OFFERING MEMORANDUM

NOT FOR GENERAL DISTRIBUTION IN THE UNITED STATES

Afren plc
$300,000,000 1 10 /4% Senior Secured Notes due 2019

Afren plc, a public limited company incorporated under the laws of England and Wales (Afren or the Company), is offering (the Offering) $300,000,000 aggregate principal amount of its 101/4% Senior Secured Notes due 2019 (the Notes). We will pay interest on the Notes semi-annually on each April 8 and October 8, commencing October 8, 2012. Some or all of the Notes may be redeemed prior to April 8, 2016, by paying 100% of the principal amount of such notes plus a make-whole premium, and at any time on or after April 8, 2016, at the redemption prices set forth in this Offering Memorandum. In addition, prior to April 8, 2015, we may redeem, at our option, up to 35% of the Notes with the net proceeds from certain equity offerings. If we undergo a change of control or sell certain of our assets, we may be required to make an offer to purchase the Notes. In the event of certain developments affecting taxation, we may redeem all, but not less than all, of the Notes. The Notes will be senior secured debt of Afren ranking pari passu in right of payment to all of Afrens existing and future senior indebtedness. The Notes will be initially guaranteed on a senior basis (the Senior Guarantees) by certain of our subsidiaries and on a senior subordinated basis (the Subordinated Guarantee and, together with the Senior Guarantees, the Note Guarantees) by Afren Resources Limited (collectively, the Guarantors). The Senior Guarantees will be senior debt of each of the relevant Guarantors, ranking pari passu in right of payment to all of the relevant Guarantors existing and future senior indebtedness. The Subordinated Guarantee will be subordinated in right of payment to Afren Resources Limiteds existing and future senior indebtedness, including indebtedness under the Ebok Facility (as defined herein). The Notes and the Note Guarantees will be secured by contractual first priority liens on certain assets related to the Okoro field and the Notes and the Subordinated Guarantee will be secured by a contractual second priority floating charge and certain other contractual second priority liens on certain assets related to the Ebok field that secure Afren Resources Limiteds obligations under the Ebok Facility, as more fully described in Description of Notes. This Offering Memorandum includes information on the terms of the Notes and the Note Guarantees, including redemption and repurchase prices, covenants and transfer restrictions. Application has been made to have the Notes admitted to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF Market.

Investing in the Notes involves a high degree of risk. See Risk Factors beginning on page 25. Price: 99.976% plus accrued interest, if any, from the Issue Date.
We expect that the Notes will be delivered in book-entry form through The Depositary Trust Company (DTC) on or about March 8, 2012 (the Issue Date). The Notes and the Note Guarantees have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act). The Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons, except to qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A under the U.S. Securities Act (Rule 144A) or to non-US persons in offshore transactions in reliance on Regulation S under the U.S. Securities Act (Regulation S). You are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. See Plan of Distribution and Notice to Investors for additional information about eligible offerees and transfer restrictions. Goldman Sachs International

(Global Coordinator)
BNP PARIBAS Global Hunter Securities Deutsche Bank Goldman Sachs International Natixis

(Joint Bookrunners) (Senior Co-Managers) The date of this Offering Memorandum is March 1, 2012

TABLE OF CONTENTS SUMMARY................................................................................................................................................................................. 1 THE OFFERING ......................................................................................................................................................................... 9 SUMMARY FINANCIAL AND OTHER DATA .................................................................................................................... 15 RISK FACTORS ....................................................................................................................................................................... 20 USE OF PROCEEDS ................................................................................................................................................................ 52 CAPITALIZATION .................................................................................................................................................................. 53 SELECTED FINANCIAL DATA ............................................................................................................................................. 54 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............................................................................................................................................................. 57 COUNTRY, INDUSTRY AND MARKET DATA................................................................................................................... 83 LEGAL AND REGULATORY................................................................................................................................................. 94 OUR BUSINESS ..................................................................................................................................................................... 104 MANAGEMENT .................................................................................................................................................................... 165 PRINCIPAL SHAREHOLDERS ............................................................................................................................................ 175 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ...................................................................... 176 DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS....................................................................................... 177 DESCRIPTION OF NOTES ................................................................................................................................................... 187 BOOK-ENTRY, DELIVERY AND FORM ............................................................................................................................ 255 TAXATION............................................................................................................................................................................. 260 PLAN OF DISTRIBUTION .................................................................................................................................................... 265 NOTICE TO INVESTORS ..................................................................................................................................................... 267 ERISA CONSIDERATIONS .................................................................................................................................................. 270 LEGAL MATTERS................................................................................................................................................................. 272 INDEPENDENT AUDITORS ................................................................................................................................................ 273 INDEPENDENT PETROLEUM ENGINEERS ...................................................................................................................... 274 AVAILABLE INFORMATION.............................................................................................................................................. 275 SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES ....................................................................... 276 LISTING AND GENERAL INFORMATION ........................................................................................................................ 279 GLOSSARY OF OIL & GAS INDUSTRY TERMS .............................................................................................................. 281 INDEX TO FINANCIAL STATEMENTS ............................................................................................................................. F-1

IMPORTANT INFORMATION ABOUT THIS OFFERING MEMORANDUM We have prepared this offering memorandum (the Offering Memorandum) based on information we have or have obtained from sources we believe to be reliable. Summaries of documents contained in this Offering Memorandum may not be complete. We will make copies of actual documents available to you upon request. None of us or Goldman Sachs International, BNP Paribas Securities Corp., Deutsche Bank AG, London Branch, Global Hunter Securities, LLC and Natixis (collectively, the Initial Purchasers), represent that the information herein is complete. The information in this Offering Memorandum is current only as of the date on the cover, and our business or financial condition and other information in this Offering Memorandum may change after that date. You should consult your own legal, tax and business advisors regarding an investment in the Notes. Information in this Offering Memorandum is not legal, tax or business advice. You should base your decision to invest in the Notes solely on information contained in this Offering Memorandum. Neither we nor the Initial Purchasers have authorized anyone to provide you with any different information. This Offering Memorandum constitutes a prospectus for the purpose of the Luxembourg law dated July 10, 2005 on Prospectuses for Securities. We are offering the Notes, and the Guarantors are issuing the Note Guarantees in respect thereof, in reliance on an exemption from registration under the U.S. Securities Act for an offer and sale of securities that does not involve a public offering. If you purchase the Notes, you will be deemed to have made certain acknowledgments, representations and warranties as detailed under Notice to Investors. You may be required to bear the financial risk of an investment in the Notes for an indefinite period. Neither we nor the Initial Purchasers are making an offer to sell the Notes in any jurisdiction where the offer and sale of the Notes is prohibited. We do not make any representation to you that the Notes are a legal investment for you. No action has been, or will be, taken to permit a public offering in any jurisdiction where action would be required for that purpose. Each prospective purchaser of the Notes must comply with all applicable laws and rules and regulations in force in any jurisdiction in which it purchases, offers or sells the Notes and must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales, and neither we nor the Initial Purchasers shall have any responsibility therefor. Neither the U.S. Securities and Exchange Commission (the SEC), any U.S. state securities commission nor any non-U.S. securities authority nor other authority has approved or disapproved of the Notes or determined if this Offering Memorandum is truthful or complete. Any representation to the contrary is a criminal offense. We accept responsibility for the information contained in this Offering Memorandum. We have made all reasonable inquiries and confirm to the best of our knowledge, information and belief that the information contained in this Offering Memorandum with regard to us and our subsidiaries and affiliates and the Notes is true and accurate in all material respects, that the opinions and intentions expressed in this Offering Memorandum are honestly held and that we are not aware of any other facts, the omission of which would make this Offering Memorandum or any statement contained herein misleading in any material respect. The Initial Purchasers make no representation or warranty, express or implied, as to, and assume no responsibility for, the accuracy or completeness of the information contained in this Offering Memorandum. Nothing contained in this Offering Memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers as to the past or the future. We have prepared this Offering Memorandum solely for use in connection with the offer of the Notes. You agree that you will hold the information contained in this Offering Memorandum and the transactions contemplated hereby in confidence. You may not distribute this Offering Memorandum to any person, other than a person retained to advise you in connection with the purchase of the Notes. We and the Initial Purchasers may reject any offer to purchase the Notes in whole or in part, sell less than the entire principal amount of the Notes offered hereby or allocate to any purchaser less than all of the Notes for which it has subscribed. The information set out in relation to sections of this Offering Memorandum describing clearing and settlement arrangements, including the section entitled Book-Entry, Delivery and Form, is subject to a change in or reinterpretation of the rules, regulations and procedures of DTC, Euroclear or Clearstream currently in effect. While we accept responsibility ii

for accurately summarizing the information concerning DTC, Euroclear or Clearstream, we accept no further responsibility in respect of such information. We cannot guarantee that our application for the admission of the Notes to trading on the Euro MTF Market and to listing on the Official List of the Luxembourg Stock Exchange, will be approved as of the settlement date for the Notes or at any time thereafter, and settlement of the Notes is not conditional on obtaining this listing. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the U.S. Securities Act and applicable securities laws of any other jurisdiction pursuant to registration or exemption therefrom. Prospective purchasers should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. See Notice to Investors. IN CONNECTION WITH THIS OFFERING, GOLDMAN SACHS INTERNATIONAL (THE STABILIZING MANAGER) (OR PERSONS ACTING ON BEHALF OF THE STABILIZING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILIZING MANAGER (OR PERSONS ACTING ON BEHALF OF A STABILIZING MANAGER) WILL UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE FINAL TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT MUST END NO LATER THAN THE EARLIER OF 30 CALENDAR DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 CALENDAR DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILIZATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILIZING MANAGER (OR PERSON ACTING ON BEHALF OF THE STABILIZING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS.

NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ANNOTATED, 1955, AS AMENDED (RSA 421-B), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO U.S. INVESTORS Each purchaser of the Notes will be deemed to have made the representations, warranties and acknowledgements that are described in this Offering Memorandum under Notice to Investors. The Notes have not been and will not be registered under the U.S. Securities Act or the securities laws of any state of the United States and are subject to certain restrictions on transfer. Prospective purchasers are hereby notified that the seller of any Note may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. For a description of certain further restrictions on resale or transfer of the Notes, see Notice to Investors. The Notes may not be offered to the public within any jurisdiction. By accepting delivery of this Offering Memorandum, you agree not to offer, sell, resell transfer or deliver, directly or indirectly, any Note to the public.

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NOTICE TO CERTAIN EUROPEAN INVESTORS European Economic Area and United Kingdom This Offering Memorandum has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under the Prospectus Directive (as defined below), from the requirement to produce a prospectus for offers of the Notes. In relation to each Member State of the European Economic Area (the EEA) which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State no offer of Notes to the public in that Relevant Member State may be made other than: (a) (b) to any legal entity which is a qualified investor as defined in the Prospectus Directive; to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive (as defined below), 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive; or in any other circumstances falling within Article 3(2) of the Prospectus Directive,

(c)

provided that no such offer of Notes shall require us or any Initial Purchaser to publish a prospectus pursuant to Article 3 of the Prospectus Directive. Accordingly, any person making or intending to make any offer within the EEA of the Notes should only do so in circumstances in which no obligation arises for us or any of the Initial Purchasers to produce a prospectus for such offer. Neither we nor the Initial Purchasers have authorized, nor do they authorize, the making of any offer of Notes through any financial intermediary, other than offers made by the Initial Purchasers, which constitute the final placement of the Notes contemplated in this Offering Memorandum. The issue and distribution of this Offering Memorandum is restricted by law. This Offering Memorandum is not being distributed by, nor has it been approved for the purposes of section 21 of the Financial Services and Markets Act 2000 by, a person authorized under the Financial Services and Markets Act 2000. In the United Kingdom, this Offering Memorandum is for distribution only to persons who (i) have professional experience in matters relating to investments (being investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Financial Promotion Order)); (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Promotion Order; (iii) are outside the United Kingdom; or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any Notes may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, (1) in the United Kingdom, relevant persons and (2) in any member state of the EEA other than the United Kingdom, qualified investors (Qualified Investors) within the meaning of Article 2(1)(e) of the Prospectus Directive. This Offering Memorandum and its contents should not be acted upon or relied upon (1) in the United Kingdom, by persons who are not relevant persons or (2) in any member state of the EEA other than the United Kingdom, by persons who are not Qualified Investors. No part of this Offering Memorandum should be published, reproduced, distributed or otherwise made available in whole or in part to any other person without the prior written consent of the Company. For the purposes of this section, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. NOTICE TO HONG KONG INVESTORS The Notes may not be offered or sold in Hong Kong by means of any document other than to (1) professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder, or (2) in circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of the laws of Hong Kong or which do not constitute an offer to the public within the meaning of that iv

Ordinance. No invitation, advertisement or document relating to the Notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Notes which are intended to be disposed of only to persons outside Hong Kong or only to professional investors, as defined under the Securities and Futures Ordinance (Cap. 571) of the laws of Hong Kong and any rules made thereunder. NOTICE TO NIGERIAN INVESTORS This Offering Memorandum and the Notes have not been and will not be registered with the Nigerian Securities and Exchange Commission, or under the Nigerian Investment Securities Act No. 29 of 2007 (the ISA). Further, neither this Offering Memorandum nor any other offering material related to the Notes may be utilized in connection with any offering to the public within Nigeria, and the Notes may not be offered or sold within Nigeria or to, or for the account or benefit of, persons resident in Nigeria, except in certain transactions exempt from the registration requirements of the ISA. Accordingly, this Offering Memorandum is not directed to, and the Notes are not available for subscription by, any persons within Nigeria, other than the selected investors to whom the Offering Memorandum has been addressed as a private sale, or domestic concern, within the exemption and meaning of Section 69(2) of the ISA. NOTICE TO SINGAPORE INVESTORS This Offering Memorandum has not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Offering Memorandum or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (2) to a relevant person pursuant to Section 275(1) or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Notes are subscribed for or purchased under Section 275 of the SFA by a relevant person which is: (1) a corporation (which is not an accredited investor (as defined in Section 4 of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

(2)

securities (as defined in Section 239 (1) of the SFA) of that corporation or the beneficiaries rights and interest (however described) in that trust shall not be transferable within six months after that corporation or that trust has acquired the Notes pursuant to offer made under Section 275 of the SFA except: (a) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; where no consideration is or will be given for the transfer; where the transfer is by operation of law; or as specified in Section 276(7) of the SFA.

(b) (c) (d)

THIS OFFERING MEMORANDUM CONTAINS IMPORTANT INFORMATION WHICH YOU SHOULD READ BEFORE YOU MAKE ANY DECISION WITH RESPECT TO AN INVESTMENT IN THE NOTES. FORWARD-LOOKING STATEMENTS This Offering Memorandum includes forward-looking statements within the meaning of the securities laws of certain applicable jurisdictions. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this Offering Memorandum, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in v

the markets in which we participate or are seeking to participate or anticipated regulatory changes in the markets in which we operate or intend to operate. In some cases, you can identify forward-looking statements by terminology such as aim, anticipate, believe, continue, could, estimate, expect, forecast, guidance, intend, may, plan, potential, predict, projected, should, target or will or the negative of such terms or other comparable terminology. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and are based on numerous assumptions and that our actual results of operations, including our financial condition and liquidity and the development of the industry in which we operate, may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements contained in this Offering Memorandum. In addition, even if our results of operations, including our financial condition and liquidity and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Offering Memorandum, those results or developments may not be indicative of results or developments in subsequent periods. Important risks, uncertainties and other factors that could cause these differences include, but are not limited to: price fluctuations in crude oil, gas and refined products markets and related fluctuations in demand for such products; operational limitations, including equipment failures, labor disputes, technological limitations, operational hazards and processing limitations; the availability or cost of transportation routes and traders fees charged for arranging transportation; the competiveness of the oil and gas exploration and production industry; changes in governmental regulation, including regulatory changes affecting the availability of permits, and governmental actions that may affect operations or our planned expansion; the reliance on our indigenous and joint venture partners to comply with the obligations under the relevant licenses or the agreements pursuant to which the assets are operated and agreed work programs are completed in accordance with their terms; the availability of debt financing, including under our existing facilities; unfavorable changes in economic or political conditions in Africa and/or Iraq; unplanned events or accidents affecting our operations or facilities; incidents or conditions affecting the export of crude oil and gas; and reservoir performance, drilling results and implementation of our oil expansion plans.

We urge you to read the sections of this Offering Memorandum entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Country, Industry and Market Data and Our Business for a more complete discussion of the factors that could affect our future performance and the markets in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking events described in this Offering Memorandum may not occur. These forward-looking statements speak only as of the date on which the statements were made. We undertake no obligation to update or revise any forward-looking statement or risk factor, whether as a result of new information, future events or developments or otherwise. PRESENTATION OF FINANCIAL AND OTHER INFORMATION Financial Information Our consolidated financial statements as at and for the years ended December 31, 2008, 2009 and 2010, which are included in this Offering Memorandum, have beenb prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).

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Due to the restatement made in connection with the preparation of the audited consolidated financial statements as at and for the year ended December 31, 2008 with respect to the finalization of purchase accounting pursuant to IFRS 3, Business Combinations, adjustments were made relating to the comparative period information included in the consolidated financial statements as at and for the year ended December 31, 2009, such that this information is not consistent in all respects with the consolidated financial statements for the year ended December 31, 2008. For further details, refer to note 31 in the consolidated financial statements as at and for the year ended December 31, 2009. The unaudited condensed consolidated interim financial statements as at October 31, 2010 and for the ten months ended October 31, 2010 and 2011, which are included in this Offering Memorandum, have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting, except that the unaudited condensed consolidated interim financial statements exclude the required disclosures pertaining to segment information. We have prepared the unaudited condensed financial statements as at October 31, 2010 and for the ten months ended October 31, 2010 solely for the purposes of this Offering Memorandum, and we do not anticipate producing financial information for future ten-month periods. Non-IFRS Financial Measures This Offering Memorandum contains non-IFRS measures and ratios, including EBITDAX, Adjusted EBITDAX, and net debt that are not required by, or presented in accordance with, IFRS. Management uses these measures to measure operating performance, in presentations to our Directors and as a basis for strategic planning and forecasting. In addition we present these non-IFRS measures because we believe that they and similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. We believe that EBITDAX and Adjusted EBITDAX are useful to investors in evaluating our operating performance and our ability to incur and service our indebtedness because they: are widely used by investors in the oil and gas industry to measure a companys operating performance before depreciation and amortization among other items, which can vary substantially from company to company depending upon accounting methods, book value of assets, capital structure and the method by which assets were acquired, among other factors; and help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure.

