing, expected inflation and future foreign exchange rates. Statements relating to "reserves" and "resources" are forward-looking information as they involve the implied assessment, based on certain estimates and assumptions that, among others, the reserves and resources described exist in the quantities predicted or estimated. Forward-looking information and statements are often, but not always, identified by the use of words such as "anticipate", "seek", "believe", "expect", "hope", "plan", "intend", "forecast", "target", "project", "guidance", "may", " might", "will", "should", "could", "estimate", "predict" or similar words or expressions suggesting future outcomes or language suggesting an outlook. By their very nature, forward-looking information and statements involve inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward-looking information and statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to vary materially f rom the forward-looking information or statements. These factors include, but are not limited to: the volatility of oil and gas prices; production and development costs; capital expenditures; the imprecision of reserve and resource estimates and estimates of recoverable quantities of oil, natural gas and liquids; the Company's ability to replace and expand oil and gas reserves; environmental claims and liabilities; incorrect assessments of value when making acquisitions or dispositions; increases in debt service charges; the loss of key personnel; the marketability of production; defaults by third party operators; unforeseen title defects; fluctuations in foreign currency and exchange rates; inadequate insurance coverage; compliance with environmental laws and regulations; changes in tax and royalty laws; the Company's ability to access external sources of debt and equity capital; and the Company's ability to obtain equipment in a timely manner to carry out development activities. Further information regarding these factors may be found under the headings "General Advisory", "Reserves and Resources Advisory" and "Risk Factors" in the Company's final Canadian prospectus dated July 2, 2013 available under the Company's profile on SEDAR (www.sedar.com) and the final UK prospectus dated June 28, 2013 available on the Company's website (to non-Canadian viewers). Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. When relying on this forward-looking statements to make decisions with respect to the Company, investors and others should also carefully consider information set forth in the section "Forward-Looking Statements" of the Company's prospectuses respecting the assumptions upon which the Company bases certain forward-looking information and the uncertainties inherent in such assumptions. The Company does not assume responsibility for the accuracy and completeness of the forward-looking information or statements and such information and statements should not be taken as guarantees of future outcomes. Subject to applicable securities laws, the Company does not undertake any obligation to revise this forward-looking information or these forward-looking statements to reflect subsequent events or circumstances. This cautionary statement expressly qualifies the forwardlooking information and statements contained in this press release.

Responsibility Statement 2 0

The Directors confirm that to the best of their knowledge:

• a) the condensed set of financial statements has been prepared in accordance with lAS 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 parties' transactions and changes therein).

The Directors of Caracal Energy Inc. are as listed in the Group's 2012 Annual Report. A list of the current Directors is maintained on the Caracal Energy website: www.caracalenergy.com

By order of the Board,

Gary Guidry President and Chief Executive Officer 16 August 2013

Disclaimer

This statement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Group believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Group's control or within the Group's control where, for example, the Group decides on a change of plan or strategy. Accordingly no reliance may be placed on the figures contained in such forward-looking statements.

TO THE SHAREHOLDERS OF CARACAL ENERGY INC.

Introduction

We have reviewed the accompanying condensed consolidated interim statement of financial position of Caracal Energy Inc. as at June 30, 2013, the condensed consolidated interim statements of operations for the three-month and six-month periods ended June 30, 2013, the condensed consolidated interim statements of changes in shareholders' equity and cash flows for the six-month period ended June 30, 2013 and notes to the condensed consolidated interim financial statements ("the condensed consolidated interim financial statements"). Management is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with IAS 34, 'Interim Financial Reporting'. Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.

Scope of Review

We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial statements 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 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 accompanying condensed consolidated interim financial statements as at June 30, 2013 are not prepared, in all material respects, in accordance with IAS 34, 'Interim Financial Reporting'.

