Statement from the CEO Robert Karlsson

The production during the second quarter of approximately 900 barrels per day generated revenues significantly higher than last year and in line with the first quarter this year. The underlying profitability in our production and sale of oil remains strong. The customary operating margin of approximately 30% was however reduced to 18% in the second quarter due to non-recurring legal costs of SEK 4 million. Following the agreement signed with Petrogrand in June, we expect these costs and the operating margin to normalize in the coming months.

The production at the Lelyaki field is stable and unaffected by the ongoing geopolitical events in Ukraine. There is no doubt that Ukraine is going through a strenuous transition. However, it is also important to note that the newly elected President Poroshenko has launched a campaign to modernize and deregulate the legal system and business environment. Developing the country’s oil and gas reserves in order to reduce energy dependency has never been more important for the country. In the wake of this, Shelton Petroleum has identified several business opportunities including new licenses with production and significant oil and gas reserves. The company’s deal flow has never been larger than it is today.

We have previously highlighted the very encouraging implications of the latest #12 well drilled on the Rustamovskoye oil field in Russia in 2013. Shelton Petroleum has taken several steps to prepare for the next drilling campaign. A new well design for horizontal wells has been developed and it is currently going through approval processes with the authorities. A study to determine optimal drilling locations is underway.

The Rustamovskoye field has justifiably received much attention during the last year. I would however also like to highlight the seismic program on the company’s adjacent Suyanovskoye license, which is approximately six times larger than Rustamovskoye. The first round of seismic on this field has been collected and is currently being processed and interpreted. I am looking forward to disclosing the results when the work has been completed sometime in the next coming months.

As a debt-free company with a strong operational track record, Shelton Petroleum has many opportunities ahead.

January - June 2014

Financial development

Revenue from oil sales amounted to SEK 63 (46) million. During the period, Shelton Petroleum sold 167,960 (95,600) barrels of oil and the production in the period amounted to 166,437 (99,110) 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 were lower in the first six months 2014 compared to the same period last year.

The average daily production during the first six months 2014 amounted to 920 barrels compared to 548 barrels the same period in 2013.

(For graph, please see attached file)

The company reported an operating result for the period January – June 2014 of SEK 15 (11) million. The result includes expenses for legal advice related to the dispute with Petrogrand and to Shelton Petroleum’s public offer to acquire all the outstanding shares in Petrogrand. The legal fees affecting the profit amounted to approximately SEK 5 million in the first six months. Excluding the legal expenses the operating result and operating margin would have been significantly higher.

The company held SEK 23 million in cash and cash equivalents at the end of the period. Cash flow from operations was SEK 10 million whereas cash flow from investing activities was SEK -19 million, of which SEK -14 million were invested into oil and gas operations. As of 31 December 2013 the accounts receivable amounted to SEK 49 million of which SEK 2 million is outstanding as of 21 August 2014. As of 30 June 2014 the company’s accounts receivable, included in other current receivables in the balance sheet, amounted to SEK 49 (40) million. SEK 47 million of the accounts receivable balance at the end of June is related to sale of oil from the Lelyaki field, where the buyer of the oil makes payments with delays. The validity of the receivable and the outstanding amount as of 30 June 2014 have been confirmed by the counterparty. Management believes that the receivables will be settled in full and continues to monitor the situation closely.

Shelton Petroleum’s wholly owned Canadian subsidiary has received approximately SEK 8 million in dividends from Kashtan Petroleum, operator of the Lelyaki field, during the period January – June 2014 that can be used freely within the Shelton Petroleum group for investments and working capital.

Investments in exploration and development activity amounted to a total of SEK 14 (24) million for the period.

Non-current financial assets amounted to SEK 71 million at the end of the period compared to SEK 0 million at 31 December 2013, and consisted of shares in Petrogrand. As of 30 June 2014 Shelton Petroleum had acquired 11,585,308 shares in Petrogrand, see below.

In May 2014 Shelton Petroleum acquired SEK 9.5 million of the convertible bond 2013/2014 in exchange for 593,750 shares of series A. The remainder of the convertible bond, SEK 12.9 million, was converted into 806,875 shares of series B in June 2014. Following the acquisition and conversion Shelton Petroleum does not have any interest-bearing debt.

Shareholders' equity per share at 30 June 2014 was SEK 20.08 (26.47) and the equity to assets ratio was 87 (81) per cent.

As of 30 June 2014 the Ukrainian Hryvnia weakened by 30% against the Swedish Krona compared to the exchange rate at 31 December 2013. As a result of the weakened Ukrainian Hryvnia Shelton Petroleum reports translation differences in other comprehensive income of SEK -42 (-1) million January - June. The translation differences arise when the income statement and balance sheet of foreign entities are translated from local currency to SEK. The translation differences, which do not affect cash flow, mainly relate to intra-group loans and fixed assets. See note 7 for a table of exchange rates that have been used.

Shelton Petroleum’s wholly owned subsidiary Shelton Canada Corp is party to a Joint Investment Agreement (JIA) with Chornomornaftogaz (CNG) regarding three licenses in the Azov Sea and Black Sea to which CNG is the license holder. Following a referendum on 16 March 2014, Crimea declared independence from Ukraine and requested to be part of the Russian Federation, which has been granted by the Russian President and the Russian Parliament. The new Crimean Prime-minister has declared that the CNG interests on Crimea have been nationalized by the Crimean Republic. It has been reported that private interests and agreements will be respected. Neither the referendum nor the nationalization of CNG, which is in violation of the Ukrainian constitution, has been recognized by the government in Kiev or the Western community.