EBITDAX, Adjusted EBITDAX and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. They have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS. These non-IFRS measures are not measurements of our performance or liquidity under IFRS and should not be considered as alternatives to operating profit or profit for the year or any other performance measures derived in accordance with IFRS or any other generally accepted accounting principles, or as alternatives to cash flow from operating, investing or financing activities. You should exercise caution in comparing EBITDAX or Adjusted EBITDAX as reported by us to EBITDAX or Adjusted EBITDAX of other companies. EBITDAX is commonly defined as earnings before interest, taxes, depreciation, depletion, and amortization and exploration costs. We further adjust for investment revenue and impairment charges (reversal) of oil and gas assets. Adjusted EBITDAX is defined as EBITDAX, less mark-to-market changes in derivative financial instruments and share-based payments charge. We exclude from Adjusted EBITDA mark-to-market changes in derivative financial instruments because we do not believe that they relate to our ongoing performance and we believe may hinder comparison of the performance of our businesses either year-on-year or with other businesses. Similarly, differences exist among our businesses to the extent their employees receive share-based compensation. We therefore exclude the share-based compensation expense from Adjusted EBITDA in order to assess the comparative performance of our businesses. We present a reconciliation of each of the non-IFRS measures to the most directly comparable measure calculated and presented in accordance with IFRS and discuss its limitations. For a reconciliation of these non-IFRS measures, refer to Summary Financial Data and Selected Financial Data. Certain numerical figures set out in this Offering Memorandum, including financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this Offering Memorandum may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in Managements Discussion and Analysis of Financial Condition and Results of Operations are calculated using the numerical data in our consolidated vii

financial statements or the tabular presentation of other data (subject to rounding) contained in this Offering Memorandum, as applicable, and not using the numerical data in the narrative description thereof. Future Net RevenuePresent Worth at 10% Present worth at 10% represents the present value of estimated future net cash flows from proved oil and natural gas reserves, less estimated future development, production, plugging and abandonment costs and tax expenses (if applicable), discounted at 10% per annum to reflect timing of future cash flows. Present worth at 10% is a non-IFRS financial measure. The oil and gas industry uses measurements like present worth at 10% to compare the relative size and value of proved reserves; however such measurements are used by different companies for differing purposes and our use or computation of the term present worth at 10% may not be comparable to the use or computation of similarly titled measures reported by other companies in the oil and gas industry. Our calculation of present worth at 10% is not determined in accordance with the rules and regulations of the SEC. Certain Reserves Information Unless otherwise indicated, the crude oil reserves data presented in this Offering Memorandum is audited and has been estimated at our request by NSAI, in relation to certain African assets, and by RPS, in relation to the Barda Rash block and the Ain Sifni block. Both NSAI and RPS are international oil and gas consultants who have prepared their estimates in accordance with resource definitions jointly set out by the Society of Petroleum Engineers (SPE), the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE) in April 2007 in the Petroleum Resources Management System (PRMS). Thus, proved reserves presented herein may differ from reserves that might be estimated according to definitions used by other companies in the industry or the SEC. Pursuant to the classifications and definitions provided by the PRMS, proved reserves (1P) is defined as those quantities of petroleum, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations; probable reserves (2P) is defined as those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves; and possible reserves (3P) is defined as are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves. Pursuant to the classifications and definitions provided by PRMS, in the low estimate scenario of contingent resources (1C), the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 90%; in the best estimate scenario of contingent resources (2C), the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 50%; and in the high estimate scenario of contingent resources (3C), the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 10%. Information in this Offering Memorandum that is derived or reproduced from the NSAI Report is qualified in its entirety by reference to such report and prospective investors should refer to the report produced by NSAI on our reserves and resources as of December 31, 2011 (the NSAI Report). For more information on our reserves and resources and the reserves and resources definitions that we use, see Available Information. Information in this Offering Memorandum that is derived or reproduced from the RPS Reports are qualified in their entirety by reference to the reports produced by RPS dated February 15, 2012 in connection with the Barda Rash block (the Barda Rash Report) and June 9, 2011 in connection with the Ain Sifni block (the Ain Sifni Report, and together with the Barda Rash Report, the RPS Reports). Following completion and approval of the field development plans for the Barda Rash block, further field review is underway and we expect that a new reserve report will be published concurrently with our 2011 annual financial statements. For more information on the Barda Rash block and the Ain Sifni block crude oil contingent and prospective resources data and the definitions used by RPS, see Available Information. Hydrocarbon Data General We use standards prepared by the PRMS. Since 2006, we have engaged NSAI to conduct reviews of our hydrocarbon reserves and resources. Unless otherwise stated herein, the estimates set forth in this Offering Memorandum of

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our proven, probable and possible reserves and resources are based on reports prepared for us by (i) NSAI and (ii) RPS, in each case, in accordance with the standards established by the PRMS. Each of the reports referenced in this Offering Memorandum use the following estimates: crude oil in standard millions of barrels (mmbbl) (a barrel being the equivalent of 42 U.S. gallons); and natural gas and natural gas liquids in billions of cubic feet (bcf) at standard temperature and pressure bases.

The actual number of barrels of crude oil produced, shipped or sold may vary from the barrel equivalents (boe) of crude oil presented herein, as a tonne of heavier crude oil will yield fewer barrels than a tonne of lighter crude oil. Our conversion of data for tonnes into barrels and from cubic feet into boe may differ from that data used by other companies. We have assumed a conversion rate of 5.8 bcf to 1 mmboe. There are a number of uncertainties inherent in estimating quantities of proved, probable and possible reserves, contingent resources and prospective resources, including many factors beyond our control, such as commodity pricing. Therefore, the reserve, contingent resources and prospective resources information in the NSAI Report and RPS Reports each represent only estimates. Reserve, contingent resources and prospective resources engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve, contingent resources and prospective resources estimate is a function of a number of variable factors and assumptions many of which are beyond our control, including the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revising the original estimate. Accordingly, due to the inherent uncertainties and the necessarily limited nature of reservoir data and the inherently imprecise nature of reserves, contingent resources and prospective resources estimates, the initial reserve, contingent resources and prospective resources estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the assumptions upon which they were based. Thus, you should not place undue reliance on the ability of the reserves, contingent resources and prospective resources reports prepared by NSAI and RPS to predict actual reserves, contingent resources and prospective resources or on comparisons of similar reports concerning companies established in other economic systems. In addition, except to the extent that we acquire additional properties containing proved, probable and possible reserves or conduct successful exploration and development activities, or both, our proved, probable and possible reserves will decline as reserves are produced. Potential investors should note that neither the NSAI nor RPS Reports have calculated estimated proved, probable and possible reserves under the standards of reserves measurement applied by the SEC (the SEC basis) for any of the relevant periods reviewed in the Offering Memorandum, or otherwise. The SEC basis differs from PRMS. Presentation in NSAI Report NSAI has prepared assessments of our asset base as of December 31, 2011, and has reviewed and incorporated only field studies and data that were available as of those dates in relation to the assets covered by the relevant report. NSAI has not included Ofa, OPL 907 and OPL 917 in their assessments. The NSAI Report was prepared using oil and gas prices and cost parameters specified by Afren. The oil price is based on a Brent price per barrel and is adjusted for quality, transportation fees, and a regional price differential. Gas produced from Block CI-11 is sold under two contracts as described under Our BusinessMaterial Agreements Relating to our AssetsBlock CI-11. Gas prices used in the NSAI Report are based on a volume-weighted average of prices under the two contracts and are adjusted for energy content. For further information on how to obtain a copy of the NSAI Report, see Available Information. The technical personnel responsible for preparing the reserve estimates at NSAI meet the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the SPEE. NSAI is an independent firm of petroleum engineers, geologists, geophysicists and petrophysicists; it does not own an interest in our properties and is not employed on a contingent fee basis. Joseph J. Spellman, Senior Vice President, is a licensed professional engineer with more than 30 years experience. Philip R. Hodgson, Vice President and Senior Technical Advisor, is a licensed geologist with more than 26 years of experience.

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Presentation in RPS Reports RPS has prepared its assessment of the Barda Rash block as at February 15, 2012 and the Ain Sifni block as at June 9, 2011, and has reviewed and incorporated only field studies and data that were available up to that date. RPS has only included the Barda Rash block in the Barda Rash Report and the Ain Sifni block in the Ain Sifni Report. The technical personnel responsible for preparing the reserve estimates at RPS meet the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the SPEE. RPS is an independent firm of petroleum engineers, geologists, geophysicists and petrophysicists; it does not own an interest in our properties and is not employed on a contingent fee basis. RPSs Subsurface Director is a Chartered Engineer and Chartered Geologist and a member with 32 years of experience and the geoscientist charged with the audit is a Principal Geologist and a member of the AAPG with 31 years of experience.

CURRENCY PRESENTATION AND DEFINITIONS In this Offering Memorandum, all references to U.S. dollars and $ are to the lawful currency of the United States of America, all references to pound sterling and are to the lawful currency of the United Kingdom, all references to N= are to the lawful currency of Nigeria and all references to euro or are to the single currency of the participating member states in the Third Stage of European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to time. Definitions Unless otherwise specified or the context requires otherwise in this Offering Memorandum: 2016 Notes refers to the $450 million 111/2% senior secured notes due 2016 issued by Afren plc under an indenture dated as of February 3, 2011, together with the additional $50 million 111/2% senior secured notes due 2016 issued by Afren plc on February 16, 2011 under the same indenture; Addax refers to Addax Petroleum (Nigeria Offshore) Limited; AERL refers to Afren Energy Resources Limited; Afren, the Company, the Group, we, us, and our refers to Afren plc, together with its subsidiaries from time to time, except where otherwise specified or clear from the context; Afren Cte d1voire refers to Afren Cte d1voire, Ltd; Afren Exploration refers to Afren Exploration and Production Nigeria Alpha Limited; Afren Investments refers to Afren Investments Oil & Gas (Nigeria) Limited; Afren Nigeria refers to Afren Nigeria Holdings Limited; Afren Okoro refers to Afren Okoro Limited; Afren Resources refers to Afren Resources Limited; AGER refers to Afren Global Energy Resources Limited; Agip refers to Azienda Generale Italiana Petroli; Ain Sifni Report refers to the report produced by RPS on our contingent and prospective resources at the Ain Sifni block dated June 9, 2011; Amni refers to Amni International Petroleum Development Company Limited; Barda Rash Report refers to the report produced by RPS on our contingent and prospective resources at the Barda Rash block dated February 15, 2012; Beta Energy refers to Beta Energy Limited; Black Marlin refers to Black Marlin Energy Holdings Limited; Black Marlin Acquisition refers to the acquisition of Black Marlin Energy Holdings Limited implemented by way of a scheme of arrangement, which completed on October 7, 2010; Block CI-01 refers to Block CI-01, offshore Cte dIvoire, which contains Kudu, Eland and Ibex; Block CI-11 refers to Block CI-11, offshore Cte dIvoire, which contains Lion and Panthre; BNPP/VTB Facility refers to the credit facility with a limit of $200 million dated October 31, 2011, arranged by BNP Paribas and VTB Capital under which we have total commitments of $150.0 million and an outstanding xi

balance of $100.0 million as of December 31, 2011; we plan to repay this facility with a portion of the proceeds from the Offering; Board refers to our board of directors from time to time including a duly constituted committee thereof; Chevron refers to ChevronTexaco JDZ Limited; CNR refers to Canadian Natural Resources Limited; Collateral Agent refers to the Ebok Collateral Agent and/or the Primary Collateral Agent, as the context requires; DEER refers to Dangote Energy Equity Resources Ltd; Devon Energy refers to Devon Energy Corporation; Directors refers to our directors; Ebok refers to the Ebok field located in OML 67; Ebok Facility refers to the senior secured reserves based lending revolving credit facility dated March 24, 2010, as amended and restated on June 23, 2010, arranged by BNP Paribas, Credit Agricole Corporate and Investment Bank and Natixis under which we have total commitments of $245.0 million and an outstanding balance of $217.8 million as of October 31, 2011; Eland refers to the Eland field located in Block CI-01; Eni refers to Eni S.p.A.; Esso refers to Esso Australia Pty. Ltd; FCMB refers to First City Monument Bank Plc; First Hydrocarbon Nigeria refers to First Hydrocarbon Nigeria Limited; Gasol refers to Gasol plc; GEC refers to Global Energy Company Limited; GNPC refers to Ghana National Petroleum Corporation; Gulf refers to Gulf Atlantic Energy Ltd; Ibekelia refers to Ibekelia License located in the Southern Gabon Subbasin, offshore Gabon; Ibex refers to the Ibex field located in Block CI-01; IEL refers to Independent Energy Limited; IFC refers to International Finance Corporation; Ima Terminal refers to storage terminal used predominately to store crude oil exports from the Okoro field owned by one of our indigenous partners, Amni; Indenture refers to the indenture governing the Notes, to be dated as of the Issue Date among Afren, the Guarantors and Deutsche Bank Trust Company Americas as trustee; Iris Marin refers to Iris Marin License located in the Southern Gabon Subbasin, offshore Gabon; JDZ refers to Joint Development Zone; xii

JDZ Block 1 refers to Block 1 located in the JDZ, offshore Nigeria and So Tom & Prncipe; Joint Development Authority refers to Nigeria So Tom & Prncipe Joint Development Authority; Keta Block refers to Keta Block located offshore Ghana; Kosmos Energy refers to Kosmos Energy LLC; Kudu refers to the Kudu field located in Block CI-01; Kurdistan Region refers to the Kurdistan Region of Iraq; KRG refers to the Kurdistan Regional Government; Kurdistan Acquisitions refers to the acquisition by Beta Energy of a 60% interest in the Barda Rash production sharing contract on September 7, 2011 and the acquisition of a 20% interest in the Ain Sifni production sharing contract on November 2, 2011, both in the Kurdistan Region of Iraq; La Noumbi or La Noumbi Permit refers to La Noumbi Permit located in the Congo Basin, onshore Congo-Brazzaville; Mercator refers to Mercator Offshore (Nigeria) Pte Ltd; Mitsui Ghana refers to Mitsui E&P Ghana Keta Limited; Mobil refers to Mobil Producing Nigeria Unlimited; Mobil/NNPC Joint Venture refers to Mobil Corporation and Nigerian National Petroleum Corporation joint venture; NNPC refers to Nigerian National Petroleum Corporation; NSAI refers to Netherland, Sewell & Associates, Inc.; NSAI Report refers to the report produced by NSAI on our reserves and resources as of December 31, 2011 dated February 21, 2012; Ofa or Ofa (OML 30) refers to the Ofa field located in OML 30; Okoro or Okoro (OML 112) refers to the Okoro field located in OML 112; Okwok or Okwok (OML 67) refers to the Okwok field located in OML 67; OML 26 refers to Oil Mining Lease 26, Delta State onshore Nigeria; OML 30 refers to Oil Mining Lease 30, onshore Nigeria which contains Ofa; OML 67 refers to Oil Mining Lease 67, Gulf of Guinea, offshore Nigeria which contains Ebok and Okwok; OML 112 refers to Oil Mining Lease 112, Gulf of Guinea, offshore Nigeria which contains Okoro and Setu; OML 115 refers to Oil Mining Lease 115, Gulf of Guinea and offshore Nigeria; OPEC refers to Organization for Petroleum Exporting Countries; OPL 310 refers to Oil Prospecting License 310 located in the Niger Delta, offshore Nigeria; OPL 907 refers to Oil Prospecting License 907 located in the Anambra Basin, onshore Nigeria; OPL 917 refers to Oil Prospecting License 917 located in the Anambra Basin, onshore Nigeria; xiii

Optimum refers to Optimum Petroleum Development Limited; Oriental refers to Oriental Energy Resources Limited; Panthre refers to the Panthre field located in Block CI-11; Petroci refers to Socit Nationale dOperations Ptrolires de la Cte dIvoire; Petrodel refers to Petrodel Resources Limited; Phillips refers to Phillips Petroleum Company Abidjan; Primary Collateral Agent refers to Deutsche Bank Trust Company Americas as collateral agent under the Indenture in respect of any Collateral not constituting the Ebok Collateral; RPS refers to RPS Energy Consultants Limited; RPS Reports refers to the reports produced by RPS on our contingent and prospective resources at the Barda Rash block dated February 15, 2012 (the Barda Rash Report) and the Ain Sifni block dated June 9, 2011 (the Ain Sifni Report); SEC refers to the United States Securities and Exchange Commission; Setu or Setu (OML 112) refers to the Setu field located in OML 112; SIR refers to Socit Ivoirienne de Raffinage; SK Energy refers to SK Energy Co. Ltd.; Socar refers to Socar Trading S.A.; Socar Facility refers to the unsecured credit facility with a limit of $50 million dated August 3, 2011 arranged by Socar Trading S.A.; SOGEPE refers to Socit de Gestion du Patrimoine du Secteur de lElectricite; SPDC refers to The Shell Petroleum Development Company of Nigeria Limited; Sterling Energy refers to Sterling Energy plc; UK refers to the United Kingdom of Great Britain and Northern Ireland; UMC refers to United Meridian Corporation; and UMIC refers to United Meridian International Corporation. INDUSTRY AND OTHER INFORMATION

In this Offering Memorandum, we rely on and refer to information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this Offering Memorandum were obtained from internal surveys, market research, governmental and other publicly available information, independent industry publications and reports prepared by industry consultants including NSAI and RPS. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys and forecasts are reliable but we have not independently verified them and cannot guarantee their accuracy or completeness. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Offering Memorandum. Except as otherwise indicated in this Offering Memorandum, any reference to capacity, market share information and data of a similar nature excludes the impact of First Hydrocarbon Nigerias interest in OML 26. xiv

Elsewhere in this Offering Memorandum, statements regarding the oil and gas industry, our position in the industry, our market share and the market shares of various industry participants are not based on published statistical data or information obtained from independent third parties, but are based solely on our experience, our internal studies and estimates, and our own investigation of market conditions. In addition, we believe that data regarding the oil and gas industry and our market position and market share within such industry provides general guidance, but is inherently imprecise. See also Presentation of Financial and Other InformationCertain Reserves Information. We cannot assure you that any of the assumptions underlying these statements are accurate or correctly reflect our position in the industry and none of our internal surveys or information have been verified by any independent sources. Neither we nor the Initial Purchasers make any representation or warranty as to the accuracy or completeness of this information. All of the information set forth in this Offering Memorandum relating to the operations, financial results or market share of our competitors has been obtained from information made available to the public in such companies publicly available reports and independent research, as well as from our experience, internal studies, estimates and investigation of market conditions. Neither we nor the Initial Purchasers have independently verified this information and cannot guarantee its accuracy. TRADEMARKS Each of the trademarks, service marks and trade names that we use in conjunction with the operation of our business is registered and/or pending registration, as appropriate for the needs of our relevant business. Each trademark, trade name or service mark of any other company appearing in this Offering Memorandum is the property of its owners.