Chartered Accountants Calgary, Canada August 16, 2013

Interim Consolidated Statements of Financial Position (unaudited) 2 2

AS AT JUNE 30, 2013 AND DECEMBER 31, 2012

(Expressed in US\$ thousands, unless otherwise stated)	Notes	June 30 2013	December 31 2012
Assets
Current:
Cash and cash equivalents		\$ 78,618	\$ 119,881
Accounts receivable	4	141,451	12,240
		220,069	132,121
Accounts receivable – long term	4	94,815	–
Intangible exploration and evaluation assets	5	63,631	295,747
Property, plant and equipment	6	19,774	3,636
		\$ 398,289	\$ 431,504
Liabilities and Shareholders' Equity
Current:
Accounts payable and accrued liabilities		\$ 41,860	\$ 42,741
Long term liabilities:
Convertible bonds	9	150,722	135,511
Decommissioning obligations		1,815	2,079
Share-based compensation liability		1,169	–
		195,566	180,331
Shareholders' Equity:
Share capital	7	334,940	328,230
Warrants and agent options	7	8,405	12,683
Equity component of convertible bonds	9	29,395	29,395
Other equity accounts	8	7,975	3,305
Deficit		(177,992)	(122,440)
		202,723	251,173
Commitments	12
		\$ 398,289	\$ 431,504

The notes are an integral part of these interim consolidated financial statements.

Interim Consolidated Statements of Operations (unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Expressed in US\$ thousands,		Three months ended June 30			Six months ended June 30
unless otherwise stated)	Notes	2013	2012	2013	2012
Expenses:
Salaries and benefits		\$ 4,682	\$ 3,126	\$ 10,507	\$ 5,829
Share–based compensation	8	2,618	1,906	4,739	4,514
Depreciation		490	266	885	461
General and administrative		4,979	7,267	9,899	21,657
Travel		2,418	1,741	4,405	3,016
Listing fees		9,033	–	9,033	–
Finance expense (income)		7,448	(73)	15,213	(83)
Foreign exchange loss (gain)		517	218	871	(39)
Net and comprehensive loss		\$ 32,185	\$ 14,451	\$ 55,552	\$ 35,355
Loss per share:
Basic and diluted		\$ 0.28	\$ 0.14	\$ 0.48	\$ 0.34

The notes are an integral part of these interim consolidated financial statements.

2 3

Interim Consolidated Statements of Financial Position (unaudited) Changes in Shareholders' Equity (unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Expressed in US\$ thousands, unless otherwise stated)	Notes	2013	2012
Share Capital	7
Balance, beginning of period		\$ 328,230	\$ 204,666
Share issuance, net of costs		–	117,064
Exercise of stock options – cash		164	–
Exercise of stock options – contributed surplus		92	–
Conversion of liquidity warrants into shares		1,255	2,775
Interest on share purchase loans		46	49
Agency options converted to shares		5,153	–
Value ascribed to liquidity warrants		–	(1,255)
Balance, end of period		334,940	323,299
Warrants and Agent Options	7
Balance, beginning of period		12,683	11,693
Conversion of liquidity warrants into shares		(1,255)	(2,775)
Value ascribed to liquidity warrants		–	1,255
Value ascribed to performance warrants		235	–
Agency options converted to shares		(1,282)	–
Agency options expired		(1,976)	–
Share–based compensation for performance warrants		–	955
Balance, end of period		8,405	11,128
Equity Component of Convertible Bonds Balance, beginning of period	9	29,395	–
Balance, end of period		29,395	–
Other Equity Accounts	8
Balance, beginning of period		3,305	(4,245)
Share-based compensation		3,335	3,559
Share-based compensation - capitalized		1,392	756
Exercise of stock options		(92)	–
Agency options expired		1,976	–
Treasury stock	8b	(2,588)	–
Interest on loans		(46)	(49)
Interest received on loans		62	59
Foreign exchange		631	23
Balance, end of period		7,975	103
Deficit
Balance, beginning of period		(122,440)	(58,428)
Net loss for period		(55,552)	(35,355)
Balance, end of period		(177,992)	(93,783)
Total Shareholders' Equity		\$ 202,723	\$ 240,747

The notes are an integral part of these interim consolidated financial statements.