Due to the events described above, the board of directors of Shelton Petroleum perceives an increased risk regarding potential future financial benefit from the JIA with CNG. The company will continue to closely monitor the developments and believes that a potential adjustment of the values can be made only when the situation has normalized. The JIA accounted for 0 per cent of Shelton Petroleum’s revenue and profit in the period January – June 2014 and approximately 2 per cent of total assets in the balance sheet as of 30 June 2014. The JIA’s carrying value net of deferred taxes was SEK 10 million as of 30 June 2014.

Agreement with Petrogrand

On 26 June 2014 Shelton Petroleum announced that it had entered into an agreement with Petrogrand that will facilitate for the companies to negotiate a breakup of the cross-ownership, which in turn will enable the companies to focus on the development of their operations and license portfolios. Following the signing of the agreement, neither company used its voting rights at the shareholders’ meetings in June. In addition, Shelton Petroleum has held a continued dialog with Petrogrand and its shareholders.

Public offers

In January 2014 Shelton Petroleum announced a public offer to the shareholders of Petrogrand. Initially Shelton Petroleum offered 0.30 shares of series B in Shelton Petroleum for each share in Petrogrand. The offer was subsequently raised to 0.34 and finally to 0.44 shares. On 14 April 2014 Shelton Petroleum completed the offer. On the completion date Shelton Petroleum had received 11,585,308 shares, equal to 28.8% in Petrogrand, and in exchange for those shares issued 5,097,534 shares of series B in Shelton Petroleum.

On 21 March, Petrogrand announced an offer to the shareholders of Shelton Petroleum. Petrogrand’s offer expired on 1 July 2014 and only 248,901 shares, or 1.33% of the total number of shares, had accepted the offer. Petrogrand announced that they would not complete the offer.

April - June 2014

Russian operations

Shelton Petroleum’s production of oil in Russia during the second quarter amounted to 49,526 (20,530) barrels. Production per day amounted to 544 (226) barrels, which is an increase of almost 141 per cent compared to the same quarter last year. Revenue in the second quarter for the Russian segment amounted to SEK 11.9 (5.0) million and operating profit to SEK 6.2 (1.5) million, corresponding to an operating margin of 52% (29%). This marks a significant increase in the operating margin compared to the prior year due to the increased operational efficiency achieved as fixed costs can be distributed on a larger production base.

The very encouraging implications of the latest #12 well drilled on the Rustamovskoye oil field in Russia in 2013 have been highlighted in previous interim reports. The company has taken several steps to prepare for the next drilling campaign. A new well design for horizontal wells has been developed and it is currently going through approval processes with the authorities. A study to determine optimal drilling locations is underway.

Shelton Petroleum is currently performing a seismic program on the Suyanovskoye license, which is approximately six times larger than Rustamovskoye and located directly to the east. The first round of seismic on this field has been collected and is currently being processed and interpreted. The company is expecting to disclose the results when the work has been completed sometime in the next coming months.

Ukrainian operations

Production in the second quarter amounted to 32,151 (31,830) barrels. Production per day amounted to 353 (350) barrels. Revenue in the second quarter in the Ukrainian segment amounted to SEK 19.9 (18.0) million and operating profit to SEK 8.1 (6.9) million, corresponding to an operating margin of 41% (38%).

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 production at the Lelyaki field is stable and unaffected by the ongoing geopolitical events in Eastern Ukraine. Ukraine is going through a strenuous transition. However, it is also important to note that the newly elected President Poroshenko has launched a campaign to modernize and deregulate the legal system and business environment. He has also declared that developing the country’s oil and gas reserves in order to reduce energy dependency is at the top of the country’s agenda. This creates new business opportunities for Shelton Petroleum. The company has identified several targets stemming from both public auctions and private companies with licenses with production and significant oil and gas reserves. The company’s deal flow has never been larger than it is today.

As a result of the geopolitical events in Ukraine the Parliament has approved emergency laws, one of them being a temporary increase of the production taxes on oil scheduled to be effective from August to December 2014, negatively affecting Shelton Petroleum’s Ukrainian operations by approximately SEK 1 million per quarter.

Significant events occurring after the reporting period

There are no significant events to report.

Change of number of shares

In April 2014 Shelton Petroleum issued 674,693 shares of series B under the public offer to the shareholders of Petrogrand AB. In May 2014 Shelton Petroleum acquired part of the outstanding convertible bond 2013/2014 in exchange for shares of series A. As a result the company issued 593,750 shares of series A.

In June, a total of 806,875 shares of series B were issued in relation to the conversion of all of the outstanding SEK 12,910,000 convertible bond 2013/2014. Following the issues of shares of series A and series B the total number of shares in Shelton Petroleum amounts to 18,661,247, divided into 764,330 of series A and 17,896,917 of series B. The total number of votes in the company amounts to 25,540,217. The share capital in Shelton Petroleum amounts to SEK 93,306,235.

The parent company

The parent company's total assets as at the period end amounted to SEK 382 (301) million. Cash and cash equivalents amounted to SEK 17 (26) million. The result after tax January – June 2014 was SEK -24 (-1) million. The negative result is an effect of non-recurring costs for legal advice during the period January – June and an adjustment to fair value of the shares in Petrogrand.

Risk factors and uncertainties

A detailed account of the risks facing the company can be found in the 2013 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 2014 21 November 2014

Publication under Swedish law

Shelton Petroleum is publishing this information in accordance with the Swedish Financial Markets Act (Sw. Lag om värdepappersmarknaden) and/or the Swedish Financial Trading Act (Sw. Lag om handel med finansiella instrument). This information was released for publication on 22 August 2014 at 08:30 CET.

This report has not been reviewed by the Company’s auditors.

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

(For full report, please see attached file)