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SUMMARY This summary highlights selected information about us and the Offering contained in this Offering Memorandum. This summary is not complete and does not contain all the information you should consider before investing in the Notes. The proved, probable and possible reserves, contingent resources and prospective resource data presented in this section have been estimated at our request by each of NSAI and RPS in accordance with PRMS guidelines and definitions. Estimated proved, probable and possible reserves presented herein may differ from reserves that might be estimated according to definitions used by other companies in the industry or the SEC. See Presentation of Financial and Other Information. The following summary should be read in conjunction with, and the following summary is qualified in its entirety by, the more detailed information included in this Offering Memorandum, including the consolidated financial statements of Afren plc, and the related notes therein. Unless otherwise indicated, all production figures are presented on a net basis. Where gross amounts are indicated, they are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed. See Our BusinessDescription of Our Assets. You should read carefully the entire Offering Memorandum to understand our business, the nature and terms of the Notes and the Note Guarantees and the tax and other considerations which are important to your decision to invest in the Notes and the Note Guarantees, including the risks discussed under the caption Risk Factors. Overview We are a leading independent oil and gas exploration and production company focused on the exploration, development and production of oil and gas assets. We have a balanced and diverse portfolio with reserves, development opportunities and exploration prospects across twelve countries, with our main producing assets in Nigeria. As of December 31, 2011, we had 51.0 mmboe of independently certified proved (1P) oil and gas reserves and 71.0 mmboe of independently certified proved plus probable (2P) oil and gas reserves. Our daily production averaged approximately 16,100 boepd (including oil, gas and natural gas liquids) for the ten months ended October 31, 2011. Production at the Ebok field in Nigeria ramped up significantly during the last two months of 2011, resulting in a 2011 exit rate for all assets of approximately 53,200 boepd. The present value of our net revenues are calculated by NSAI to be $1,338.2 million on a 1P basis and $1,644.1 million on a 2P basis. For the twelve months ended October 31, 2011, our revenues and Adjusted EBITDAX totaled $424.6 million and $318.9 million, respectively. For a definition of Adjusted EBITDAX, see Summary Financial and Other Data and for a description of certain information related to NSAIs estimates and assumptions, see Presentation of Financial and Other InformationHydrocarbon Data. We were founded in December 2004 and within seven years established ourselves as a significant independent upstream company in Sub-Saharan Africas key offshore and onshore hydrocarbon basins and exploration fairways and recently diversified into the Kurdistan Region of Iraq. With the recent acquisition of two assets in the Kurdistan Region of Iraq together with our existing position in Nigeria, we are positioned in two of the worlds top twelve oil producing countries and top ten proved oil reserve holding countries. Our shares are listed on the premium segment of the main market of the London Stock Exchange and we are a constituent company of the FTSE 250 index. Our market capitalization as of February 20, 2012 was 1,434 million, based on a share price of 133.60 pence at close of business on February 20, 2012. Our portfolio of 29 assets consists of oil, natural gas and natural gas liquids production, near term development and high impact exploration opportunities. The Ebok and Okoro fields in Nigeria are our two primary producing assets and represent 98% of our 1P oil reserves. The Ebok field is our second greenfield development, representing 44.7 mmboe and 61.1 mmboe of our 1P and 2P reserves, respectively. The field commenced production in April 2011, just over three years from entry. At the end of December 2011, following the completion of Phase 1, (which targeted the Central Fault Block D2 and West Fault Block LD1E reservoirs) the field had cumulatively produced a total of 2.9 mmbbls, with an average production rate of 11,900 bopd for the period from the commencement of production through December 31, 2011. Phase 2 of development is underway, and we plan to drill four wells in the Central Fault Block D1 and West Fault Block LD-1F reservoirs. Okoro is our first full greenfield development and represents 5.3 mmboe and 7.8 mmboe of our 1P and 2P reserves, respectively. We completed the appraisal and development of the field within two years from entry and commenced production in June 2008. For the ten months ended October 31, 2011, the gross production at Okoro was approximately 4.7 mmbbls, with an average gross daily production rate of approximately 15,600 bopd. Cumulative production as at October 31, 2011 was 18.7 mmbbls. Our lower production rates at the Okoro field as compared with the same period in 2010 (16,900 bopd) reflect the natural decline of the field which was partly offset by the incremental production increase that resulted from the two infill wells that were successfully brought onstream during April 2011. 1

Our Strengths Proven track record of efficient production and reserve growth Our management and technical team have a proven execution capability demonstrated by the successful commercialization of our major assets. We achieved first oil at Okoro within two years and Ebok in just over three years from entry by leveraging our technical, operational and financial capabilities, coupled with our strong relationships with indigenous partners and local and national governments. Between 2010 and 2011 our production from our fields increased substantially following the successful completion of Ebok Phase 1, resulting in a 2011 exit production rate of approximately 53,200 boepd. Indeed, our gross production has increased despite our reduced working interest in the Okoro field following cost-recovery in mid-2010. In addition, over the past year we have continued to grow our reserve base, increasing 2P and 2C from 136 mmboe to 994 mmboe (of which 127 mmboe has been confirmed by NSAI and 867 mmboe has been confirmed by RPS). Established technical track record with significant operating experience and successful history of operational control Through the contractual arrangements related to our core development and production assets, we exercise significant control over operating and financial policies related to these assets. This level of control allows us to use our technical and operational expertise to manage overhead, production, drilling costs and capital expenditures and to control the timing of development activities. During 2010 and 2011, we successfully drilled and operated 27 production wells, and for the ten months ended October 31, 2011, approximately 96% of our total production came from wells over which we had operating control. In addition, by maintaining a significant level of control we are able not only to ensure continuity at our projects, but we are also able to exert downward pressure on costs. We believe our operational flexibility allows us to benefit from low breakeven oil prices. We expect to retain positive cash balances at oil prices as low as $39/bbl, assuming (i) continued development of all 2P assets at the Ebok and Okoro fields, (ii) the ongoing service and repayments of our finance obligations and (iii) the maintenance of current levels of administrative and general operating costs, while assuming a small reduction in operating costs could be negotiated in a lower oil price environment. Disciplined allocation of capital and cost management with access to low cost reserves and resources We believe that our finding and development costs are below the sector average which, together with our low cost structure, contributes to higher margins. This discipline was recently evidenced by the acquisitions of interests in the Kurdistan Region of Iraq in the Barda Rash block and the Ain Sifni block at an effective cost of $0.66 per 2C bbl (calculated based on management estimated 2P reserves). For the ten months ended October 31, 2011 we made capital expenditures of $610.2 million, the majority of which was used to fund our selective exploratory drilling program and support our commitment to strengthening our production profile. We funded the majority of our capital expenditures with cash flow from operations and existing cash resources. For 2012, we estimate our capital expenditures will be between $450 million and $500 million in connection with the appraisal and development of Barda Rash, Okwok and Okoro East, as well as the ongoing development of the Ebok field. We believe the timing of approximately 60% of our budgeted capital expenditures are discretionary, providing us with a significant degree of flexibility to respond and adapt to changes in both our business and in the global economy. In addition, our substantial capital expenditures to date and access to significant developed reserves minimize the need for sizeable capital expenditure in the short term. Strategically positioned as a leading independent oil and gas company with strong local relationships We are an independent oil and gas company with established operations across Sub-Saharan Africa. We have an established track record with significant operating experience in West Africa and around the Gulf of Guinea, particularly in Nigeria. We have recently extended our footprint beyond greater Africa through the acquisition of two assets in the Kurdistan Region of Iraq where we expect to employ many of the skills and experience that we have developed across our African operations. We have established a preferred position and, although technically an international company, are often viewed as a local operator, reflecting our indigenous culture and our commitment to training and employing indigenous staff. We jointly established First Hydrocarbon Nigeria with two leading Nigerian financial institutions and maintain a 45% ownership stake. First Hydrocarbon Nigeria is an indigenous company, which offers us exposure to potential future acquisitions in Nigeria. We also believe we have strong relationships with key local governments, six partnerships with indigenous companies including Oriental, Amni and Optimum and excellent relationships with international oil majors including Shell, Total, Eni and ExxonMobil.

Our established track record, indigenous culture and relationships provide us with a competitive advantage and access to opportunities to capitalize on the growing international dependence on, in particular, the West African hydrocarbon resource base. Currently, approximately 15% of oil and gas supplied to the U.S. originates from West Africa, and industry sources project this to increase to 30% over the next decade. In addition, our management team considers Sub-Saharan Africa, and, in particular Nigeria, to be a fiscally stable environment, providing opportunities to produce high margin barrels of oil and commercialize gas. The region also has an established oil exploration and production industry at an earlier stage of maturity than other major hydrocarbon centers with significant exploration prospectivity, including positive early indications of a secondary market emerging in the Gulf of Guinea. All of these factors combine to provide us with a strong platform to grow our upstream portfolio in Sub-Saharan Africa. Accomplished Board and management team with strong African representation complemented by regionally-based experienced personnel We benefit from the experience and expertise of our Board and our management team, who not only have extensive oil and gas experience, but who also have strong ties to the regions in which we operate and extensive experience working in Africa and emerging markets. The combined industry and regional expertise enables us to develop beneficial working relationships with indigenous companies, governments, local authorities and communities, supporting our growth across greater Africa and beyond. Our Chairman, Chief Executive Officer and Chief Operating Officer have over 65 years of combined oil and gas experience, including a long history of managing and financing oil and gas operations in Africa and beyond. Additionally, our senior management team based in London, Nigeria, Cte dIvoire and Houston have extensive industry experience, including with, among others, Shell, ExxonMobil, Chevron, Texaco, Devon Energy and Gulf Oil. Our management team has a strong reputation in the oil and gas industry, having expanded our market position and profitability through more than $988 million in acquisitions and an approximate 53,200 boepd increase in production since the end of 2004. This expansion has, in turn, increased our profile within the industry, enabling us to recruit and retain industry veterans and experienced personnel, including strong technical and engineering teams. In addition, in all operational locations, we benefit from full service offices staffed primarily by locally based employees. This on the ground presence provides us with direct insight into local issues, as well as allowing us to react to operational matters promptly and effectively. Our Strategy Our goal is to be recognized as a leading independent oil and gas exploration and production company with a reputation for safety and cost efficiency and to continue to increase our development portfolio across key hydrocarbon regions. We intend to achieve this goal by pursuing the following strategies. Leverage our strong development track record and continue to focus on operating efficiency We seek to be the operator on the majority of our projects and will continue to do so, such that we can develop drilling programs and optimization projects that add value through reserve and production growth and future operational synergies. Our development program is focused on lower-risk drilling opportunities with the potential to maintain and/or grow cash flow. In addition, we seek to deliver attractive financial margins by leveraging our technical track record, experienced workforce and scalable infrastructure. We also believe the concentration of our interests within certain project areas provides us with the opportunity to capture economies of scale. For example, we believe that there is scope to further reduce costs and leverage our resources and operating experience in Nigeria at the adjacent Ebok, Okwok fields and OML 115 license and at the Okoro field, which is in close proximity. Our management team is also focused on continuous improvement of our operating measures and has significant experience in successfully converting early-stage resource opportunities into high margin reserves as evidenced by our development of the Ebok and Okoro fields. We will continue to exert downward pressure on our finding and development costs that are already below the sector average and which we anticipate, together with our low cost structure, will contribute to higher margins. Maintain financial flexibility, disciplined capital deployment and conservative financial profile We intend to maintain our financial flexibility and conservative financial profile, enabling us to pursue our currently planned development and exploration activities. To date we have relied on equity and a variety of forms of debt financing including notes, convertible bonds and reserves based lending and other credit facilities and, adjusted for the Offering, have no substantial near-term debt maturities. We intend to continue our strategy of only taking on debt where it benefits the company and anticipate that our financing needs with respect to producing assets may continue to be funded through debt 3

while exploration-type expenditures and acquisitions may be funded through equity or a combination thereof. For example, the Kurdistan Acquisitions were funded through a combination of debt, equity and cash on hand. We retain a strong liquidity position with $279.5 million in cash as of October 31, 2011, of which 89% was held in accounts in Paris or London. Our robust account provisions and payment mechanics, mandated by internationally recognized banks, ensure quick access to funds. We also regularly evaluate opportunities to farm-out our interests or review potential disposition of assets where we believe it makes strategic and economic sense. For example, we recently farmed out a 35% working interest in the Keta Block in Ghana to Eni. Further, we intend to continue actively managing our exposure to commodity price risk in the marketing of our oil and natural gas production through selectively entering into hedging arrangements. As of October 31, 2011, we had derivative contracts in place through the end of December 2013 for a total of approximately 4.7 mmbbl of Ebok and Okoro production, representing approximately 19% of expected Ebok and Okoro production over this period. For a further description of our hedging activities, see Description of Certain Financing ArrangementsHedging. Grow reserves and production base through partnerships, acquisitions and exploration It is our strategy to continue to grow our reserve and production portfolio as we have done previously through partnerships with indigenous companies and accretive acquisitions. Outside of Africa, our early mover strategy has enabled us to acquire assets in under developed areas overlooked by oil majors. Consistent with our exploration strategy, all of our exploration assets are located in basins where the presence of hydrocarbons are known to exist but are typically under-explored and hold potential for large discoveries. We intend to continue creating quality opportunities, pursuing a full cycle exploration and production business model of reinvesting a portion of internally generated revenues to deliver organic reserves development growth. We may also consider selective strategic and materially accretive acquisitions of companies and interests in fields with reserves or a strong probability of reserve discovery subject to exploration and appraisal drilling, in parallel with our partnership and exploration activities, on an opportunistic basis. Strengthen our strategic position in Nigeria and the Gulf of Guinea through further partnerships with indigenous companies and support of First Hydrocarbon Nigeria In addition to pure exploration, we are focused on positioning ourselves to benefit from opportunities afforded by the discovered but undeveloped oil and gas fields across Sub-Saharan Africa, particularly in Nigeria. These fields are often fallow assets in the portfolios of major oil companies, typically falling below such companies materiality and economic thresholds for development. However, to a smaller, more agile producer like us, these assets represent significant opportunities of scale where we can employ an efficient use of capital. In addition, over the past few years we have gained a reputation in the jurisdictions in which we operate for our technical, operational and financial capabilities, making us an ideal partner in the exploration and development of these assets. Increasing government promotion of local and indigenous participation in the development of natural resources places us in a favorable position in key areas of operation, creating unique opportunities for growth. Governments in the Gulf of Guinea are focusing more on the potential of their natural resources and requiring that these discovered but undeveloped fields are developed, encouraging greater local and indigenous participation in order to realize their full potential. Attractive acreage is increasingly being awarded to indigenous companies who, in turn, look to partner with independent oil companies that can bring both technical expertise and financial resources. We are wellpositioned to capitalize on these governmental policies and gain exposure to competitive resources with our proven record of technical, operational and financial capabilities, complemented by long-standing relationships and established roots in Africa. In addition, our indigenous partnerships, we are positioned to benefit through our 45% ownership of First Hydrocarbon Nigeria, a majority Nigerian-owned indigenous oil and gas company that fulfills the Nigerian Governments criteria for local operators who are eligible to apply for and acquire substantial oil and gas assets in the country. Recent Developments Operating Performance for the year ended December 31, 2011 We expect to issue our final results for 2011 at the end of March 2012. We expect the results to be broadly in line with expectations and continue the trends reported at October 31, 2011. Subject to final reconciliation, our production for the year ended December 31, 2011 was approximately 19,200 boepd. At the end of 2011, production at the Ebok and Okoro fields, Block CI-11 and at Lion Gas Plant were all in line with previous expectations. Total production for 2011 at the Okoro field was approximately 15,800 bopd (gross) with total net production of approximately 9,000 bopd. Total gross production for 2011 from first oil at the Ebok field was approximately 4

11,900 bopd, of which our entitlement is 100%. At CI-11 total gross production for 2011 was approximately 800 bopd and 14.0 mmcfd with total oil and gas production of approximately 400 bopd and 6.7 mmcfd, respectively, and total production at Lion Gas Plant was 600 boepd. During this period, we realized an average oil price of $109/bbl and an average gas price of $8.4/mmcf. The foregoing statements are based on managements current belief, based on currently available information, as to the outcome and timing of future events. We caution you that forward-looking statements are not guarantees of future performance and are based on numerous assumptions and that our actual production may differ materially from (and be more negative than) that referenced above. These statements should be read in conjunction with the cautionary statements under Forward-Looking Statements and Risk Factors. Our revenue is expected to be approximately $600 million for the year ended December 31, 2011. In line with expectations, our capital expenditures (other than future lease costs accounted for as capital expenditures related to the FPSO) for the year ended December 31, 2011 were approximately $550 million, of which approximately $450 million related to ongoing production and development activities and $100 million related to exploration and appraisal. Based on the requirements of our current work programs and forecasts, we anticipate our capital expenditures (other than future lease costs accounted for as capital expenditures related to the FPSO) in 2012 will remain substantially consistent with our 2011 capital expenditures and be between $450 million and $500 million. We expect that approximately 41% of this amount will be allocated to the development of our production assets, of which 62% will relate to Ebok, 26% will relate to Barda Rash and 12% will relate to Okoro. However, these estimates are under continuous review and are subject to ongoing adjustment depending on the success of project phases. At December 31, 2011, we had drawn approximately $218 million of the approximately $228 million borrowing capacity available under our Ebok Facility. As of January 1, 2012, commitments under the Ebok Facility were $245 million in accordance with the reduction schedule provided for in the Ebok Facility. At December 31, 2011, we had $50 million outstanding in connection with the Socar Facility and $500 million outstanding in connection with the 2016 Notes. As of December 31, 2011, we had drawn approximately $100 million under the BNPP/VTB Facility. At December 31, 2011, our net debt was approximately $548 million with approximately $292 million of cash. See Description of Certain Financing ArrangementsEbok Facility. This information is based on certain preliminary financial information. This information is subject to change as our financial statements are finalized. Recent Acquisitions We completed the acquisition of a 60% interest in the Barda Rash production sharing contract on September 7, 2011 and the acquisition of a 20% interest in the Ain Sifni production sharing contract on November 2, 2011. RPS has estimated gross contingent resources at the Barda Rash block and the Ain Sifni block to be 1,473 mmbls (2C). We are currently developing our exploration and production programs at both fields, with commencement of production anticipated at Barda Rash in the second half of 2012. The total acquisition cost was $588.4 million, of which $418.5 million related to the acquisition of the 60% interest in the Barda Rash production sharing contract and $169.9 million related to the acquisition of the 20% interest in the Ain Sifni production sharing contract. The initial payments for the Kurdistan Acquisitions were financed through a corporate credit facility (the BNPP/VTB Facility) ($100.0 million) in combination with equity financing ($184.5 million) and cash on hand. We drew $100 million under the BNPP/VTB Facility in early November 2011 to fund the payments in connection with the Ain Sifni block in December 2011 and January 2012. A portion of the acquisition costs for the Kurdistan Acquisitions were deferred until 2012 with a final payment of $190.5 million due in early March 2012 in connection with the Barda Rash acquisition. We intend to fund the final payment on the Barda Rash acquisition in part through an additional draw-down of $100 million under the BNPP/VTB Facility and cash on hand. We expect to repay the BNPP/VTB Facility in full on the Issue Date using a portion of the proceeds from the offering of the Notes. See Use of Proceeds. On March 24, 2011, we acquired a 74% interest in the Tanga Block in Tanzania and on October 26, 2011 we acquired a 25% interest in the Block 2B in South Africa, which remains subject to final government approval. Ebok Production and 2011 Exit Rate In April 2011, we commenced production at the Ebok field, with production ramping up to an exit rate of approximately 40,000 bopd at the end of December 2011. The initial phases of development have been completed. Reservoir performance and well deliverability recorded at the field to date are in line with our expectations, with production progressing and regular crude oil offtake operations running smoothly. 5

Farm-down Agreement at the Keta Block On October 25, 2011, we formally completed the farm-down of a 35% working interest and transfer of operatorship of the Keta Block to Eni, leaving us with a 35% working interest. Under the terms of the farm-down, we will receive a carry through the drilling of one exploration well, as well as back costs and carry through future seismic acquisition. Okoro East Exploration Well In December 2011, we successfully drilled an exploration well at the Okoro East field which has similar sub-surface characteristics to the main Okoro field and is estimated to have similar resource potential. We have completed logging operations, and testing operations are underway to determine the optimal development of the discovery. We initially expect to drill one development well from the existing unmanned wellhead platform at the Okoro field. See also Business NigeriaOkoro and Setu Fields (OML 112)Field Development Plan. First Hydrocarbon Nigeria Acquisition of OML 26 On December 1, 2011, First Hydrocarbon Nigeria, a Nigerian company in which we hold a 45% interest, completed the acquisition of a 45% interest in OML 26 through First Hydrocarbon Nigerias wholly-owned subsidiary, FHN 26. OML 26 is located onshore Nigeria and holds two producing assets, the Ogini and Isoko fields, and three discovered but undeveloped assets, the Aboh, Ozoro and Ovo fields. For a further description of OML 26, see Our BusinessFirst Hydrocarbon Nigeria. As a result of our shareholding interest, First Hydrocarbon Nigerias profit/loss is proportionately reflected in our income statement in the line item Share of gain/(loss) of an associate. Therefore, the future results of any production and development at OML 26 may impact our financial results. Use of Proceeds We intend to use the proceeds from this Offering (i) to repay and cancel the BNPP/VTB Facility and (ii) for general corporate purposes as described in the section Use of Proceeds in this Offering Memorandum.

CORPORATE STRUCTURE AND CERTAIN FINANCING ARRANGEMENTS The following chart shows a simplified summary of our corporate and financing structure as adjusted to give effect to the Offering. Afren plc and the Guarantors indicated below represent 100% of our 1P reserve base, 67% of our total assets, 100% of our current production and 100% of our consolidated EBITDAX as of and for the ten months ended October 31, 2011. The chart does not include all of our subsidiaries, nor all of the debt obligations thereof. Unless otherwise indicated, the subsidiaries included in the simplified structure below are directly or indirectly wholly-owned by Afren plc. Our legal interests in our assets vary based on our contractual arrangement with our indigenous partners and joint venture partners and the relevant licenses and related agreements. For a description of our interests in our assets, see Our BusinessDescription of Our Assets. For a summary of the debt obligations identified in this diagram, please refer to the sections entitled Description of Notes, Description of Certain Financing Arrangements, and Capitalization.

