Statement from the CEO

Increasing production continues to be a strategic objective for Shelton Petroleum. During the second quarter, the company produced 575 barrels per day, an increase of almost 30 per cent compared to the same quarter last year. The company’s operating margin of 23 per cent remains strong.

During the quarter, Shelton Petroleum has taken several measures to strengthen its financial position, which in turns provides necessary funds to finance further increases in production. In April, the shareholding in Pan European Terminals was divested for SEK 27 million. In addition, the company has entered into an agreement to issue two convertible bonds to Petrogrand AB. The first convertible amounts to SEK 30 million and provides funds for further development drilling in Bashkiria. The second convertible amounts to SEK 185 million and is conditional upon the closing of certain transactions that could potentially create substantial value for the company and its shareholders.

The new well #11 at the Rustamovskoye oil field in Russia was successfully put into production during the second quarter. The company is now producing from three out of three wells drilled on this field. In order to further increase well productivity, the company will frack the new well. In addition to this, a fourth well has been spudded on Rustamovskoye. It is pleasing that the recently strengthened financial position allowed the company to commence this drilling within such a short time span. The new well targets the same Devonian sandstone formation that the other three wells currently are producing from.

I am looking forward to the enhanced production volumes that the fracking and new wells could potentially provide.

Robert Karlsson

January - June 2013

Financial development

Revenue from oil sales amounted to SEK 46 (46) million. During the period, Shelton Petroleum sold 95,600 (83,800) barrels of oil and the production in the period amounted to 99,100 (82,300) barrels of oil. The production has increased in both Russia and Ukraine compared to last year. The price of oil in USD in both Russia and Ukraine in the first six months 2013 were relatively stable compared to the same period last year. The strengthening of the Swedish krona compared to the Russian rouble and the Ukrainian hryvna had a negative effect on the net revenue in the consolidated accounts.

The average daily production during the first six months 2013 amounted to 548 barrels compared to 452 barrels the same period in 2012.

Operating expenses in the first six months amounted to SEK 37 (37) million and consist primarily of production costs, personnel costs and other external expenses.

The operating result for the period January – June 2013 amounted to SEK 11 (18) million. In April Shelton Petroleum divested its holding in PAN European Terminals plc (PAN, previously Baltic Oil Terminals). The transaction strengthened the company’s cash position by SEK 27 million and resulted in a gain of SEK 4 million compared to the book value as of 31 December 2012. This gain is recorded as financial cost of SEK -12 million (currency exchange and market price losses compared to the original cost) and as other comprehensive income of SEK 16 million (reversal of accumulated adjustments to fair value).

As a consequence of the above transaction, the company’s result before tax amounted to SEK -2 (18) million whereas the total comprehensive income for the period amounted to SEK 11 (10) million. Revenue and result for 2012 include a positive one-off item of SEK 7 million relating to the shareholding in Tomsk Refining.

The group held SEK 27 million in cash and cash equivalents at the end of the period compared to SEK 31 million at 31 December 2012. Cash flow for the period was SEK -3 (2) million. Cash flow from operational activities was SEK -7 (0) million, which is below the operational profit for the quarter due to an increase in accounts receivable since 31 December 2012 as a result of postponed payments from the sale of oil in Ukraine. The accounts receivable at the end of the second quarter are on the same level as at the end of the first quarter. Investments in exploration and development activity amounted to a total of SEK 24 (9) million, mainly related to the new Russian well that encountered oil.

Financial fixed assets amounted to SEK 0 million at the end of the period compared to SEK 23 million at 31 December 2012. The decrease is related to the sale of the holding in PAN.

Shareholders' equity per share at 30 June 2013 was SEK 26.47 (24.77) and the equity to assets ratio was 81 (80) per cent.

Issue of convertible bonds

On 14 June, the company announced that the management of Shelton Petroleum and Petrogrand had decided to enter into an agreement regarding two directed issues of convertible debentures. The agreement was signed in July and notices to an extra general meeting to approve the transaction have been given by both companies.

The first convertible, which is unconditional, amounts to SEK 30 million and both Shelton Petroleum and Petrogrand can call for conversion at a conversion price of SEK 20. This convertible has a zero coupon rate and is intended to quickly progress Shelton Petroleum’s operations through production increasing measures such as further drilling and fracking in the Rustamovskoye field among others.

The second convertible amounts to approximately SEK 185 million and is conditional upon certain events. In addition to raising production, it is Shelton Petroleum’s strategy and focus to expand its operations. Shelton Petroleum has identified several attractive opportunities on the markets in Russia and Ukraine. Petrogrand can call for conversion at a conversion price of SEK 20 given that certain activities deemed to create substantial value in Shelton Petroleum are pursued and completed jointly by the companies. The second convertible has a market based coupon rate corresponding to the deposit rate, in essence making the net interest rate zero for Shelton Petroleum.