Interim Consolidated Statements of _____ (unaudited) Cash Flows (unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(Expressed in US\$ thousands, unless otherwise stated)	Notes	2013	2012
Operating Activities
Net loss		\$ (55,552)	\$ (35,355)
Adjustments for:
Depreciation		885	461
Accretion		50	42
Share–based compensation		4,739	4,514
Interest on convertible bonds		15,211	–
Foreign exchange (gain) / loss		(242)	61
Changes in non–cash working capital	11	(33,340)	8,888
		(68,249)	(21,389)
Investing Activities
Advance proceeds	10(i)	150,000	–
Advance repayment	10(i)	(150,000)	–
Intangible exploration and evaluation additions		(222,624)	(63,806)
Intangible exploration and evaluation disposals, net of costs	10	247,358	–
Property, plant and equipment additions	6	(4,109)	(1,949)
Changes in non–cash working capital	11	3,980	18,749
		24,605	(47,006)
Financing Activities
Net proceeds from issuance of shares and warrants		4,036	117,064
Share repurchase	8b	(2,588)	–
Interest received on share purchase loans		62	59
		1,510	117,123
Effect of exchange rate changes on cash and cash equivalents		871	(39)
(Decrease) Increase in cash and cash equivalents		(41,263)	48,689
Cash and cash equivalents, beginning of period		119,881	52,023
Cash and cash equivalents, end of period		\$ 78,618	\$ 100,712

The notes are an integral part of these interim consolidated financial statements.

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

¹ Reporting Entity

Caracal Energy Inc. formerly known as Griffiths Energy International Inc. (the "Company") was incorporated pursuant to the Canada Business Corporations Act on April 20, 2009. The Company is engaged in oil and gas exploration, development and production activities in the Republic of Chad, which is located in central Africa.

² Basis of preparation

The interim consolidated financial statements of the Company have been prepared using accounting policies in accordance with International Accounting Standard ("IAS") 34: Interim Financial Reporting.

These interim consolidated financial statements are approved by the Board of Directors on August 16, 2013.

The interim consolidated financial statements should be read in conjunction with the Company's annual audited financial statements for the years ended December 31, 2012 and December 31, 2011 which are prepared in accordance with the International Financial Reporting Standards and interpretations (collectively referred to as "IFRS") as issued by the International Accounting Standards Board ("IASB").

On January 1, 2013, the Company adopted new standards with respect to consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests in other entities (IFRS 12), fair value measurements (IFRS 13) and amendments to financial instrument disclosures (IFRS 7). The adoption of these standards had no impact on the amounts recorded in the consolidated financial statements as at January 1, 2013 or on the comparative periods.

All amounts are expressed in US\$ thousands unless otherwise stated.

³ Determination of Fair Values

A number of the Company's accounting policies and disclosures require the determination of fair value, both for financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

The different levels of financial instrument valuation methods have been defined as follows:

Level 1 Fair value measurements are based on unadjusted quoted market prices. Level 2 Fair value measurements are based on valuation models and techniques where the significant inputs are derived from quoted indices. Level 3 Fair Value Measurements are based on unobservable information.

The carrying value of cash and cash equivalents, current accounts receivables, and accounts payable and accrued liabilities included in the consolidated statements of financial position approximate fair value due to the short term nature of those instruments. The fair value of the long-term portion of the accounts receivable relating to the Farm-in Agreement approximates its carrying value as the discount rate applied to the balance approximates the current market rate applicable to the counter party. The fair value of the liability component of the convertible bonds approximate their fair carrying value as interest rates and the credit spread have not altered significantly since the issue date.

⁴ Accounts Receivable

	June 30 2013	December 31 2012
Short–term:
Trade accounts receivable	\$ –	\$ 242
Prepaid expenses	9,863	11,500
Advances and deposits	791	350
Farm–in Agreement receivable	130,721	–
Other	76	148
Balance, end of period	\$ 141,451	\$ 12,240
Long term:
Farm–in Agreement receivable	94,815	–
Balance, end of period	\$ 94,815	\$ –

As at June 30, 2013 as a result of the farm-in transaction (Note 10), the Company recorded a receivable of \$194.8 million from its farm-in partner. The receivable is comprised of \$100 million expected to be received in the next twelve months and \$100 million to be expected to be received subsequent to June 30, 2014. The \$100 million expected to be received subsequent to June 30, 2014 is classified as a long term receivable and is discounted at 4.0% percent. The receivable is secured by a parental guarantee from Glencore AG.