(1)

The Notes offered hereby will be senior secured debt of Afren plc ranking pari passu in right of payment to all of Afren plcs existing and future senior indebtedness. The Notes will initially benefit from Senior Guarantees by certain of our subsidiaries and from a Subordinated Guarantee by Afren Resources Limited. The Senior Guarantees will be senior debt of each of the relevant Guarantors, ranking pari passu in right of payment to all of the relevant Guarantors existing and future senior indebtedness. The Subordinated Guarantee will be subordinated in right of payment to Afren Resources Limiteds existing and future senior indebtedness, including indebtedness under the Ebok Facility (as defined herein). The Notes and the Note Guarantees will be secured by contractual first priority liens on certain assets related to the Okoro field and the Notes and the Subordinated Guarantee will be secured by a contractual second priority floating charge and certain other contractual second priority liens on certain assets related to the Ebok field that secure Afren Resources Limiteds obligations under the Ebok Facility, as more fully described in Description of Notes. Refers to the $500 million aggregate principal amount of 111/2 Senior Secured Notes due 2016. The 2016 Notes are senior secured debt of Afren plc, ranking pari passu in right of payment to all existing and future senior indebtedness of Afren plc. The 2016 Notes are guaranteed on a senior basis by the same entities that will provide Senior Guarantees of the Notes and on a senior subordinated basis by the same entity that will provide a Subordinated Guarantee of the Notes, Afren Resources. See Description of Certain Financing Arrangements2016 Notes. On August 3, 2011, Afren plc, as borrower, and Socar Trading S.A., as agent and original lender, entered into a $50 million unsecured credit facility agreement. The Socar Facility is available for general corporate purposes and has an interest rate of LIBOR plus 4.5%. The loan was fully drawn at October 31, 2011. See Description of Certain Financing ArrangementsSocar Facility and Capitalization.

(2)

(3)

(4) Afren Resources as borrower and Afren plc as guarantor entered into a senior secured reserves based lending revolving credit facility on March 24, 2010 (as amended and restated on June 23, 2010) with BNP Paribas, Crdit Agricole Corporate and Investment Bank and Natixis, each as initial mandated lead arranger and technical bank, for the purpose of the development and establishment of initial production of the Ebok field and certain other development projects in offshore Nigeria. As of October 31, 2011, the borrowing capacity under the Ebok Facility was $228.4 million, and the outstanding balance as at October 31, 2011 was $217.8 million. As of January 1, 2012, commitments under the facility were $245 million in accordance with the reduction schedule provided for in the Ebok Facility. See Description of Certain Financing ArrangementsEbok Facility. (5) Afren owns 45% of the shareholding in First Hydrocarbon Nigeria and 55% is held by various Nigerian interests and equity groups. Over time we expect that First Hydrocarbon Nigeria will be owned by a wider Nigerian stakeholder base, ensuring diversity of ownership and reflecting its Nigerian focus. Also includes the following assets: OML 30 (Ofa), OPL 907, OPL 917, OML 115 and OPL 310.

(6)

(7) On December 1, 2011, First Hydrocarbon Nigeria announced that it had received all regulatory approvals finalizing the acquisition of a 45% interest in OML 26 through First Hydrocarbon Nigerias wholly-owned subsidiary, FHN 26. (8) Afren plc and the Guarantors represent all of our 1P reserve base, 67% of our total assets, all of our current production and all of our consolidated EBITDAX as of and for the ten months ended October 31, 2011.

THE OFFERING The following is a brief summary of certain terms of this Offering of Notes. It may not contain all the information that is important to you. For additional information regarding the Notes and the Note Guarantees, see Description of Notes. Issuer ........................................................................... Afren plc, incorporated as a public limited company under the laws of England and Wales. Notes Offered ............................................................. $300 million aggregate principal amount of 101/4% senior secured notes due 2019 (the Notes). Issue Price ................................................................... 99.976% (plus accrued and unpaid interest from the Issue Date). Maturity Date ............................................................. April 8, 2019. Interest Rate and Payment Dates ............................. We will pay interest on the Notes semi-annually on April 8 and October 8, beginning October 8, 2012, at a rate of 101/4% per annum. Interest will accrue from the Issue Date. Form of Denomination .............................................. Each Global Note will have a minimum denomination of $200,000 and be in any integral multiple of $1,000 in excess thereof. Notes in denominations of less than $200,000 will not be available. Ranking of the Notes ................................................. The Notes will be general senior secured obligations of the Company and will: be secured by the Collateral (as defined below); be effectively subordinated to any existing and future indebtedness of the Company, to the extent such indebtedness is secured by liens senior to the liens securing the Notes, or secured by property and assets that do not secure the Notes, to the extent of the value of the property and assets securing such indebtedness; rank pari passu in right of payment with all existing and future indebtedness of the Company that is not expressly contractually subordinated in right of payment to the Notes, including the 2016 Notes and the guarantee by Afren plc under the Ebok Facility Agreement; rank senior in right of payment to any future indebtedness of the Company that is expressly contractually subordinated in right of payment to the Notes; be fully and unconditionally guaranteed on a senior subordinated basis by the Subordinated Guarantor and on a senior basis by the Senior Guarantors, subject to limitations under applicable law as set forth below under the caption Description of NotesThe Note Guarantees; and be structurally subordinated to all obligations of the Companys subsidiaries that are not Guarantors. Senior Guarantors ..................................................... The Notes will be initially guaranteed on a senior basis by the following Senior Guarantors: Afren Nigeria; Afren Nigeria Holdings (Nigeria) Limited; Afren CI (UK) Limited; 9

Afren CI (II) Limited; Afren Cte d1voire; Lion G.P.L SA; AERL; and

Afren Okoro. Subordinated Guarantor........................................... The Notes will be initially guaranteed on a senior subordinated basis by the following Subordinated Guarantor: Afren Resources. Ranking of the Senior Guarantees ........................... The Senior Guarantee of each Senior Guarantor will: be effectively subordinated to any existing and future indebtedness of such Guarantor, to the extent such indebtedness is secured by liens senior to the liens securing that Guarantors Note Guarantee, or secured by property and assets that do not secure such Note Guarantee, to the extent of the value of the property and assets securing such indebtedness; rank pari passu in right of payment with any existing and future indebtedness of such Guarantor that is not expressly contractually subordinated in right of payment to such Note Guarantee, including indebtedness outstanding under the 2016 Notes; rank senior in right of payment to any future indebtedness of such Guarantor that is expressly contractually subordinated in right of payment to such Note Guarantee; and rank effectively senior to all of the existing and future indebtedness of such Guarantor that is unsecured or secured by liens junior to the liens securing the Senior Guarantees. Ranking of the Subordinated Guarantee ................. The Subordinated Guarantee of Afren Resources will: be secured by the shares in and assets of Afren Resources constituting Collateral; be subordinated in right of payment to existing and future senior debt of Afren Resources, including indebtedness under the Ebok Facility; rank senior in right of payment to any future indebtedness of Afren Resources that is expressly subordinated in right of payment to the Subordinated Guarantee; be effectively senior to all of the Subordinated Guarantors existing and future unsecured indebtedness to the extent of the assets securing the Subordinated Guarantee; and be fully and unconditionally released upon an enforcement action with respect to the assets securing the Ebok Facility (or any indebtedness that may be incurred to refinance the Ebok Facility) as initiated by the relevant creditors thereunder. Indebtedness ............................................................... As of October 31, 2011, after giving pro forma effect to the Offering and the application of the proceeds therefrom:

10

the Company and its consolidated subsidiaries would have had $1,042.3 million of indebtedness, of which $500 million (before deferred financing costs) is represented by the 2016 Notes and $300 million (before deferred financing costs) is represented by the Notes; in addition to the Notes, the Company and its consolidated subsidiaries would have had $693.5 million of secured indebtedness; and the non-guarantor subsidiaries of the Company would have had no indebtedness. For the ten months ended October 31, 2011, the Company and the Guarantors represented substantially all of the combined EBITDAX, and as of October 31, 2011, represented 67% of the assets of the Company and its consolidated subsidiaries, as reflected in the consolidated financial information included elsewhere in this Offering Memorandum. Although the Indenture governing the Notes will contain limitations on the amount of additional indebtedness that the Company and its restricted subsidiaries will be allowed to incur, the amount of such additional indebtedness could be substantial. Security ....................................................................... Okoro Collateral Subject to the terms of the security documents, the Notes and the Note Guarantees will be secured by contractual first priority liens (subject to certain exceptions) over the following assets (together, the Okoro Collateral), which also secure the obligations under the 2016 Notes: the capital stock of AERL;

bank accounts of each of AERL and Afren Okoro; the asserts of AERL pursuant to fixed and floating charges, including property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Okoro field; the rights of Afren Okoro in respect of certain hedging agreements, if any, and intercompany loans owed to it by AERL; and subject to receipt of counterparty approvals, which we will use commercially reasonable efforts to obtain within six months, the rights and interests in AERLs primary operating, production sharing and off-take contracts. Certain security interests under French, Nigerian and English law will, as a matter of local law, be granted as junior ranking security interests in relation to the security granted in respect of the 2016 Notes. Nevertheless, the Pari Passu Intercreditor Agreement provides that as a contractual matter as among the Notes and the 2016 Notes, the Notes will be secured on a pari passu basis with the 2016 Notes and will be treated as such for purposes of the application of proceeds from the enforcement of such Okoro Collateral.

11

The Primary Collateral Agent will act as collateral agent in respect of the Okoro Collateral pursuant to the Pari Passu Intercreditor Agreement. The security interests granted by AERL and Afren Okoro will not extend to assets, including bank accounts, held by or jointly held with our indigenous partners. Ebok Collateral Subject to the terms of the security documents, the Notes and the Subordinated Guarantee will be secured by contractual second priority liens over the same assets that secure Afren Resources obligations under the Ebok Facility on a first priority basis and the 2016 Notes on a contractual second priority basis. These contractual second priority liens will take the form of a: contractual second priority floating charge over Afren Resources property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Ebok field; contractual second priority lien over the capital stock of Afren Resources; and contractual second priority lien over the bank accounts of Afren Resources,

(the assets subject to such liens, together the Ebok Collateral). Certain security interests under French, Nigerian and English law will, as a matter of local law, be granted as junior ranking security interests in relation to the security granted in respect of the 2016 Notes. Nevertheless, the Pari Passu Intercreditor Agreement provides that as a contractual matter as among the Notes and the 2016 Notes, the Notes will be secured on a pari passu basis with the 2016 Notes and will be treated as such for purposes of the application of proceeds from the enforcement of such Ebok Collateral. The Ebok Collateral Agent will act as collateral agent in respect of the Ebok Collateral pursuant to the Ebok Intercreditor Agreement. The Ebok Collateral secures Afren Resources obligations under the Ebok Facility on a first priority basis pursuant to fixed and floating charges. The security interests granted by Afren Resources and Afren Nigeria will not extend to assets, including bank accounts, held by or jointly held with our indigenous partners. For further details, see Description of NotesSecurity. See also Risk factorsRisk factors relating to the NotesCertain Collateral securing the Notes will neither be perfected nor enforceable for the full amount of the indebtedness thereby secured unless and until additional stamp duties and registration fees are paid in respect thereof by or on behalf of the holders of Notes and Legal and RegulatoryNigeriaEnforcement of Security under Nigerian Law. Ebok Intercreditor Agreement ................................. On or about the Issue Date, the Trustee will accede to the Ebok Intercreditor Agreement with the Ebok Collateral Agent and the agent for the finance parties under the Ebok Facility, which will regulate the circumstances in which the Trustee will be entitled to enforce the Subordinated Guarantee and the Ebok Collateral. For further details, see Description of Certain Financing ArrangementsEbok Intercreditor Agreement.

12

Pari Passu Intercreditor Agreement ........................ The Trustee and the Primary Collateral Agent will enter into the Pari Passu Intercreditor Agreement with the trustee for the 2016 Notes, which will regulate the sharing and enforcement of the Okoro Collateral. For further details, see Description of Certain Financing Arrangements-Pari Passu Intercreditor Agreement. Use of Proceeds .......................................................... We intend to use the proceeds from this Offering (i) to repay and cancel the BNPP/VTB Facility and (ii) for general corporate purposes. See Use of Proceeds. Additional Amounts................................................... Any payments made by the Company or any Guarantor with respect to the Notes will be made without withholding or deduction for taxes in any Relevant Taxing Jurisdiction unless required by law. If such a withholding or deduction is required by law, the Company or the relevant Guarantor, as applicable, will pay the additional amounts necessary so that the net amount received by the holders of Notes after the withholding or deduction is not less than the amount that they would have received in the absence of the withholding or deduction, subject to certain exceptions. See Description of NotesAdditional Amounts. In the event of certain developments affecting taxation or certain Optional Redemption for Tax Reasons ................................................................... other circumstances, the Company may redeem the Notes in whole, but not in part, at any time, at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, and Additional Amounts, if any, to the date of redemption. See Description of NotesRedemption for Changes in Taxes. Optional Redemption ................................................ Prior to April 8, 2016, the Company may redeem all or a portion of the Notes at a redemption price equal to 100% of the principal amount of such Notes plus a make-whole premium set forth in this Offering Memorandum, plus accrued and unpaid interest, if any, to the redemption date. On or after April 8, 2016, the Company may redeem all or a portion of the Notes at the redemption prices set forth in this Offering Memorandum under the caption Description of NotesOptional Redemption plus accrued and unpaid interest, if any, to the redemption date. In addition, on or prior to April 8, 2015 the Company may redeem up to 35% of the original principal amount of each of the Notes with the net cash proceeds from specified equity offerings at a redemption price equal to 110.250% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date provided that at least 65% of the original principal amount of the Notes remain outstanding after the redemption. See Description of Notes Optional Redemption. Change of Control...................................................... Upon the occurrence of certain change of control events, the Company will be required to offer to repurchase the Notes at a purchase price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of the purchase. See Description of NotesRepurchase at the Option of HoldersChange of Control. Certain Covenants ..................................................... The Indenture will limit, among other things, our ability to: incur additional indebtedness; 13

pay dividends on, redeem or repurchase our capital stock; make certain restricted payments and investments; create certain liens; impose restrictions on the ability of subsidiaries to pay dividends or other payments to the Company; transfer or sell assets; merge or consolidate with other entities; and

enter into transactions with affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. See Description of NotesCertain Covenants. Transfer Restrictions ................................................. The Notes and the Note Guarantees have not been registered under the U.S. Securities Act or the securities laws of any other jurisdiction and will not be so registered. The Notes are subject to restrictions on transferability and resale. See Book-Entry, Delivery and Form Transfers. Holders of the Notes will not have the benefit of any exchange or registration rights. No Prior Market ........................................................ Although application has been made to admit the Notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF Market in accordance with its rules, the Notes will be new securities for which there is no market. Although the Initial Purchasers have informed the Company that they intend to make a market in the Notes, they are not obligated to do so and they may discontinue market making at any time without notice. Accordingly, the Company cannot assure you that an active trading market for the Notes will develop or be maintained. Listing ......................................................................... Application has been made to admit the Notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF Market in accordance with its rules. Governing Law........................................................... The Indenture, the Notes, the Note Guarantees and the Pari Passu Intercreditor Agreement will be governed by the laws of the State of New York. The Ebok Intercreditor Agreement is governed by English law. The security documents will be governed by English, French or Nigerian law, as applicable, as described under the caption Description of NotesSecurity. Trustee ........................................................................ Deutsche Bank Trust Company Americas. Registrar, Transfer Agent and Paying Agent .......... Deutsche Bank Trust Company Americas. Primary Collateral Agent .......................................... Deutsche Bank Trust Company Americas. Ebok Collateral Agent ............................................... BNP Paribas. Luxembourg Paying Agent, Transfer Agent and Listing Agent .......................................................... Deutsche Bank Luxembourg SA. RISK FACTORS Investing in the Notes involves substantial risks. Please see the Risk Factors section for a description of certain of the risks you should carefully consider before investing in the Notes. 14

SUMMARY FINANCIAL AND OTHER DATA The following tables present summary consolidated financial data for Afren plc. The financial statement data presented as at and for each of the years ended December 31, 2008, 2009 and 2010 has been derived from our audited annual financial statements, included elsewhere in this Offering Memorandum, except that certain 2008 information has been derived from the unaudited comparative information included in the annual financial statements for the year ended December 31, 2009 to reflect the finalization of preliminary fair values in line with IFRS 3, Business Combinations, as described in Presentation of Financial and Other Information. The financial statement data for the ten months ended October 31, 2010 and 2011 has been derived from our unaudited interim financial statements, included elsewhere in this Offering Memorandum. The unaudited interim financial statements have been prepared using the same accounting principles and on the same basis as the audited annual financial statements for the year ended December 31, 2010 and include certain normal recurring adjustments that management considers necessary for a fair representation of interim results. These interim results are not necessarily indicative of full year results. The financial information for the twelve months ended October 31, 2011 is unaudited and has been calculated by aggregating the income statement data for the twelve months ended December 31, 2010 and the income statement data for the ten months ended October 31, 2011 and subtracting the income statement data for the ten months ended October 31, 2010. The financial statement data in the following tables should be read in conjunction with Presentation of Financial and Other InformationFinancial InformationNon-IFRS Financial Measures, Capitalization, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Selected Financial Data and our interim and annual financial statements and related notes included elsewhere in this Offering Memorandum. Interim results may not be indicative of full-year results and historical results may not necessarily be indicative of results that may be expected for any future period. We operate in markets that have historically exhibited fluctuations due to current market rates for oil and gas. These fluctuations may result in volatility in our operating results. Summary of Afren plc Consolidated Financial Data Consolidated Income Statement Data
Year ended December 31, 2008 2009 2010 Ten months ended October 31, 2010 (in thousands of $) 2011 Twelve months ended October 31, 2011

Revenue ............................................................................. Cost of sales....................................................................... Gross profit/(loss) .............................................................. Operating profit/(loss) ....................................................... Finance costs ..................................................................... Profit/(loss) from continuing activities before tax ............. Income tax expense ........................................................... Profit/(loss) from continuing activities after tax ................

42,501 335,818 (70,537) (230,036) (28,036) 105,782 (44,057) 45,791 (25,760) (36,950) (55,602) 483 (520) (17,261) (56,122) (16,778)

319,447 (190,451) 128,996 88,988 (11,320) 78,796 (32,923) 45,873

298,920 (171,574) 127,346 94,576 (9,861) 78,550 (29,120) 49,430

404,026 (212,201) 191,825 160,555 (46,306) 132,747 (66,560) 66,187

424,553 (231,078) 193,475 154,967 (47,765) 132,993 (70,363) 62,630

Consolidated Balance Sheet Data

As at December 31, As at October 31, 2011

2008

2009 2010 (in thousands of $)

Non current assets ...................................................................... Current assets ............................................................................. Assets held for sale .................................................................... Total assets ................................................................................ Current liabilities ....................................................................... Non-current liabilities ................................................................ Total liabilities ........................................................................... 15

710,738 211,403 922,141 (256,973) (314,222) (571,195)

683,969 416,013 1,099,982 (257,613) (184,121) (441,734)

1,223,057 220,619 2,812 1,446,488 (310,218) (277,555) (587,773)

2,203,131 519,458 2,722,589 (682,845) (897,173) (1,580,018)

Net current (liabilities)/assets .................................................... Net assets ................................................................................... Share capital .............................................................................. Share premium ........................................................................... Merger reserves ......................................................................... Other reserves ............................................................................ (Accumulated losses)/retained earnings .................................... Total equity ................................................................................ Consolidated Cash Flow Statement Data

(45,570) 350,946 8,806 446,958 18,173 (122,991) 350,946

158,400 658,248 15,702 755,169 17,272 (129,895) 658,248

(86,787) 858,715 17,007 896,812 22,764 (77,868) 858,715

(163,187) 1,142,571 18,617 914,024 179,358 24,550 6,022 1,142,571

Ten months ended Year ended December 31, October 31, 2008 2009 2010 2010 2011 (in thousands of $)

Net cash generated/(used) in operating activities ............................................. Net cash used in investing activities ................................................................ Net cash provided by/(used) in financing activities .........................................