Both convertibles expire on 31 December 2013.

At full conversion, Petrogrand’s ownership in Shelton Petroleum will amount to 50 per cent plus one share. Petrogrand has committed to distribute its shares in Shelton Petroleum to its shareholders by a Lex Asea dividend.

The Board of Directors of Shelton Petroleum believes that Shelton Petroleum can continue to develop its existing licenses in a beneficial way for shareholders with this external financing from Petrogrand. The proceeds from the issues will primarily be used for expansion, increase in production from the producing fields and acceleration of the development of other licenses in the portfolio.

April - June 2013

Russian operations

Shelton Petroleum’s production of oil in Russia during the second quarter amounted to 20,530 (11,500) barrels. Production per day amounted to 226 (126) barrels, which is an increase of almost 80 per cent compared to the same quarter last year. Revenue in the second quarter for the Russian segment amounted to SEK 5.0 (2.8) million and operating profit to SEK 1.5 (0.8) million, corresponding to an operating margin of 29% (27%). This marks an increase in the operating margin compared to the first quarter of the year due to the economies of scale that the incremental production provides.

The new well #11 on the Rustamovskoye oil field was drilled to a total depth of 2,565 meters. It has been successfully tested and is currently producing from the same Devonian sandstone formation as the two previous wells. The well has been connected to the field’s infrastructure and the sale of oil form the well has commenced. The company is planning a fracking of the well in order to further increase well productivity. Based on these results, Shelton Petroleum spudded a new production well in July. The fracking and the new well have been designed to further increase production and enhance cash flow from the already profitable field. The new drillings increase the company’s knowledge of the reservoir characteristics and extension as well as provide opportunities to increase the company’s reserves at future updates.

Ukrainian operations

Production in the second quarter amounted to 31,830 (29,400) barrels. Production per day amounted to 350 (323) barrels. Revenue in the second quarter in the Ukrainian segment amounted to SEK 18.0 (19.5) million and operating profit to SEK 6.9 (8.1) million, corresponding to an operating margin of 38% (42%).

Shelton Petroleum (Zhoda 2001 Corporation) and its partner Ukrnafta, Ukraine’s largest oil and gas company continue the field development program on the Lelyaki field. The objective is to step by step enhance productivity and increase production volumes. The workover program has increased production by approximately 10% compared to the same period last year.

Significant events occurring after the reporting period

The previously announced agreement on directed issue of convertible debentures was signed in July. Notice to shareholders of an EGM has been given. The EGM will be held on 22 August 2013.

On 26 July, the spudding of a fourth well on Rustamovskoye was announced.

The parent company

The parent company's total assets as at the period end amounted to SEK 301 (302) million. Cash and cash equivalents amounted to SEK 22 (33) million. The result after tax January – June 2013 was SEK -1 (-3) million.

Risk factors and uncertainties

A detailed account of the risks facing the company can be found in the 2012 annual report. During the period, there has been no major change in material risk factors or uncertainties for the group or the parent company. Risks include exploration risk, oil price risk, exchange rate risk, liquidity risk, credit risk, interest rate risk and political risk, among others.

Upcoming financial reporting

Interim Report July – September 2013 22 November 2013

Publication under Swedish law

Shelton Petroleum is publishing this information in accordance with the Swedish Financial Markets Act (Sw. Lag om värdepappersmarknaden) and/or the Swedish Financial Trading Act (Sw. Lag om handel med finansiella instrument). This information was released for publication on 22 August 2013 at 08:30 CET.

(For full report, see attached file)

For more information, please contact:

Robert Karlsson, CEO, +46-709565141

robert.karlsson@sheltonpetroleum.com

Shelton Petroleum AB

Swedish corporate identity number: 556468-1491

Hovslagargatan 5B

SE-111 48 Stockholm

Tel: +46 8407 18 50

www.sheltonpetroleum.com

info@sheltonpetroleum.com About Shelton Petroleum

About Shelton Petroleum

Shelton Petroleum is a Swedish company focused on exploring and developing concessions in Russia and the resource-rich basins of Ukraine. In Russia, the company holds three licenses in the Volga-Urals area in Bashkiria and has commenced production on the Rustamovskoye field after a successful exploration program. In Ukraine, Shelton Petroleum’s wholly owned subsidiary has a joint venture with Ukrnafta and Chornomornaftogaz, two leading Ukrainian oil and gas companies. The Shelton Petroleum share is traded on NASDAQ OMX Stockholm under the under the symbol SHEL B.