⁵ Intangible Exploration and Evaluation Assets

Notes	June 30 2013	December 31 2012
Balance, beginning of period	\$ 295,747	\$ 108,557
Additions	224,718	187,265
Disposals 10	(443,921)	–
Transfers out to Property, Plant & Equipment 6	(12,871)	–
Changes in decommissioning obligations	(42)	(75)
Balance, end of period	\$ 63,631	\$ 295,747

Notes to the Consolidated Interim Financial Statements (unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

⁶ Property, Plant and Equipment

	Notes	Oil and gas properties	Other fixed assets	Total
Cost:
Balance, January 1, 2013		\$ –	\$ 4,755	\$ 4,755
Additions		–	4,109	4,109
Transfer from intangible E&E assets	5	12,871	–	12,871
Balance, June 30, 2013		12,871	8,864	21,735
Depreciation:
Balance, January 1, 2013		\$ –	\$ 1,119	\$ 1,119
Additions		–	842	842
Balance, June 30, 2013		–	1,961	1,961
Net book value, January 1, 2013		\$ –	\$ 3,636	\$ 3,636
Net book value, June 30, 2013		\$ 12,871	\$ 6,903	\$ 19,774

The Company will depreciate its oil and gas properties when production commences.

⁷ Share Capital

(a) Issued and outstanding common shares

	Notes	Shares issued (000's)	Amount
Balance, beginning of period		112,761	\$ 328,230
Conversion of liquidity warrants into shares	(i)	2,084	1,255
Agency options converted into shares	(ii)	779	5,153
Exercise of stock options		33	256
Interest on shareholder loans		–	46
Balance, end of period		115,657	\$ 334,940

(i) In connection with the private placement on March 14, 2012, a total of 2.1 million liquidity warrants were issued, which were converted to common shares at no additional consideration as a liquidity event did not occur prior to March 14, 2013. The fair value ascribed to the liquidity warrants of \$1.3 million has been reclassified to share capital.

(ii) In connection with the private placement dated February 25, 2011 and March 3, 2011, the Company issued 2.0 million options to the agents which entitled the holder to acquire one common share at a price of C\$5.00 per common share. The agent options vested on the date of grant and expired 24 months after such date. The fair value ascribed to agent options was \$3.3 million. As at June 30, 2013, 0.8 million agent options had been exercised, and the remaining agent options have expired.

(b) Warrants

		Number of Warrants
	Notes	(000's)	Amount
Balance, beginning of period		10,181	\$ 12,683
Liquidity warrants exercised	7a (i)	(2,084)	(1,255)
Agency options converted into shares	7a (ii)	(779)	(1,282)
Agency options expired	7a (ii)	(1,201)	(1,976)
Employee performance warrants		–	235
Employee performance warrants forfeited		(142)	–
Balance, end of period		5,975	\$ 8,405

⁸ Share–based compensation and other equity accounts

a) Other equity accounts

	Contributed surplus	Other equity items	Total
Balance, beginning of period	\$ 13,233	\$ (9,928)	\$ 3,305
Share based compensation	3,335	–	3,335
Share based compensation – capitalized	1,392	–	1,392
Exercise of stock options	(92)	–	(92)
Agency options expired	1,976	–	1,976
Shares held in trust	–	(2,588)	(2,588)
Interest on loans	–	(46)	(46)
Interest received on loans	–	62	62
Foreign exchange	–	631	631
Total	\$ 19,844	\$ (11,869)	\$ 7,975

(b) Performance units

On January 9, 2013 the Board of Directors approved a new Long Term Incentive Plan (the "Plan") for officers and other key executives of the Company. A total of 1.1 million performance units were granted under the Plan in the first quarter. The Plan was introduced to retain, attract and motivate key executives responsible for executing the long term business strategy. A participant in the Plan is awarded a notional number of units based on a multiple of salary. Upon vesting, a participant can, at their option, receive common shares or a cash payment of equivalent value. The performance units vest after a three-year period based on specific performance targets. The performance targets are as follows:

• (i) 37.5% of the units will be subject to targets relating to the Total Shareholder Return ("TSR") of the Company against a group of peer companies;
• (ii) 37.5% of the award will be subject to targets relating to net asset value of the company per share based on proven and probable reserves discounted at 10%;
• (iii) The remaining 25% vest at the end of three years subject to the participant being employed by the Company at vesting.