(26,811) (459,418) 526,909

278,288 (209,059) 137,416

209,317 (368,188) (22,436)

128,627 (274,024) (50,680)

241,307 (708,217) 606,350

Other Financial Data

As of and for the year ended December 31, 2008 2009 As of and for the ten months ended October 31, As of and for the twelve months ended October 31, 2011(1)

EBITDAX(2) ........................................................................ Adjusted EBITDAX(2) ......................................................... Net debt/(cash)(3) ................................................................. Finance costs ....................................................................... Net debt/Adjusted EBITDAX.............................................. Adjusted EBITDAX/Finance costs...................................... Capital expenditures(4) ......................................................... Financial information and ratios adjusted for this Offering: Pro forma cash and cash equivalents ................................... Pro forma Net debt .............................................................. Pro forma Net debt/Adjusted EBITDAX ............................ Pro forma Adjusted EBITDAX/Finance costs ....................
(1)

2010 2010 2011 (in thousands of $ except ratios)

33,114 (7,162) 287,445 25,760 555,932

190,731 245,103 (54,232) 36,950 6.63x 150,173

185,411 200,226 127,500 11,320 0.64x 17.69x 624,212

166,460 283,450 177,338 295,979 113,437 462,834 9,861 46,306 0.64x 1.56x 17.98x 6.39x 535,723 1,051,356

302,401 318,867 462,834 47,765 1.45x 6.68x 1,139,845

379,456 662,834 2.08x 4.06x

The financial information for the twelve months ended October 31, 2011 is unaudited and has been calculated by aggregating the income statement data for the twelve months ended December 31, 2010 and the income statement data for the ten months ended October 31, 2011 and subtracting the income statement data for the ten months ended October 31, 2010. Balance sheet information is presented as of October 31, 2011. EBITDAX is a non-IFRS measure commonly defined as earnings before interest, taxes, depreciation, depletion and amortization and exploration costs. We further adjust for investment revenue and impairment charges (reversal) of oil and gas assets.

(2)

Adjusted EBITDAX is defined as EBITDAX, less market-to-market changes in derivative financial instruments and share-based payments charge. We believe that EBITDAX and Adjusted EBITDAX are useful to investors in evaluating our operating performance and our ability to incur and service our indebtedness. EBITDAX, Adjusted EBITDAX and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing EBITDAX or Adjusted EBITDAX as reported by us to EBITDAX or Adjusted EBITDAX of other companies. For more information, see Presentation of Financial and Other InformationFinancial InformationNon-IFRS Financial Measures. The following table reconciles net income to EBITDAX and Adjusted EBITDAX for the periods indicated.

16

Ten months ended October 31, Year ended December 31, 2008 2009 2010 2010 2011 (in thousands of $)

Twelve months ended October 31, 2011

Profit/(loss) from continuing activities after tax .................. Income tax expense ............................................................. Investment revenue .............................................................. Finance costs ....................................................................... Impairment charges (reversal) of oil and gas assets(a) .......... Depreciation, depletion and amortization ............................ EBITDAX............................................................................ Share based payments charge .............................................. Derivative financial instruments (unrealized)(b) ................... Adjusted EBITDAX ............................................................
(a) (b)

(56,122) 520 (5,286) 25,760 38,212 30,030 33,114 10,819 (51,095) (7,162)

(16,778) 17,261 (626) 36,950 (859) 154,783 190,731 9,292 45,080 245,103

45,873 32,923 (298) 11,320 1,614 93,979 185,411 8,333 6,482 200,226

49,430 29,120 (280) 9,861 956 77,373 166,460 7,541 3,337 177,338

66,187 66,560 (368) 46,306 833 103,932 283,450 10,988 1,541 295,979

62,630 70,363 (386) 47,765 1,491 120,538 302,401 11,780 4,686 318,867

Impairment charges (reversal) of oil and gas assets includes exploration and evaluation expenditures. Derivative financial instruments (unrealized) reconciles to the amount of derivative financial instruments shown on the consolidated income statement as follows: Year ended December 31, Ten months ended October 31, Twelve months ended October 31, 2011

2008

2009

2010 2010 (in thousands of $)

2011

Unrealized ............................................. Realized ................................................ Total .....................................................

(3) (4)

51,095 3,587 54,682

(45,080) 11,445 (33,635)

(6,482) (2,412) (8,894)

(3,337) (1,498) (4,835)

(1,541) (8,151) (9,692)

(4,686) (9,065) (13,751)

Net debt is defined as total borrowings less cash and cash equivalents. Capital Expenditures includes capital expenditures, acquisition costs, capitalized finance costs and decommissioning costs. For a further description of our Capital Expenditures, see Managements Discussion and Analysis of Financial Condition and Results of OperationsCapital Expenditures.

17

SUMMARY RESERVE, RESOURCE, PRODUCTION AND OPERATING DATA The following table sets forth NSAIs estimated proved (1P), proved and probable (2P) and proved, probable and possible (3P) reserves and future revenue related to our interest in the Okoro field located in OML 112 and in the Ebok field located in OML 67, Gulf of Guinea, offshore Nigeria and in the Lion and Panthre fields located in Block CI-11, offshore Cte dIvoire as of December 31, 2011. The following information (other than the columns titled Total) has been extracted without material adjustment from the NSAI Report. The information in the following table does not give any effect to or reflect our commodity hedges. For convenience, aggregate totals are also provided for our estimated 1P, 2P and 3P reserves at each of our interests in the Okoro field, the Ebok field and the Lion and Panthre fields.
Afren Effective Working Interest Reserves before Royalty Net Entitlement Reserves(1) Future Net Revenue (MM$)(2) Present Worth at 10% Total

Area/Field/Category(4)

Oil (mmbbl)

Gas(3) (bcf)

Total (mmboe)

Oil (mmbbl)

Gas(3) (bcf)

Total (mmboe)

Offshore Nigeria(5) Okoro Field Proved (1P)........................................... Proved + Probable (2P) ........................ Proved + Probable + Possible (3P) ....... Ebok Field Proved (1P)........................................... Proved + Probable (2P) ........................ Proved + Probable + Possible (3P) ....... Offshore Cte dIvoire Lion and Panthre fields Proved (1P)........................................... Proved + Probable (2P) ........................ Proved + Probable + Possible (3P) ....... Total Proved (1P)........................................... Proved + Probable (2P) ........................ Proved + Probable + Possible (3P) .......
Source: Netherland, Sewell & Associates, Inc. (1) (2) (3)

5.3 7.8 10.5 44.7 61.1 78.0 0.2 0.5 0.7 50.2 69.4 89.2

4.4 9.5 16.1 4.4 9.5 16.1

5.3 7.8 10.5 44.7 61.1 78.0 1.0 2.1 3.5 51.0 71.0 92.0

4.3 6.3 8.6 38.8 52.9 67.4 0.1 0.3 0.5 43.2 59.5 76.5

2.9 6.1 10.1 2.9 6.1 10.1

4.3 6.3 8.6 38.8 52.9 67.4 0.6 1.4 2.2 43.7 60.6 78.2

154.8 231.3 324.7

142.7 203.6 271.5

1,400.0 1,184.7 1,766.0 1,424.0 2,155.8 1,639.7 17.0 18.4 51.3 10.8 16.5 36.9

1,571.8 1,338.2 2,015.7 1,644.1 2,531.8 1,948.1

Net entitlement reserves are after deductions for royalty burdens and government share in Cte dIvoire. The NSAI Report was prepared using oil and gas prices and cost parameters specified by Afren. Gas reserves for Offshore Nigeria are not included because there is currently no viable market for produced gas. There is no market for gathering and transporting stranded gas in Nigeria. There is currently a low level of gas flaring at Ebok and Okoro. We continually evaluate our gas management strategies. See Legal and RegulatoryNigeriaAssociated Gas Re-Injection Act. 1P, 2P and 3P reserves have been prepared in accordance with the definitions and guidelines set forth in 2007 by PRMS. Oil reserves for offshore Nigeria include crude oil only.

(4) (5)

The following table sets forth information regarding gross and net working interest production, revenues and realized prices and production costs for fields operated by us for the years ended December 31, 2008, 2009, 2010, for the ten months ended October 31, 2011 and for the twelve months ended October 31, 2011. For additional information on price calculations, see the information set forth in Managements Discussion and Analysis of Financial Condition and Results of Operations.
Year ended December 31, Ten months ended October 31, Twelve months ended October 31, 2011

2008

2009

(1)

2010

2010

2011

Gross (100%) Total Production Average production (boepd) .......................................... Total production (mmboe) ............................................. Net Working Interest Oil Production Average oil production (bopd) ....................................... Total oil production (mmbbl) ........................................

4,562 1.7 3,287 1.2

26,314 9.6 18,461 6.7

21,864 8.0 11,693 4.3

23,283 7.1 12,725 3.9

25,086 7.6 14,445 4.4

23,366 8.5 13,125 4.8

18

Average condensate/LPG production (boepd) ............... Total condensate/LPG production (mmboe) .................. Gas Production Average gas production (mmcfd) .................................. Total gas production (bcf).............................................. Total Production Average production (boepd) .......................................... Total production (mmboe) ............................................. Average Sales Prices Oil ($/bbl) ...................................................................... Gas ($/mmcf) ................................................................. Costs per boe: ($/boe)(2) Production & delivery costs........................................... Depreciation, depletion and amortization ...................... General and administrative ............................................
(1) (2)

274 0.1 1.8 0.6 3,866 1.4 42.3 4.8 29.8 20.3 23.0

1,143 0.4 14.3 5.2 22,064 8.1 59.3 5.1 11.2 18.9 3.4

721 0.3 11.1 4.1 14,300 5.2 79.5 5.7 19.1 17.3 5.6

774 0.2 12.7 3.9 15,700 4.8 78.8 5.3 19.0 17.0 5.7

575 0.2 6.0 1.8 16,100 4.9 109.9 8.7 18.9 22.1 6.2

556 0.2 5.6 2.0 14,600 5.3 107.8 8.9 19.0 21.9 6.1

Day rates are annualized as we commenced lifting in October 2008. Calculated based on our net entitlement.

19

RISK FACTORS In addition to the other information contained in this Offering Memorandum, you should carefully consider the following risk factors before purchasing the Notes. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties of which we are not aware or that we currently believe are immaterial may also adversely affect our business, financial condition and results of operations. If any of the possible events described below were to occur, our business, financial condition and results of operations could be materially and adversely affected. If that happens, we may not be able to pay interest or principal on the Notes when due and you could lose all or part of your investment. This Offering Memorandum also contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks described below and elsewhere in this Offering Memorandum. Risk factors relating to the countries in which we operate The countries in which we operate face political, economic, fiscal, legal, regulatory and social uncertainties which could have a material adverse effect on our business, financial condition and results of operations Our operations are exposed to the political, economic, fiscal, legal, regulatory and social environment of the countries in which we operate, including Nigeria, Congo-Brazzaville, Cte dIvoire, Ethiopia, Ghana, Iraq, Kenya, Madagascar, So Tom & Prncipe, Seychelles, South Africa and Tanzania. Our business involves a high degree of risk which a combination of experience, knowledge and careful evaluation may not overcome. These risks include, but are not limited to, corruption, civil strife or labor unrest, armed conflict, terrorism, limitations or price controls on oil exports and limitations or the imposition of tariffs or duties on imports of certain goods. Our operations in certain developing countries expose us to potential civil unrest and political or currency risk. As a significant oil producer and consumer market of great potential, Nigeria remains a key investment location, though corruption, policy drift and collapsing infrastructure, as well as insecurity in the Niger Delta, present significant risks to business operations in that country. In addition, escalation in civil unrest in Nigeria, including clashes between different religious groups, may pose a threat to our operations in that country. In particular, Nigeria experienced rising political tension in the run up to its election in April 2011, which has included instances of violence, civil unrest and criminal activity in some parts of Nigeria. More recently, Nigeria has witnessed substantial civil unrest in connection with the Nigerian Governments attempt to remove fuel subsidies and increased instances of violence by Boko Haram, an Islamist group, in northern Nigeria. The spate of attacks by Boko Haram has escalated over the last few months including several attacks on churches and police stations in states in Northern Nigeria. In August 2011 the group claimed responsibility for a car bomb that exploded at the United Nations building in Abuja, Nigerias political capital. However, to date, Boko Haram has not targeted any petroleum industry assets or installations, but our activities in Nigeria could be impacted to the extent their agenda changes or by collateral damage caused by the group or similar groups. There can be no assurances that the instances of violence, civil unrest or criminal activity will abate and not escalate, and these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. In addition, political uncertainty increased in Cte dIvoire in 2010 and 2011 due to a dispute over the presidential election held on November 28, 2010. The disputed result of the presidential election led to major instances of violence, civil unrest and criminal activity in some parts of Cte dIvoire. After months of unsuccessful negotiations and sporadic violence, the incumbent president was taken into custody by international forces on April 11, 2011. Following the capture of the incumbent president, the new government has assumed power and peace has been restored. There can be no assurances that the instances of violence, civil unrest or criminal activity will not resume, and these factors could all have a material adverse effect on our operations in Cte dIvoire. Geopolitical instability and a poor security environment remain key risks associated with doing business in Iraq. The period following the 2003 United States led invasion has been characterized by instability and security challenges in Iraq. Most notably, terrorism and armed insurgency have increased, although the Kurdistan Region of Iraq has, in general, experienced less violence than the rest of Iraq. Numerous military, police, civilian and religious institutions, as well as oil installations and other critical national infrastructure have been targeted. Terrorism and insurgent activities have disrupted national and international business activities in the Kurdistan Region of Iraq in the past and may affect our operations or plans in the Kurdistan Region of Iraq in the future. If the existing body of laws and regulations in the countries in which we operate are interpreted or applied, or relevant discretions exercised, in an inconsistent manner by the courts or applicable regulatory bodies, this could result in 20

ambiguities, inconsistencies and anomalies in the enforcement of such laws and regulations, which in turn could hinder our long term planning efforts and may create uncertainties in our operating environment. Exploration and development activities in developing countries may require protracted negotiations with host governments, national oil companies and third parties and may be subject to economic and political considerations such as the risks of war, actions by terrorist or insurgent groups, community disturbances, expropriation, nationalization, renegotiation, forced change or nullification of existing contracts or royalty rates, unenforceability of contractual rights, changing taxation policies or interpretations, adverse changes to laws (whether of general application or otherwise) or the interpretation thereof, foreign exchange restrictions, inflation, changing political conditions, the death or incapacitation of political leaders, local currency devaluation, currency controls, and foreign governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Any of the factors detailed above or similar factors could have a material adverse effect on our business, results of operations or financial condition. If disputes arise in connection with our operations in developing countries, we may be subject to the exclusive jurisdiction of foreign courts or foreign arbitration tribunals or may not be successful in subjecting foreign persons, especially foreign oil ministries and national oil companies, to the jurisdiction of New York or England and Wales, as applicable. Risks associated with emerging and developing markets generally The disruptions experienced in the international and domestic capital markets have led to reduced liquidity and increased credit risk premiums for certain market participants and have resulted in a reduction of available financing. Companies located in countries in the emerging markets, such as those in the Gulf of Guinea, East and Southern Africa and Iraq where we operate, may be particularly susceptible to these disruptions and reductions in the availability of credit or increases in financing costs, which could result in them experiencing financial difficulty. In addition, the availability of credit to entities operating within the emerging and developing markets is significantly influenced by levels of investor confidence in such markets as a whole and as such any factors that impact market confidence (for example, a decrease in credit ratings, state or central bank intervention in a market or terrorist activity and conflict) could affect the price or availability of funding for entities within any of these markets. Since the advent of the global economic crisis in 2007, certain emerging market economies have been, and may continue to be, adversely affected by market downturns and economic slowdowns elsewhere in the world. As has happened in the past, financial problems outside countries with emerging or developing economies or an increase in the perceived risks associated with investing in such economies could dampen foreign investment in and adversely affect the economies of these countries (including, for example, countries in which we operate). In addition, ongoing terrorist activity and armed conflicts in the Middle East and elsewhere have also had a significant effect on international finance and commodity markets. Any future national or international acts of terrorism or armed conflicts could have an adverse effect on the financial and commodities markets in the countries in which we operate and the wider global economy. Any acts of terrorism or armed conflicts causing disruptions of oil and gas exports in the Gulf of Guinea or Iraq could have a material adverse effect on our business, prospects, financial condition and results of operations. Investments in emerging markets such as Nigeria, Congo-Brazzaville, Cte dIvoire, Ethiopia, Ghana, Iraq, Kenya, Madagascar, So Tom & Prncipe, Seychelles, South Africa and Tanzania are therefore subject to greater risk than more developed markets, including in some cases significant legal, fiscal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved in an investment in us and must decide for themselves whether, in the light of those risks, their investment is appropriate. Generally, investment in emerging and developing markets is suitable only for sophisticated investors who fully appreciate the significance of the risks involved. The countries in which we operate suffer from crime and governmental or business corruption which could have an adverse effect on our business, financial condition and results of operations We operate and conduct business in countries or regions which experience high levels of criminal activity and governmental and business corruption. Oil and gas companies operating in Africa and Iraq may be particular targets of criminal or terrorist actions. In addition, over the past few years there has been an increase in piracy and hijacking off the coast of East Africa, particularly in Somalia. Criminal, corrupt or terrorist action against us and our properties or facilities could have a material adverse effect on our business, results of operations or financial condition. In addition, the fear of criminal or terrorist actions against us could have an adverse effect on our ability to adequately staff and/or manage our operations or could substantively increase the costs of doing so. 21