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

The Company is required to account for the performance unit plan as a liability based award whereby the estimated fair value of grants made under the plan is recorded as a liability each period based on the outstanding vested performance units. The change in the fair value of the liability each period is recorded as stock based compensation in the statement of operations.

The fair value of a performance unit is based on the following:

• a) 25% with no performance conditions fair value is based on the underlying value of the Company's common stock.
• b) 75% with performance conditions fair value is based on the underlying value of the Company's common stock adjusted for the probability of meeting the market and non–market performance conditions.

On June 28, 2013, the Company purchased 425,000 shares at C\$6.25 per share for a total consideration of \$2.6million. The transaction fees on purchase of shares were \$0.1 million. These shares are held in trust by a trustee under the Company's Plan and have not been vested to participants.

c) Stock options

	Number of Options (000's)	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price (C\$)
Outstanding, beginning of the period	5,982	4.24	5.67
Granted	1,961	4.75	5.91
Exercised	(33)	3.17	5.00
Expired or forfeited	(201)	3.82	6.00
Outstanding, end of period	7,709	4.11	5.72
Number exercisable, end of period	1,181	3.42	5.94

⁹ Convertible Bonds

	Debt Component	Equity Component
Balance, beginning of period	\$ 135,511	\$ 29,395
Interest accrued during the period	11,053	–
Non–cash accretion expense	4,158	–
Balance, end of period	\$ 150,722	\$ 29,395

On September 13, 2012, the Company completed a financing through the issuance of \$173.6 million unsecured pre-IPO convertible bonds (the "Bonds") with a maturity date of September 30, 2017. A summary of certain key terms of the Bonds is set out below.

• The Bonds are convertible at any time up to 14 days prior to the maturity date (or 14 days prior to any earlier date fixed for redemption of the Bonds) at an initial conversion price of \$6.07 per common share. The conversion price of the Bonds will be subject to adjustment on or following the occurrence of certain corporate events relating to the share capital of the Company.

• Interest on the Bonds, initially at a rate of 12 percent per annum, is accrued quarterly and compounded and capitalized semi-annually prior to a Qualifying Public Offering (a "QPO"). Following the QPO such accrued but unpaid interest will become payable at the option of each bondholder either in cash or common shares. For the purpose of the Bonds, a QPO is defined as an offering of the Company's common shares which meets certain liquidity conditions and that results in a listing and admission to trading of the common shares on either (i) the regulated market of the London Stock Exchange (premium or standard listing on the Official List of the UK Listing Authority) or (ii) the Alternative Investment Market (AIM) operated by the London Stock Exchange. Effective September 30, 2013, interest will be accrued quarterly and compounded semi-annually at 12 percent plus a 50 basis point increase every six months until a QPO. However, if the QPO has not occurred prior to September 30, 2015, the Company shall make payment on that date of all compounded and capitalized interest in cash. Following the earlier of a QPO and September 30 2015, any further interest on the outstanding Bonds will be paid only in cash (without compounding) at the then prevailing rate. On July 9, 2013 the Company listed its common shares on the London Stock Exchange (Premium List); however no new common shares were issued and therefore, the QPO as defined above was not satisfied.
• The Bonds are redeemable by the Company from three months following a QPO at a redemption price equal to the principal amount plus accrued but unpaid interest, provided that the volume weighted average price of the common shares for 20 out of 30 consecutive dealing days ending not earlier than seven days prior to the date on which notice of redemption is provided is not less than 150 percent of the conversion price. If neither a QPO nor a change of control in relation to the Company has occurred prior to September 30, 2017, the Bonds which remain outstanding at the maturity date will be redeemed at 153.5 percent of their principal amount, together with accrued but unpaid interest.

¹⁰ Farm-in and Advance Agreements

On March 1, 2013, the Company entered into an Advance Agreement (the "Advance") whereby the Company received \$100 million, a portion of the amount due to the Company pursuant to the Farm-in Agreement on closing.

On May 29, 2013, the Company amended the Advance Agreement to increase the amount of the Advance from \$100 million to \$150 million. All other terms remained unamended. Pursuant to the Advance Agreement as amended, the Company received an additional \$50 million on May 30, 2013.