The Federal Government of Nigeria (the Nigerian Government) is conducting ongoing corruption and other investigations into the oil industry in Nigeria. In particular, the Nigerian Government has reviewed historical taxes of exploration and production companies, investigated production costs and generally re-negotiated license and lease renewals, and in some cases holders were required to pay additional amounts for the renewal of their licenses. The Nigerian Government recently ordered a forensic audit of the NNPCs accounts and has sought to make the oil and gas industry and operations more transparent. The Nigerian Government also recently inaugurated the Petroleum Revenue Special Task Force, a body set up primarily to investigate, verify and recover all upstream and downstream petroleum revenues accruing and payable to the Nigerian Government. This task force is also charged with the responsibility of developing a system to determine and monitor all crude oil production and exportation in Nigeria. We are not aware of any past adverse findings against us, or any current or threatened investigations relating to us or any existing adverse findings against us, our Directors, officers, employees or joint venture partners, but if any such investigations or findings are made and substantiated in the future against us, our Directors, officers, employees, joint venture partners, or such persons or partners are found to be involved in corruption or other illegal activity, this could result in criminal or civil penalties, including substantial monetary fines, against us, our Directors, officers, employees or joint venture partners. Any such findings in the future could damage our reputation and our ability to do business, including by affecting our rights under our various production sharing contracts or by the loss of key personnel, and could have a material and adverse effect on our business, prospects, financial condition and results of operations. Furthermore, alleged or actual involvement in corrupt practices or other illegal activities by our joint venture partners, or others with whom we conduct business, could also damage our reputation and business and have a material and adverse effect on our business, prospects, financial condition and results of operations. The countries in which we operate suffer from terrorism, piracy and militant activity which could have a material adverse effect on our business, financial condition and results of operations Militant activity is a major problem in the Niger Delta region of Nigeria, where a range of militant groups with differing goals operate. The main militant group in the region is the ethnic Ijaw Movement for the Emancipation of the Niger Delta (MEND), which claims to be fighting for political power for the regions residents and a redistribution of oil revenues. Since MEND emerged in 2006, attacks and kidnappings have made the core states of Rivers, Delta and Bayelsa challenging operating environments for companies, particularly for companies in the oil and gas industry, which have been the main target of attacks. In 2009, the Nigerian Government declared an amnesty to be granted to militants who surrendered their weapons by October 2009 in the hope that about 10,000 rebels would exchange their weapons for a pardon and retraining. Over 8,000 militants surrendered their arms and ammunitions pursuant to this amnesty offer. In December 2009, however, MEND claimed responsibility for an attack on an oil pipeline in the Niger Delta, breaching the ceasefire agreement with the Nigerian Government. Following another attack on an oil pipeline in the Niger Delta in January 2010, MEND announced that it would end the indefinite ceasefire that it offered in 2009. This was followed by several bomb attacks over the course of 2010, culminating in an explosion on an oil platform owned by Agip in southern Nigeria in March 2011. Following the March 2011 bombings, MEND again maintained an extended cease fire. Most recently however, after almost a year of no attacks, on February 4, 2012, MEND resumed hostilities with a bomb attack on a crude oil trunk line belonging to Agip. The security situation remains volatile in the Niger Delta region. While security installations and personnel remain the primary targets for any such incidents, foreign oil companies, such as ourselves and our employees, may be singled out. In summer 2009, an alleged threat against us was published in the media which was subsequently withdrawn within 48 hours with no adverse effect against us. In November 2011, a security breach occurred on one of our jack-up drilling rigs and related support vessel that were preparing to commence infill drilling at the Okoro field. Two crew members were injured and seven crew members were taken hostage, but were subsequently released unharmed ten days later. Instability in the Niger Delta, involving attacks and kidnapping by militants targeting the oil industry has severely disrupted production across a broad geographical area. Militant groups in the Niger Delta region frequently detain expatriates, particularly those employed in the oil sector. Most oil operators in the region have reduced operations substantially because of persistent community political and social unrest and the direct threat of abduction, extortion and robbery. The security environment in the region is likely to remain volatile in the absence of a coherent government strategy to resolve insecurity. If we or our employees are the subject of any attacks, kidnappings or other security threats, this could have a material adverse effect on our operations and production of oil in the Niger Delta. Violence and criminal activity in the Niger Delta region has had significant negative effects on oil operators, including damage to facilities, shutdown and shut-in of production, temporary or permanent withdrawal of employees and contractors from some facilities or areas, an increase in the costs of development of gas infrastructure, lower levels of investment and increased capital funding requirements, and a shift by joint venture participants to investments in other regions. An ongoing feature of Iraqs social and political landscape since 2003 has been the emergence of certain sectarian and ethnic tensions within Iraq. A number of terrorist attacks and other incidences of violence in Iraq since 2003 have had sectarian motives based principally on religious, ethnic, geographical, territorial and tribal differences. Notably, there are differences and tensions between Sunni and Shia groups, and between Kurdish and Arab groups. Further divisions exist 22

between the individual regions and governorates that constitute the Republic of Iraq and between the regions, governorates and the federal parliament. Any shift in such divisions may adversely affect the political and economic environment in the Kurdistan Region of Iraq where we operate. In addition, there has been an increase in piracy and hijacking off the coast of East Africa, particularly in Somalia over the past few years. Any such criminal or terrorist attacks, hijackings and piracy directly or indirectly affecting the countries in which we operate could impact our ability to obtain insurance and transport equipment for any hydrocarbons discovered and attract employees and contractors, all of which could have a material adverse effect on the exploration, development and production activities undertaken by us. Underdeveloped infrastructure in the countries in which we operate could have an adverse effect on our business, financial condition and results of operations Underdeveloped infrastructure and inadequate management of such infrastructure in the countries in which we operate, including Nigeria, Congo-Brazzaville, Cte dIvoire, Ethiopia, Ghana, Iraq, Kenya, Madagascar, So Tom & Prncipe, Seychelles, South Africa and Tanzania, could have a material adverse effect on our business, prospects, financial condition and results of operations. For example, most parts of Nigeria experience regular electricity outages and water cuts. Inadequate and unreliable electricity supply has hindered investment in the country, resulting in underperformance in various important sectors. For example, the Nigerian Government announced in June 2008 that Nigeria would not be able to generate enough power to meet domestic energy needs by 2015. Many businesses rely on alternative electricity and water supplies, adding to overall business costs. The unstable pricing, and possible scarcity, of fuel for power generation also increases the operational challenges businesses face, adding to the potential fluctuation of overheads. Although rail and road networks are poor and limit land based transport, state governments are gradually investing in road repair and construction. Telecommunications networks (fixed line and mobile) have become more numerous and increasingly efficient. However, bureaucracy still presents a significant operational obstacle, and though anti-corruption reforms by the Nigerian Government have led to some improvement in this respect, progress may remain patchy. In addition, in the Kurdistan Region of Iraq there are obstacles to the monetization of future production. Namely, there is currently only one pipeline that is a commercially viable export route from the Kurdistan Region of Iraq, which is controlled by the Iraqi federal authorities, who generally control the export infrastructure and can therefore halt exports for political reasons. If additional pipelines are not constructed at all or within expected time periods, our ability to monetize future production in the Kurdistan Region of Iraq and sell crude oil on the international market may be limited. Our ability to sell crude oil on the international market will also be limited if we are unable to enter into sales agreements in respect of the Barda Rash field. Oil and gas prices for local sales are lower than prevailing international prices, and there is a limited market for natural gas and a limited refining capacity in the Kurdistan Region of Iraq. If we are not able to address these obstacles, we may not realize an acceptable return on our investments in the Kurdistan Region of Iraq. Uncertainties in the interpretation and application of laws and regulations in the jurisdictions in which we operate may affect our ability to comply with such laws and regulations which may increase the risks with respect to our operations The courts in the jurisdictions in which we operate may offer less certainty as to the judicial outcome or a more protracted judicial process than is the case in more established economies. Businesses can become involved in lengthy court cases over simple issues when rulings are not clearly defined, and the poor drafting of laws and excessive delays in the legal process for resolving issues or disputes compound such problems. Accordingly, we could face risks such as: (i) effective legal redress in the courts of such jurisdictions being more difficult to obtain, whether in respect of a breach of law or regulation, or in an ownership dispute, (ii) a higher degree of discretion on the part of governmental authorities and therefore less certainty, (iii) the lack of judicial or administrative guidance on interpreting applicable rules and regulations, (iv) inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions, or (v) relative inexperience of the judiciary and courts in such matters. Enforcement of laws in some of the jurisdictions in which we operate may depend on and be subject to the interpretation placed upon such laws by the relevant local authority, and such authority may adopt an interpretation of an aspect of local law which differs from the advice that has been given to us by local lawyers or even previously by the relevant local authority itself. Furthermore, there is limited or no relevant case law providing guidance on how courts would interpret such laws and the application of such laws to our contracts, joint ventures, licenses, license applications or other arrangements. Thus, there can be no assurance that contracts, joint ventures, licenses, license applications or other legal arrangements will not be adversely affected by the actions of government authorities and the effectiveness of and 23

enforcement of such arrangements in these jurisdictions. In certain jurisdictions, the commitment of local businesses, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain and may be susceptible to revision or cancellation, and legal redress may be uncertain or delayed. Iraq is not a party to the New York Convention on the Enforcement of Arbitral Awards and there is no guarantee that an arbitral award or court judgment rendered against the Kurdistan Regional Government (the KRG) or any other counterparty would be enforceable in the Kurdistan Region of Iraq, Iraq or elsewhere. In the countries in which we operate, Nigeria, Congo-Brazzaville, Cte dIvoire, Ethiopia, Ghana, Iraq, Kenya, Madagascar, So Tom & Prncipe, Seychelles, South Africa and Tanzania, the state generally retains ownership of the minerals within that state and consequently retains control of (and in many cases, participates in) the exploration and production of hydrocarbon reserves. Accordingly, our operations may be materially affected by host governments through royalty payments, obligatory farm-ins, export taxes and regulations, surcharges, value added taxes, production bonuses and other charges to a greater extent than would be the case if our operations were largely in countries where mineral resources are not predominantly state owned. In addition, transfers of interests typically require government approval, which may delay or otherwise impede such transfers, and the government may impose obligations on us to complete minimum work within specified timeframes either generally or as a condition to approving such transfers. In the future, we may extend our interests in operations to other countries where similar circumstances may exist. The Nigerian Oil and Gas Industry Content Development Act No. 2 of 2010 (the Local Content Act), enacted in the first quarter of 2010 impacts our operations in Nigeria. The legislation provides that Nigerian independent operators shall be given priority in consideration of the award of oil blocks, oil field licenses, oil lifting licenses and, generally, all projects for which a contract is to be awarded in the oil and gas industry. All projects or contracts with a budget of more than $100 million are required to contain a specific Labor Clause mandating a minimum percentage of Nigerian labor involvement and an operator or project promoter may retain a maximum of 5% of management positions held by expatriates. In addition, certain restrictions are also placed on the maintenance of insurance risks outside Nigeria without the written approval of the National Insurance Commission. As a result of the Local Content Act, we, like all other operators in the industry, need to streamline our internal processes in respect of all our oil and gas operations, in line with the provisions of the legislation. The Local Content Act also requires operators in the Nigerian oil and gas industry to retain a minimum of 10% of their total revenue accruing from Nigerian operations in a bank account maintained by them in Nigeria, which can be used for local operating expenses, such as taxes and royalties. In addition, the Local Content Act requires that 1% of any contract awarded in the oil and gas industry be paid to a Nigeria Content Fund. A further potential impact of the Local Content Act is that breach of these provisions may be an offence punishable by a fine of 5% of the project sum for each project in which the offence is committed or cancellation of the project. In Iraq, the federal Ministry of Oil has disputed the authority of the KRG to grant rights to exploit petroleum resources without the approval of the federal authorities. The KRG has maintained that it has exclusive jurisdiction over oil and gas resources in the Kurdistan Region of Iraq. Currently, all export sales are conducted by Iraqs State Oil Marketing Organization and the proceeds of such sales are received by the federal government, which, in turn, should pass on oil contractors entitlements to the contractors through the KRG. One of the consequences of the diverging views between the federal government and the KRG in relation to the validity of production sharing contracts entered into by the KRG has been the federal governments withholding of partial or full payments to the KRG for oil exported from the Kurdistan Region of Iraq, which caused exports from the Kurdistan Region of Iraq to be suspended. However, progress was made in relation to this dispute in January 2011 when the KRG and the Iraqi Prime Minster announced that oil exports from the Kurdistan Region of Iraq would resume. Exports subsequently resumed from the Kurdistan Region of Iraq in February 2011. In light of the background described above, there can be no assurance that the federal Ministry of Oil will not continue to challenge the validity of the production sharing contracts entered into by the KRG. If such challenges are successful or existing contractor entitlements are changed, this could have a material adverse effect on our ability to maintain our production sharing contracts in the Kurdistan Region of Iraq on their existing terms or at all. Licensing and other regulatory requirements in the countries in which we operate may be subject to amendment or reform which could make compliance more challenging Our current operations are, and our future operations will be, subject to licenses, regulations and approvals of governmental authorities for exploration, development, construction, operation, production, marketing, pricing, transportation and storage of oil, taxation and environmental and health and safety matters. We cannot guarantee that such licenses applied for will be granted or, if granted, will not be subject to possibly onerous conditions. Any changes to exploration, exploration 24

and production, or production licenses, regulations and approvals, or their availability to us may adversely affect our assets, plans, targets and projections. We are subject to extensive government laws and regulations governing prices, taxes, royalties, allowable production, waste disposal, pollution control and similar environmental laws, the export of oil and many other aspects of the oil business. Although we believe we have good relations with the current governments of Nigeria, Congo-Brazzaville, Cte dIvoire, Ethiopia, Ghana, Iraq, Kenya, Madagascar, So Tom & Prncipe, Seychelles, South Africa and Tanzania, there can be no assurance that the actions of present or future governments in these countries, or of governments of other countries in which we may operate in the future will not materially adversely affect our business or financial condition. Furthermore, the oil and gas sector in Nigeria, in particular, is still developing, and there have been a number of changes in policy affecting the sector. Nigeria is pursuing a number of policy directions with the aim of restructuring its upstream and deregulating its downstream sectors, but the adoption of regulations and the implementation of suggested reforms may be subject to political and economic influences, which could create uncertainty in relevant sectors. In August 2007, the Nigerian Government announced the overhaul of the oil sector and stated that it would be implementing reforms to deal with the deregulation of the downstream sector of the oil industry. These reforms were first suggested by the Oil and Gas Reform Committee set up in 2000 and another committee set up by the National Council on Privatization, but the plans were rejected by former president Olusegun Obasanjo. In 2008, the new Petroleum Industry Bill was submitted to the National Assembly, Nigerias federal legislature, but despite having undergone initial readings and a public hearing in both chambers of the National Assembly the bill was not passed before the end of the tenure of the National Assembly in May 2011. Following mass protests in January against corruption in the oil and gas industry and the removal of government subsidies on some refined petroleum products, the Government set up a task force and technical committee in January 2012 with a mandate to review all existing versions of the Petroleum Industry Bill and harmonize them into a new draft within 30 days. The task force, which is led by a commercial lawyer and former legislator, will also have the responsibility of engaging with the legislature on behalf of the Nigerian Government in order to fast-track passage of the Petroleum Industry Bill. The Petroleum Industry Bill seeks to overhaul and restructure the entire Nigerian petroleum industry, restructure existing regulatory bodies, unbundle the NNPC, provide for the incorporation into limited liability entities of existing joint venture arrangements and provide for a new legal regime for the exploitation of gas developments. There is, however, still considerable uncertainty with respect to the Petroleum Industry Bills effect on the petroleum industry. Also in 2008, the Gas Flaring (Prohibition and Punishment) Bill (the Gas Flaring Bill) was submitted to the National Assembly. If enacted, the Gas Flaring Bill would prescribe a date for the cessation of gas flaring and impose substantial penalties for gas flaring in Nigeria through significantly increased fines (presently proposed to be $3.5/mmcf). The Gas Flaring Bill was passed by the Nigerian Senate in July 2009 and is currently before the House of Representatives of the National Assembly. The reforms were launched over three years ago, but will only take effect if the new Petroleum Industry Bill and the Gas Flaring Bill become law. In the meantime, there is uncertainty with respect to the level of implementation of the reforms, the timing of their completion and their possible impacts on the oil and gas industry in Nigeria. In Iraq, there is currently no law in place that addresses the licensing dispute between the KRG and the federal government. Thus, there can be no assurance of how and when, if ever, the diverging views between the KRG and the federal government in relation to the validity of production sharing contracts entered into by the KRG will be resolved. We may be adversely affected by changes to tax legislation or its interpretation or increases in effective tax rates in the jurisdictions in which we operate We operate in multiple jurisdictions and our profits are taxed according to the tax laws of such jurisdictions. Our effective tax rate may be affected by changes in tax laws or interpretations of tax laws in any given jurisdiction. Our effective tax rate in any given financial year reflects a variety of factors that may not be present in the succeeding financial year or years. As a result, our effective tax rate may increase in future periods, which could have a material adverse effect on our financial results and, specifically, our net income, cash flow and earnings may decrease. The tax system applicable to international oil companies operating in the Kurdistan Region of Iraq is uncertain. In particular, some KRG authorities have been unwilling to give practical effect to the tax exemptions and other benefits provided in the production sharing contracts signed by the KRG. We understand that new legislation which might amend the tax regime for international oil companies operating in the Kurdistan Region of Iraq is currently under consideration by the KRG. Iraqi federal oil legislation, if enacted, might also amend the tax regime applicable to our operations in the Kurdistan Region of Iraq. In particular, such legislation might seek to bring the tax position of companies operating in the Kurdistan 25

Region of Iraq into line with that applicable to companies operating in the oil sector in the rest of Iraq; the latter are subject to a high rate of corporate income tax and do not benefit from an exemption from payment of personal income tax in respect of non-Iraqi employees or other exemptions stated in the production sharing contracts signed by the KRG. We are exposed to the risk of adverse sovereign action by governments in the countries in which we operate The oil and gas industry is central to the economies and future prospects for development in a number of the countries in which we currently operate and therefore the industry can be expected to be the focus of continuing attention and debate. In certain developing countries, petroleum companies have faced the risks of expropriation or renationalization, breach or abrogation of project agreements, application to such companies of laws and regulations from which they were intended to be exempt, denials of required permits and approvals, increases in royalty rates and taxes that were intended to be stable, application of exchange or capital controls, and other risks. Possible future changes in the government, major policy shifts or increased security arrangements in the countries in which we operate could have to varying degrees an adverse effect on the value of our investments. These factors could have a material adverse effect on our business, prospects, financial condition and results of operations. There is uncertainty relating to the payment mechanism for export oil in the Kurdistan Region of Iraq. All export sales are conducted by the State Oil Marketing Organization using infrastructure controlled by the federal authorities. The proceeds of such sales are received by the federal government, which, in turn, should pass on oil contractors entitlements to the contractors through the KRG. To date, the federal government has not passed on the Kurdistan Region of Iraqs oil contractors full entitlements to export sales proceeds. Previously, non-payment by the federal government has caused exports from the Kurdistan Region of Iraq to be suspended. There can be no assurances that such suspension will not occur again in the future for this or any other reason. Thus, the opportunity to sell production internationally is currently limited. Under the current regime, if our assets in the Kurdistan Region of Iraq were to commence production, the crude oil would be sold either through the State Oil Marketing Organization or through contractual arrangements with local refineries. Risk factors relating to the oil and gas industry Any volatility and future decreases in crude oil prices could materially and adversely affect our business, prospects, financial condition and results of operations Oil and gas prices are based on world supply and demand and are subject to large fluctuations in response to relatively minor changes to the demand for oil, whether the result of uncertainty or a variety of additional factors beyond our control. Historically, prices for oil and gas have fluctuated widely for many reasons, including: global and regional supply and demand, and expectations regarding future supply and demand, for crude oil and petroleum products; level of consumer demand for oil and gas; geopolitical uncertainty; weather conditions and natural disasters; access to pipelines, storage platforms, shipping vessels and other means of transporting and storing crude oil; prices and availability of alternative fuels; prices and availability of new technologies; the ability of the members of OPEC, and other crude oil producing nations, to set and maintain specified levels of production and prices; political, economic and military developments in oil producing regions generally and particularly in Nigeria and the Middle East; global and regional economic conditions; and market uncertainty and speculative activities by those who buy and sell oil and gas on the world markets. 26

Historically, crude oil prices have been highly volatile. The average monthly price for crude oil in 2010 was approximately $77.35/bbl, a decrease of about 47.6% from the peak of approximately $147.54/bbl in the first week of July 2008. The average Brent quotation for the ten months ended October 31, 2011 was $108.03, a 42% increase from the ten months ended October 31, 2010. We can give no assurance as to the level of oil prices in the future. The decline in international prices for crude oil, compared to the peaks experienced in mid-2008, adversely affected and will continue to adversely affect the amount of revenue generated by our sales of crude oil and other petroleum products. Our revenues, operating results, profitability, future rate of growth, and the carrying value of our oil and gas properties depend heavily on the prices we receive for oil and gas sales. Oil and gas prices also affect our cash flows available for capital expenditures and other items, including our borrowing capacity and the amount and value of our oil and gas reserves. For example, the amount of our borrowing base under our Ebok Facility is subject to periodic redeterminations based on oil and gas prices specified by our bank group at the time of redetermination. In addition, we may have oil and gas property impairments or downward revisions of estimates of the estimated future net cash flow from proved reserves if prices fall significantly. No assurance can be given that oil and gas prices will remain at levels which will enable us to operate profitably. Future oil and gas price declines or unsuccessful exploration efforts may result in write-downs of our asset carrying values We review our oil and gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write down the carrying value of our oil and gas properties, which may result in a decrease in the amount available under our Ebok Facility. A write-down constitutes a non-cash charge to earnings. We may incur impairment charges in the future, which could have a material adverse effect on our ability to borrow under our Ebok Facility and could have a material adverse effect on our business, prospects, financial condition and results of operations. The level of our crude oil and gas reserves, their quality and production volumes may be lower than estimated or expected The reserves and resources set forth in this Offering Memorandum represent estimates only and are based on reports prepared by technical experts, including NSAI and RPS. In general, estimates of economically recoverable oil reserves and the future net cash flow therefrom are based on a number of factors and assumptions made as of the date on which the reserves estimates were determined, such as geological and engineering estimates (which have inherent uncertainties), historical production from the properties, the assumed effects of regulation by governmental agencies and estimates of future commodity prices and operating costs, all of which may vary considerably from actual results. If the assumptions upon which the estimates of our oil and gas reserves and resources have been based prove to be incorrect, we may be unable to recover and produce the estimated levels or quality of oil, gas and other hydrocarbons set out in this Offering Memorandum, which may have a material and adverse effect on our business, prospects, financial condition and results of operations. Estimation of underground accumulations of hydrocarbons which cannot be measured in an exact manner is a subjective process aimed at understanding the statistical probabilities of recovery. Estimates of the quantity of economically recoverable oil and gas reserves, rates of production, net present value of future cash flows and the timing of development expenditures depend upon several variables and assumptions, including the following: production history compared with production from other comparable producing areas; interpretation of geological and geophysical data; effects of regulations adopted by governmental agencies; future percentages of international sales; future oil prices; capital expenditure; and

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future operating costs, tax on the extraction of commercial minerals, development costs and workover and remedial costs.