On June 13, 2013, the Company closed a farm-in agreement with Glencore in which it transferred a one third working interest in each of its PSCs and related agreements. The transaction had an effective date of July 1, 2012 with Glencore being responsible to pay their working share of expenditures from that date upon closing. The following is a reconciliation of the consideration and the value of the assets disposed of:

		Amount
Cash consideration	(i)	\$ 257,458
Future farm-in commitment	(ii)	195,547
Decommissioning obligation		1,016
Transaction costs		(10,100)
Disposition of Exploration and Evaluation assets	(iii)	\$ 443,921

i. Concurrently with the closing, the Company immediately repaid an advance of \$150.0 million to Glencore.

• ii. As per the farm-in agreement, Glencore will reimburse up to \$100 million of the Company's share of expenditures on certain of the Company's assets from July 1, 2013 to June 30, 2014 and up to an additional \$100 million from July 1, 2014 to June 30, 2016.
• iii. The Company has elected not to record gains/losses on properties in the exploration and evaluation stage. As such, this gain on disposition reduces the carrying value of the exploration and evaluation assets.

Notes to the Consolidated Interim Financial Statements (unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

¹¹ Supplementary Cash Flow Information

	June 30, 2013	June 30, 2012
Non-cash changes in working capital:
Accounts receivable	\$ (28,479)	\$ (1,167)
Accounts payable	(881)	28,804
	(29,360)	27,637
Allocated to:
Operating activities	\$ (33,340)	\$ 8,888
Investing activities	3,980	18,749
	(29,360)	27,637

¹² Commitments

Pursuant to concession agreements in the Republic of Chad, the Company is required to perform certain minimum exploration activities by the expiry of the Initial Exploration Terms associated with each of the Company's PSCs, all of which are within the next three years:

Concession Name	Expiry Date	Original Minimum Work Requirement	Remaining Minimum Work Requirement as at June 30, 2013
Doseo/Borogop PSC	January 26, 2016	50,000	42,443
Mangara/Badila PSC	April 24, 2016	50,000	20,526
DOH PSC	August 2, 2016	15,000	13,796
Total		\$ 115,000	\$ 76,765

Pursuant to PSCs in the Republic of Chad, the Group is required to pay certain prescribed amounts relating to the training of Chadian Nationals and employees of the Energy Ministry, audits of the State, and the presentation of annual reports to the State. These prescribed amounts under the terms of the PSCs are approximately \$3.75 million per annum.

The Company has office lease commitments in N'Djamena, Chad, and Calgary, Alberta. Non-cancellable future operating lease rentals from 2013 to 2015 are approximately \$1.4 million per annum.

EXECUTIVE OFFICERS

Gary Guidry P.ENG

President, Chief Executive Officer and Director

J. Dean Tucker P.ENG Chief Operating Officer

Trevor Peters Chief Financial Officer

Tina Antony Vice President, Legal and General Counsel

Ryan Ellson CA Vice President, Finance

Jim Evans CGA Vice President, Corporate Services & Compliance

Nicholas J. Hands P.ENG Vice President, Asset Management

Hervé Manouan

Vice President, Chad General Manager

William (Joe) Taylor P.ENG

Vice President, Engineering and Project Management

Lawrence W. West P.GEOL Vice President, Exploration

BOARD OF DIRECTORS

Robert B. Hodgins CA Chairman

Carol Bell

Director

John Bentley Director

Peter Dey Director

Gary Guidry P.ENG Director

Ronald W. Royal P.ENG Director

Brooke Wade CA Director

AUDITORS

KPMG LLP Calgary, Alberta, Canada

INDEPENDENT PETROLEUM ENGINEERING CONSULTANTS TO THE GROUP

McDaniel & Associates Consultants Limited Calgary, Alberta, Canada

OFFICE LOCATIONS

Canada

Suite 2100 555 – 4 Avenue SW Calgary, Alberta Canada T2P 3E7 Telephone: +(403) 724-7200 Fax: +(403) 262-7534

Chad

107, Rue Kaltouma Nguembang (3050), Klepmat BP 2929 N'Djaména, Tchad

info@Caracalenergy.com www.Caracalenergy.com