As all reserve estimates are subjective, each of the following items may differ materially from those assumed in estimating reserves: the quantities and qualities that are ultimately recovered; the timing of the recovery of oil and gas reserves; the production and operating costs incurred; the amount and timing of additional exploration and future development expenditures; and future oil sales prices.

Many of the factors in respect of which assumptions are made when estimating reserves are beyond our control and therefore these may prove to be incorrect over time. Evaluations of reserves necessarily involve multiple uncertainties. The accuracy of any reserves or resources evaluation depends on the quality of available information and petroleum engineering and geological interpretation. Exploration drilling, interpretation, testing and production after the date of the estimates may require substantial upward or downward revisions in our reserves or resources data. Moreover, different reservoir engineers, including NSAI and RPS, may make different estimates of reserves and cash flows based on the same available data. Actual production, revenues and expenditures with respect to reserves and resources will vary from estimates, and the variances may be material. The uncertainties in relation to the estimation of reserves summarized above also exist with respect to the estimation of resources. The probability that prospective resources will be discovered, or be economically recoverable, is considerably lower than for proven, probable and possible reserves. Volumes and values associated with prospective resources should be considered highly speculative. We face drilling, exploration and production risks and hazards that may affect our ability to produce crude oil and gas at expected levels, quality and costs Our oil and gas production operations are subject to all the risks common to our industry, including premature decline of reservoirs, invasion of water into producing formations, blowouts, oil spills, explosions, fires, equipment damage or failure, natural disasters, geological uncertainties, unusual or unexpected rock formations and abnormal geological pressures, uncontrollable flows of oil, gas or well fluids, adverse weather conditions, pollution and other environmental risks. Our facilities are also subject to hazards inherent in marine operations, such as capsizing, sinking, grounding, vessel collision and damage from severe storms or other severe weather conditions. The offshore drilling we conduct involves increased risks due to high pressures and mechanical difficulties, including stuck pipe, collapsed casing and separated cable. In the event that any of these occur, environmental damage, injury to persons and loss of life, failure to produce oil in commercial quantities or an inability to fully produce discovered reserves could result. They can also put at risk some or all of our licenses which enable us to explore and/or produce, and result in our incurring fines or penalties as well as criminal sanctions against us and/or our officers. Consequent production delays and declines from normal field operating conditions may result in revenue and cash flow levels being adversely affected. Our future success will depend, in part, on our ability to develop existing oil reserves in a timely and cost effective manner. Certain of our oil and gas properties are operated by third parties or may be subject to the decisions of operating committees controlled by national oil companies and, as a result, we have limited control over the nature and timing of exploration and development, including required contributions for capital expenditures, of such properties or the manner in which operations are conducted on such properties. Our drilling activities may be unsuccessful and the actual costs incurred in respect of drilling, operating wells and completing well workovers may exceed our budget. We may be required to curtail, delay or cancel any drilling operations because of a variety of factors, including unexpected drilling conditions, pressure or irregularities in geological formations, equipment failures or accidents, breaches of security, title problems, adverse weather conditions, compliance with governmental requirements and shortages or delays in the availability of drilling rigs and the delivery of equipment. The

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occurrence of any of these events could have a material and adverse effect on our business, prospects, financial condition and results of operations. The marketability and price of oil and gas which may be acquired or discovered by us will be affected by numerous factors beyond our control. Our ability to market any gas discovered may depend upon our ability to acquire capacity in pipelines which deliver gas to commercial markets. A substantial portion of our reserves and production are concentrated in one asset The present value of our future net revenues attributable to the Ebok field at a 10% discount rate, as calculated by NSAI, is $1,184.7 million on a 1P basis and $1,424.0 million on a 2P basis, which represents 88.5% and 86.6%, respectively, of the total present value of our net revenues. A material surface or subsurface event, or a substantial delay in the initiation of production at the Ebok field, could have a material adverse effect on our business, prospects, financial condition and results of operations. The present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and gas reserves You should not assume that the present value of future net revenues from our proved reserves is the current market value of our estimated oil and gas reserves. We based the estimated discounted future net revenues from our proved reserves as of December 31, 2011 on the present value of estimated future net cash flows from proved oil and natural gas reserves, less estimated future development, production, plugging and abandonment costs and tax expenses (if applicable), discounted at 10% per annum to reflect the timing of future cash flows. Actual future net revenues from our oil and gas properties will be affected by factors such as: actual prices we receive for oil and gas; actual cost of development and production expenditures; the amount and timing of actual production; and changes in governmental regulations or taxation.

The timing of both our production and our incurrence of expenses in connection with the development and production of oil and gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and gas industry in general. Actual future prices and costs may differ materially from those used in the present value estimates included in this Offering Memorandum. We face significant uncertainties in connection with our appraisal, exploration and development activities Appraisal results for discoveries are uncertain. Appraisal and development activities involving the drilling of wells across a field may be unpredictable and not result in the outcome planned, targeted or predicted, as only by extensive testing can the properties of the entire field be fully understood. Exploration activities are capital intensive and their successful outcome cannot be assured. We undertake exploration activities and incur significant costs with no guarantee that such expenditure will result in the discovery of commercially deliverable oil or gas. Our oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations and various field operating conditions may adversely affect the production from successful wells. We are exploring in geographic areas where environmental conditions are challenging and costs can be high. The costs of drilling, completing and operating wells are often uncertain. As a result, we may incur cost overruns or may be required to curtail, delay or cancel drilling operations because of many factors, including unexpected drilling conditions, pressure or irregularities in geological formations, equipment failures or accidents, adverse weather conditions, compliance with environmental regulations, governmental requirements and shortages or delays in the availability of drilling rigs and the delivery of equipment. 29

We will continue to gather data about our new venture opportunities and other projects. Additional information which comes to light could cause us to alter our schedule or determine that a new venture opportunity or project should not be pursued, which could adversely affect our prospects. Under our production sharing contracts and other similar agreements, we finance exploration, development and operations and the related facilities and equipment and will only recover our costs if there is successful production in accordance with the terms of these agreements. If we are unable to replace the reserves that we have produced, our reserves and revenues will decline Our future success depends on our ability to find, develop and acquire additional oil and gas reserves that are economically recoverable which, in itself, is dependent on oil and gas prices. Without continued successful acquisition or exploration activities, our reserves and revenues will decline as a result of our current reserves being depleted by production. We may not be able to find or acquire additional reserves at acceptable costs which could have a material adverse effect on our business, prospects, financial condition and results of operations. We operate in a highly competitive industry The oil and gas industry is highly competitive including in the region in which we operate. The key areas in respect of which we face competition are: acquisition of exploration and production licenses at auctions or sales run by governmental authorities; acquisition of other companies that may already own licenses or existing hydrocarbon producing assets; engagement of third party service providers whose capacity to provide key services may be limited; purchase of capital equipment that may be scarce; and employment of the best qualified and most experienced skilled management and oil professionals.

We compete with oil and gas companies that possess greater technical, physical and financial resources. Many of these competitors not only explore for and produce oil and gas, but also carry on refining operations and market petroleum and other products on an international basis. The effects of this may include higher than anticipated prices for the acquisition of licenses or assets, the hiring by competitors of key management or operatives, restriction on availability of equipment or services as well as potentially unfair practices including unconscionable pressure on us directly or indirectly or the dissemination of false or misleading information or rumors by competitors or third parties. Such unconscionable pressure can be expected to arise out of disparities in the relative bargaining power of the affected parties and includes the stronger party exploiting the weaker partys disadvantage or the stronger party relying on its rights in a harsh or oppressive manner, allowing the weaker party to make an incorrect assumption, failing to disclose a material fact, misrepresentation or otherwise unfairly benefiting from a transaction at the expense of the weaker party. If we are unsuccessful in competing against other companies, our business, prospects, financial condition and results of operations could be materially adversely affected. We face drilling and exploration risks and hazards which may lead to liability for environmental pollution, biodiversity loss or habitat destruction Our operations are inherently subject to risks associated with natural catastrophes, fires, explosions, blowouts, encountering formations with abnormal pressure and crude oil spills, each of which could result in substantial damage to our property and the surrounding environment or in personal injury, biodiversity loss or habitat destruction and result in liability and reputational damage to us. Any of these risks and hazards could have material adverse effect on our business, prospects, financial condition and results of operations.

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Part of our strategy involves drilling in existing or emerging plays using some of the latest available horizontal drilling and completion techniques. The results of our planned exploratory drilling in these plays are subject to drilling and completion technique risks and drilling results may not meet our expectations for reserves or production. As a result, we may incur material write-downs and the value of our undeveloped acreage could decline if drilling results are unsuccessful. Our operations involve utilizing some of the latest drilling and completion techniques as developed by us and our service providers in order to maximize cumulative recoveries and therefore generate the highest possible returns. Risks that we face while drilling include, but are not limited to, landing our well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that we face while completing our wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to run tools the entire length of the well bore during completion operations and successfully cleaning out the well bore after completion of the final fracture stimulation stage. Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently long time period. If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, lease expirations, access to gathering systems and limited takeaway capacity or otherwise, and/or oil and gas prices decline, the return on our investment in these areas may not be as attractive as we anticipate and we could incur material write-downs of unevaluated properties and the value of our undeveloped acreage could decline in the future. Uncertainties associated with enhanced recovery methods may result in us not realizing an acceptable return on our investment in such projects We inject water into formations at some of our assets to increase the production of oil and gas. We may in the future expand these efforts to more of our assets or employ other enhanced recovery methods in our operations. The additional production and reserves, if any, attributable to the use of enhanced recovery methods are inherently difficult to predict. If our enhanced recovery methods do not allow for the extraction of oil and gas in a manner or to the extent that we anticipate, we may not realize an acceptable return on our investments in such projects. Our use of 2D and 3D seismic data is subject to interpretation and may not accurately identify the presence of oil and gas, which could adversely affect the results of our drilling operations Even when properly used and interpreted, 2D and 3D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable geoscientists to know whether hydrocarbons are, in fact, present in those structures or the amount of hydrocarbons. We employ 3D seismic technology with respect to certain of our projects. The implementation and practical use of 3D seismic technology is relatively new, unproven and unconventional, which can lessen its effectiveness, at least in the near term, and increase our costs. In addition, the use of 3D seismic and other advanced technologies requires greater pre-drilling expenditures than traditional drilling strategies, and we could incur greater drilling and exploration expenses as a result of such expenditures, which may result in a reduction in our returns. As a result, our drilling activities may not be successful or economical, and our overall drilling success rate or our drilling success rate for activities in a particular area could decline. Risk factors relating to our business Our exploration and production operations are dependent on our compliance with the obligations under licenses, contracts and field development plans Our exploration and development operations must be carried out in accordance with the terms of production sharing contracts, oil production licenses and oil mining licenses (and related farm-in agreements), annual work programs and budgets as set forth therein. The relevant legislation provides that fines may be imposed and a license may be suspended or terminated if a license holder, or party to a related agreement, fails to comply with its obligations under such license or agreement, or fails to make timely payments of levies and taxes for the licensed activity, provide the required geological information or meet other reporting requirements. In addition, we, our indigenous partners or joint venture partners, as applicable, have obligations to develop the fields in accordance with the specific requirements under certain licenses and related agreements, field development plans, laws and regulations. If we or they were to fail to satisfy such obligations with respect to a specific field, the license or related agreements for that field may be suspended, revoked or terminated. 31

The authorities in Africa and Iraq can, and do from time to time, carry out inspections to verify compliance by us, our indigenous partners or joint venture partners, as applicable, with relevant laws and the licenses or the agreements pursuant to which we operate. There can be no assurance that the views of the relevant government agencies regarding the development of the fields that we, our indigenous partners or joint venture partners operate or compliance with the terms of the licenses or related agreements pursuant to which we conduct such operations will coincide with our views, which might lead to disagreements that cannot be resolved. Generally, our activities with respect to assets and related agreements that are not currently producing oil or gas are limited to exploration and related activities. The exploration licenses and related agreements pursuant to which we operate typically have a limited life before we are obliged to seek to extend the exploration period, convert the license to a production license or relinquish the license area. As the expiration date of our licenses approaches, we intend on behalf of ourselves, and our indigenous partners or joint venture partners, where appropriate, to seek from the appropriate authorities, time extensions of the relevant licenses or conversions to production licenses. However, there can be no assurance that extensions or conversions will be granted with respect to expired licenses or that the administrative and regulatory process will not have a material and adverse impact on our business and operations. Generally, if oil is discovered during the exploration license term, we, our indigenous partners or our joint venture partners, as applicable, are required to apply for a production license before commencing production. If we, our indigenous partners or our joint venture partners, as applicable, comply with the terms of the relevant license and related agreements then we would normally expect that a production license would be issued; however, no assurance can be given that the necessary production licenses will be granted by the relevant authorities. Each of the exploration and production licenses or related agreements pursuant to which we conduct operations have incorporated detailed work programs which have to be fulfilled and normally within a specified timeframe. These may include seismic surveys to be performed, wells to be drilled, production to be attained, limits to production levels and construction matters. The suspension, revocation or termination of any of the licenses or related agreements pursuant to which we operate, as well as any delays in the continuous development of or production at our fields caused by the issues detailed above may have a material adverse effect on our business, financial condition and results of operations. In addition, failure to comply with the obligations under the licenses or agreements pursuant to which we operate, whether inadvertent or otherwise, may lead to fines, penalties, restrictions, withdrawal of licenses and termination of related agreements, which could have a material and adverse effect on our business, prospects, financial condition and results of operations. We conduct the majority of our operations through partnerships with indigenous companies or through joint ventures, which may increase the risk of delays, additional costs or the suspension or termination of the licenses or the agreements pursuant to which we operate We have entered into partnerships with indigenous companies and joint ventures in respect of a majority of our assets. Pursuant to government initiatives to develop the local oil and gas industry in the regions in which we operate, licenses or agreements to exploit oil and gas are initially awarded to indigenous companies who then seek to partner with larger companies with advanced technical competencies and financial resources. We, our indigenous partners or our joint venture partners, as applicable, must comply with the requirements of any applicable license or related agreement pursuant to which we operate, in addition to joint operating agreements or other arrangements governing our relationship with the indigenous partners and joint venture partners, as applicable. We may suffer unexpected costs or other losses if an indigenous partner or joint venture partner does not meet the obligations under the license or related agreement or the obligations under the agreements governing our relationship with them. In some instances, we may be jointly and severally liable for required payments pursuant to the terms of the production sharing contracts under which we operate. We may also be subject to claims by our indigenous partners or joint venture partners regarding potential non-compliance with our obligations. It is also possible that our interests, on the one hand, and those of our indigenous partners or joint venture partners, as applicable, on the other, will not always be aligned, resulting in possible project delays, additional costs or disagreements. In addition, failure by our indigenous partners or joint venture partners, as applicable, to comply with the obligations under the relevant licenses or the agreements pursuant to which we operate may lead to fines, penalties, restrictions, withdrawal of licenses and termination of the agreements under which we operate and the obligation for us to meet our partners obligations under the relevant license or agreement. In the event that any of our indigenous partners or joint venture partners becomes insolvent or otherwise unable to pay its debts as they come due, licenses or agreements awarded to them may revert back to the relevant government authority who will then reallocate the license. In addition, according to the terms of some of our production sharing contracts, we may not always be able to choose our partners in the event that one of our 32

partners assigns their interest to another party. As we typically either share an undivided interest with our partners (at the fields where we have a participation interest) or have a contractual right to production with no participation interest, we rely on our partners or other entities as license holders. Although we anticipate that the relevant government authority may permit us to continue operations at a field during a reallocation process, there can be no assurances that we will be able to continue operations pursuant to these reclaimed licenses or that any transition related to the reallocation of a license would not materially disrupt our operations or development and production schedule. The occurrence of any of the situations described above could have a material and adverse effect on our business, prospects, financial condition and results of operations. We have limited control over the activities on assets that we do not operate Some of the assets in which we have an interest are operated by other companies and involve third-party working interest owners, such as Block 10A in Kenya or the Keta field in Ghana where we only have a 20% and 35% legal interest in the asset, respectively. As a result, we have limited ability to influence or control the operation or future development of such assets, including compliance with environmental, safety and other regulations, or the amount of capital expenditures that we will be required to contribute to based on approved work programs with respect to such properties. Moreover, we are dependent on the other working interest owners of such projects to fund their contractual share of the capital expenditures of such projects. These limitations and our dependence on the operator and other working interest owners for these projects could cause us to incur unexpected future costs and could have a material and adverse effect on our business, prospects, financial condition and results of operations. There are risks inherent in our strategy of geographic diversification and acquisition of new exploration and development properties We have previously undertaken a number of acquisitions of assets. In addition, our strategies include that, from time to time as suitable opportunities arise, we may consider acquiring additional oil and gas properties. For example, in 2011 we have acquired interests in assets in the Kurdistan Region of Iraq, Tanzania and South Africa. See Our Business Description of Our Assets. Although we perform a review of properties that we believe is consistent in industry practices prior to the acquisitions, successful property acquisitions require an assessment of a number of factors beyond our control. These factors include exploration potential, future oil and gas prices, operating costs and potential environmental and other liabilities. It generally is not feasible to review in depth every individual property involved in each acquisition. Ordinarily, we focus our due diligence efforts on higher valued properties or assets and conduct due diligence on only a sample of the remainder. However, even an in-depth review of all properties and records may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Physical inspections may not be performed on every well, and structural or environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. We may be required to assume pre-closing liabilities with respect to an acquisition, including environmental liabilities, and may acquire interests in properties on an as is basis. In addition, competition for the acquisition of prospective oil properties is intense, which may increase the cost of any potential acquisition. To date, our exploration and development activities have principally been based in Nigeria, Cte dIvoire and nearby areas in West Africa and principal exploration activities conducted by Black Marlin prior to the Black Marlin Acquisition were in the Seychelles, Ethiopia, Kenya and Madagascar. Our limited presence in other regions may limit our ability to identify and complete acquisitions in other geographic areas. There can be no assurance that any potential acquisition by us will be successful. We face cost and timing risks in developing our near term development plans We have a number of appraisal and appraisal/development assets (in addition to our production assets) and as such certain parts of our business are at an early stage of development. We intend to continue our appraisal and development plans in respect of such assets, with a view to potentially converting possible reserves to probable reserves, and probable reserves to proved reserves and increasing our production. We are also seeking to convert prospective resources into reserves with the appraisal and development work required to do so involving significant investment by us in both capital expenditure and time for development. Prospective investors should consider the risks, expenses and difficulties frequently encountered by companies which undertake exploration and appraisal activities, particularly companies operating in emerging markets, such as the time taken to asses production potential once hydrocarbons are discovered, the economic feasibility of production and logistical, regulatory and practical constraints that are sometimes inherent in operating in such markets. Our business strategy of significantly increasing reserves and production may require additional funding We may require additional financing for our future exploration, development, production or acquisition plans. Our ability to arrange such financing in the future will depend in part upon prevailing financing market conditions as well as our 33

business performance. In addition, our Ebok Facility is linked to a borrowing base profile, under which the availability of financing and our cost depends upon the reserves of the borrowing entity. The 2016 Notes link and the Notes will link certain debt incurrence availability to our proved reserves. If our revenues or reserves decline, we may not be able to raise additional funds (or any external debt or equity financing may not be on acceptable terms) or have the capital necessary (either from internal sources or through external debt or equity financing) to undertake or complete future drilling programs or acquisitions. Furthermore, any additional debt financing may involve refinancing costs or penalties or restrictive covenants, which may limit or affect our operating flexibility. Transactions financed partially or wholly with debt may increase our debt levels above industry standards. Some of our employees are unionized and wage demands or work stoppages by unionized employees could materially and adversely affect our business, prospects, financial condition and results of operations We employee local workers in each of the countries in which we operate. Additionally, we hire contractors who, in turn, have their own employees from the regions in which we operate. Some of our employees, and those employed by our contractors, are represented by labor unions under collective bargaining agreements, which need to be renewed from time to time. We or our contractors may not be able to negotiate acceptable new collective bargaining agreements or future restructuring agreements, which could result in labor disputes. Also, we may become subject to material cost increases or additional work rules imposed by agreements with labor unions. This could increase expenses in absolute terms and/or as a percentage of revenue. Although we believe we have good relations with our employees, work stoppages or other labor disturbances may occur in the future, which could have a material and adverse effect on our business, prospects, financial condition and results of operations. We depend on our Board, key members of management and service providers and on our ability to retain and hire new qualified personnel and consultants to effectively manage our growing business Our future operating results depend in significant part upon the continued contribution of our Board, key senior management, technical, financial and operations personnel. Our management of our growth will require, among other things, stringent control of financial systems and operations, the continued development of our management control, the ability to attract and retain sufficient numbers of qualified management and other personnel, the continued training of such personnel, the presence of adequate supervision and continued consistency in the quality of our services. Our success is dependent on the ability of our Board and management to operate the growing business and to manage the ongoing changes from accelerated growth and potential future acquisitions. Failure to manage our growth and development effectively, including control of our financial systems and operations, could have a material adverse effect on our business, prospects, financial condition and results of operations. In addition, the personal connections and relationships of our Board and key management are important to the conduct of our business. If we were to unexpectedly lose a member of our key management, our business and results of operations might be materially adversely affected. We do not currently maintain key person insurance. If we fail to consummate or integrate acquisitions successfully, our financial condition and future performance could be adversely affected Historically, we have acquired interests in additional assets on a regular basis and we have grown from a single asset in one country in 2004 to 29 assets in twelve countries as at the date of this Offering Memorandum. While we believe that we currently maintain adequate procedures, systems and controls, where we acquire another company or its assets in the future, integrating operations and personnel and pre- or post-completion costs may prove more difficult and/or expensive than anticipated, thereby rendering the value of any company or assets acquired less than the amount paid. The integration of acquired businesses requires significant time and effort on the part of our management. Integration of new businesses can be difficult, because our operational and business culture may differ from the cultures of the businesses we acquire, unpopular cost cutting measures may be required, internal controls may be more difficult to maintain and control over cash flows and expenditures may be difficult to establish. While we have successfully completed the integration of the businesses we have acquired thus far, we could experience difficulties in integrating future acquisitions as successfully, which could have a material and adverse effect on our business, prospects, financial condition and results of operations.

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Failure to manage our future growth and performance may adversely affect our operations We have experienced significant growth and development in a relatively short period of time and expect to continue to grow as production increases from our current oil reserves. Management of that growth requires, among other things, stringent control of financial systems and operations, the continued development of management controls and the training of new personnel. Failure to successfully manage our expected growth and development could have a material adverse effect on our business, results of operations or financial condition. Further, there can be no guarantee or assurance that such rapid growth will continue or that future targets or projections will be achieved or fulfilled. We are obliged to comply with health and safety and environmental regulations and cannot guarantee that we will be able to comply with these regulations Our operations are subject to laws and regulations relating to the protection of human health and safety and the environment. Failure, whether inadvertent or otherwise, by us to comply with applicable legal or regulatory requirements may give rise to significant liabilities. Our health, safety and environment policy is to observe local and national, legal and regulatory requirements and generally to apply best practices where local legislation does not exist. The terms of licenses or permissions may include more stringent environmental and/or health and safety requirements. Obtaining exploration, development or production licenses and permits may become more difficult or be delayed due to governmental, regional or local environmental consultation, approvals or other considerations or requirements. We incur, and expect to continue to incur, substantial capital and operating costs in order to comply with increasingly complex health, safety, environmental laws and regulations. New laws and regulations, the imposition of tougher requirements in licenses, increasingly strict enforcement of, or new interpretations of, existing laws, regulations and licenses, or the discovery of previously unknown contamination may require further expenditures to: modify operations; install pollution control equipment; perform site clean ups; curtail or cease certain operations; or pay fees or fines or make other payments for pollution, discharges or other breaches of environmental requirements.

Although the costs of the measures taken to comply with environmental regulations have not had a material adverse effect on our financial condition or results of operations to date, in the future, the costs of such measures and liabilities related to environmental damage caused by us may increase, which could have a material and adverse effect on our business, prospects, financial condition and results of operations. These factors may lead to delayed or reduced exploration, development or production activity as well as to increased costs. Our operations are subject to the risk of litigation From time to time, we may be subject to litigation arising out of our operations. Damages claimed under such litigation may be material or may be indeterminate, and the outcome of such litigation may materially impact our business, results of operations or financial condition. While we assess the merits of each lawsuit and defend accordingly, we may be required to incur significant expenses or devote significant resources to defending against such litigation. In addition, the adverse publicity surrounding such claims may have a material adverse effect on our business. We do not insure against certain risks and our insurance coverage may not be adequate for covering losses arising from potential operational hazards and unforeseen interruptions We consider that the extent of our insurance cover is reasonable based on the costs of cover, the risks associated with our business and industry practice. Consistent with insurance coverage generally available to the industry, our insurance currently includes cover for damage to or loss of certain production assets and our crude oil in storage, insurance for out of control wells (including coverage for redrill of and environmental damage caused thereby), third party liability coverage 35

(including employers liability insurance) and directors and officers liability insurance, in each case subject to excesses, exclusions and limitations. There can be no assurance that such insurance will be adequate to cover any losses or exposure for liability or that we will continue to be able to obtain insurance to cover such risks. For example, we do not have business interruption insurance in place and, therefore, we will suffer losses as a result of shut-in or cessation in production, including a shut-in or cessation due to violence or criminal activity. We are unable to give any guarantee that expenses relating to losses or liabilities will be fully covered by the proceeds of applicable insurance. Consequently, we may suffer material losses from uninsurable or insured risks or insufficient insurance coverage. We are also subject to the future risk of unavailability of insurance, increased premiums or excesses, and expanded exclusions. See Risk factors relating to the countries in which we operateUncertainties in the interpretation and application of laws and regulations in the jurisdictions in which we operate may affect our ability to comply with such laws and regulations which may increase the risks with respect to our operations. Failure by us, our contractors or our offtakers to obtain access to necessary equipment and transportation systems could materially and adversely affect our business, prospects, financial condition and results of operation Oil and gas development and exploration activities are dependent upon the availability of drilling and related equipment in the particular areas where such activities will be conducted. Demand for limited equipment such as drilling rigs or access restrictions may affect the availability of and our access to such equipment and may delay our development and exploration activities. In the areas in which we operate there is significant demand for drilling rigs and other related equipment. Failure by us or our contractors to secure necessary equipment could have a material and adverse effect on our business, prospects, financial condition and results of operations. We contract or lease services and capital equipment from third party providers and will continue to do so. Such equipment and services can be scarce and may not be readily available at the times and places required. In addition, costs of third party services and equipment have increased significantly over recent years and may continue to rise. Scarcity of equipment and services and increased prices may in particular result from any significant increase in exploration and development activities on a region by region basis which might be driven by high demand for oil and gas. In the regions in which we operate, there is significant demand for capital equipment and services. The unavailability and high costs of such services and equipment could result in a delay or restriction in our projects and adversely affect the feasibility and profitability of such projects, and therefore have a material and adverse effect on our business, prospects, financial condition and results of operations. In addition, some of our equipment supply agreements, including our contract with Mercator in respect of the FSO property for the Ebok field, permit our equipment providers to assign, pledge or otherwise grant security interests to their creditors in the equipment we use or assign their rights in the contracts governing the services they provide. For instance, Mercator has granted a mortgage over both the FSO and MOPU to a consortium of banks. Although these contracts may contain provisions for services or supply to us to continue upon any enforcement of these security interests or otherwise permit us to purchase the equipment, any enforcement action by our suppliers creditors could interfere with our ability to use or obtain the necessary equipment or services, which could have a material and adverse effect on our business, prospects, financial conditions and results of operations. We and our offtakers rely, and any future offtakers will rely, upon transportation systems, including systems owned and operated by third parties which may become unavailable. We may be unable to access the transportation systems we use currently or alternative transportation systems. Further, our offtakers could become subject to increased tariffs imposed by government regulators or the third party operators or owners of the transportation systems available for the transport our oil and gas which could result in decreased offtaker demand and downward pricing pressure. The inability of one or more of our customers to meet their obligations to us may adversely affect our financial results Traditionally, all of our accounts receivable result from oil and gas sales to third parties in the oil and gas industry. This concentration of customers may impact our overall credit risk in that these entities may be similarly affected by various economic and other conditions, including the recent global and domestic economic and financial downturn. We currently have only two offtakers, Shell and Socar, thereby concentrating the risk further. The inability or failure of our customer(s) to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. We may face unanticipated increased or incremental costs The crude oil and gas business is a capital intensive industry. To implement our business strategy, we have invested, and continue to invest in drilling and exploration activities and infrastructure. Our current and planned expenditures on such projects may be subject to unexpected problems, costs and delays, and the economic results and the actual costs of these projects may differ significantly from our current estimates. 36

We rely on oil field suppliers and contractors to provide materials and services in conducting our exploration and production activities. Any competitive pressures on the oil field suppliers and contractors, or substantial increases in the worldwide prices of commodities, such as steel, could result in a material increase of costs for the materials and services required to conduct our business. For example, due to high global demand and a limited number of suppliers, the cost of oil field services and goods has increased significantly in recent years and could continue to increase. Future increases could have a material adverse effect on our operating income, cash flows and borrowing capacity and may require a reduction in the carrying value of our properties, our planned level of spending for exploration and development and the level of our reserves. Prices for the materials and services we depend on to conduct our business may not be sustained at levels that enable us to operate profitably. We may also need to incur various unanticipated costs, such as those associated with personnel, transportation and government taxes. Personnel costs, including salaries, are increasing as the standard of living rises in the countries in which we operate and as demand for suitably qualified personnel for the oil and gas industry increases. Although there have been no strikes in our history, industrial action, and the increased costs associated with such action, could occur. With respect to decommissioning, licensees are invariably obliged under the terms of relevant licenses or local law, to dismantle and remove equipment, to cap or seal wells and generally make good production sites. Our financial statements as of and for the year ended December 31, 2010 include provisions based on our estimate of the aggregate decommissioning costs to be incurred at the end of each of our licenses. These are estimates based on currently known facts and circumstances including the current extent of our operations. No guarantee can be given that such provisions shall in due course turn out to be sufficient. An increase in any of these decommissioning costs or the other costs detailed above could have a material and adverse effect on our business, prospects, financial condition and results of operations. We are subject to foreign exchange and inflation risks, which might adversely affect our financial condition and results of operations Our revenues and most of our working capital are in U.S. dollars. We convert funds to foreign currencies as our payment obligations in jurisdictions where the U.S. dollar is not an accepted currency become due. Certain of our costs will be incurred in currencies other than U.S. dollars, including pound sterling, Naira, CFA franc and Iraqi dinar. Accordingly, we are subject to inflation in the countries in which we operate and fluctuations in the rates of currency exchange between the U.S. dollar and these currencies, and such fluctuations may materially affect our business, results of operations or financial condition. Consequently, construction, exploration, development, administration and other costs may be higher than we anticipate. We may engage in hedging activities from time to time that would expose us to losses should markets move against our hedged position The nature of our operations results in exposure to fluctuations in commodity prices. We use financial instruments and physical delivery contracts to hedge our exposure to these risks and may continue to do so in future. If we engage in hedging we will be exposed to credit related losses in the event of non performance by counterparties to the associated financial instruments. Additionally, if product prices increase above those levels specified in any future hedging agreements, we could lose the cost of floors or ceilings or a fixed price could limit us from receiving the full benefit of commodity price increases. If we enter into hedging arrangements, we may suffer financial loss if we are unable to commence operations on schedule or are unable to produce sufficient quantities of oil to fulfill our obligations. In addition, we may not be able to find pricing for hedging on suitable terms. Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, access to capital and cost of capital There is potential for volatility and disruption in the capital and credit markets. During 2009, the markets produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers underlying financial strength. If these levels of market disruption and volatility return, our business, financial condition and results of operations, as well as our ability to access capital, may all be negatively impacted.

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We may be exposed to certain tax risks in Nigeria which might adversely affect our financial condition and results of operations The petroleum tax laws in Nigeria do not fully anticipate some of the newer deal structures being implemented in oil and gas transactions in Nigeria. The structures that we have used for the acquisitions of the Okoro and Ebok assets may be subject to further assessment for tax purposes. Although we have sought the advice of internationally reputable tax advisors to clarify our position, there is a risk that the Nigerian tax authorities may take a different view from those advisors that might result in additional tax being imposed upon us, which could have a material and adverse effect on our business, prospects, financial condition and results of operations. The drilling rig explosion and oil spill in the Gulf of Mexico could increase our cost of doing business The April 2010 explosion and sinking of the Deepwater Horizon, a deepwater drilling rig in the Gulf of Mexico, and resulting oil spill has had, and may continue to have, an adverse effect on drilling and exploration activities globally. We cannot predict the full impact of the incident and resulting spill. In addition, we cannot predict how government or regulatory agencies will respond to the incident or whether changes in laws and regulations concerning drilling and exploration activities will be enacted. Significant changes in regulations regarding future exploration and production activities or other government or regulatory actions could reduce drilling and production activity, which could have a material and adverse effect on our business, prospects, financial condition and results of operations. Risk factors relating to the Notes Our level of indebtedness and the terms of our indebtedness could materially adversely affect our business and liquidity position As of October 31, 2011, we had: $742.3 million of indebtedness; and aggregate unused capacity under the Ebok Facility totaling $10.6 million based on the borrowing base amount at October 31, 2010, taking into account outstanding borrowings under the Ebok Facility of $217.8 million. See Description of Certain Financing ArrangementsEbok Facility.

We currently use debt financing and plan to continue to use debt financing for our future operations and projects. Thus, our indebtedness may increase from time to time in the future for various reasons, including fluctuations in operating results, capital expenditures and potential acquisitions or joint ventures. As a result, the risks normally associated with debt financing may materially adversely affect our business, prospects, financial position and operating results because: our level of indebtedness may, together with the financial and other restrictive covenants in the agreements governing our indebtedness, significantly limit or impair our ability in the future to obtain financing, refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and materially impair our liquidity; a downgrade in our credit rating could restrict or impede our ability to access capital markets at attractive rates and increase our borrowing costs; our level of indebtedness may increase the difficulty for us to satisfy our debt, including our ability to pay interest when due and/or the principal amount due under such indebtedness at maturity; our level of indebtedness may reduce our flexibility to respond to changing business and economic conditions or to take advantage of business opportunities that may arise; a portion of our cash flow from operations must be dedicated to interest payments on our indebtedness and is not available for other purposes, which amount would increase if prevailing interest rates rise; in line with our dividend policy, we do not intend to pay a dividend in the foreseeable future, however we have substantial capacity to use our cash to pay distributions to shareholders under the terms of the Notes; and our level of indebtedness could make us more vulnerable to downturns in general economic or industry conditions or in our business. 38

If principal payments due at maturity cannot be paid out of operating cash flow, refinanced, extended or paid with proceeds of other capital transactions, such as debt capital or by issuing additional ordinary shares, then our cash flow may not be sufficient to pay our debts or to fund other liquidity needs, including the repayment at maturity of the outstanding amount under (i) the Ebok Facility which has begun amortizing with the first repayment due on July 1, 2012; (ii) the $50 million Socar Facility which matures in 2013; and (iii) the $500 million 2016 Notes which mature in 2016. Prevailing interest rates or other factors at the time of refinancing, such as the possible reluctance of creditors to make commercial loans to operations in developing markets, could result in higher interest rates, and the increased interest expense could, in the longer term, adversely affect our ability to service our debt and to complete our capital expenditure program. Our future ability to comply with financial covenants and other conditions of our financing agreements, make scheduled payments of principal and interest, or refinance existing borrowings depends on future business performance that is subject to economic, financial, competitive and other factors. Advances under certain of our financing agreements bear interest at rates which vary depending on LIBOR. Increases in LIBOR increase our interest expense, which could materially and adversely affect our business, prospects, financial condition and results of operations. Such increases in interest rates could also materially and adversely affect our cash flow and our ability to service our debt in the longer term. Our debt facilities contain customary covenants, including restrictions on the ability to incur other indebtedness, to dispose of assets and/or the free use of available cash deposits, which limit our flexibility to conduct our operations and may create a risk of default on our debt in the longer term if we cannot comply with such covenants. Should market conditions continue to deteriorate or fail to improve, or our operating results decrease in the future, we may have to request amendments and/or waivers to the covenants and restrictions to which we are subject. There can be no assurance that we will be able to obtain such relief should it be needed in the future. A breach of any of these covenants or restrictions could result in a default and acceleration that would permit our creditors to declare all amounts incurred to be due and payable, together with accrued and unpaid interest, and the commitments of the relevant creditors to make further extensions of credit could be terminated. In addition, certain of our financing arrangements are and the Notes will be secured by various security agreements, such as pledges of shares in certain subsidiaries. If we breach certain of our debt covenants, creditors could require us to pay the then outstanding debt immediately, and, in the case of other secured debt, creditors could sell the property securing such debt if we are unable to pay the outstanding debt immediately. The breach of covenants and the exercise by the relevant creditors of their rights under the various financing agreements could have a material adverse effect on our business, prospects, financial condition and results of operations. See Description of Certain Financing Arrangements. Your rights to enforce remedies under the second priority liens on the Ebok Collateral are limited as long as certain senior debt of Afren Resources is outstanding The security interest in the Ebok Collateral serving as collateral for repayment of the Notes and the Subordinated Guarantee will rank behind the first priority security interest in such collateral granted in favor of the senior lenders under our Ebok Facility Agreement (and any creditors that provide funds to refinance the loans under the Ebok Facility Agreement) and pari passu with the second priority security interest in such collateral granted in favor of the trustee for itself and on behalf of holders of our 2016 Notes. The security documents provide that the security agent, who currently also serves as the security agent for the senior lenders under our Ebok Facility Agreement and the 2016 Notes, will in general act only at the direction of the agent under the Ebok Facility Agreement until amounts outstanding under the Ebok Facility Agreement or any refinancing indebtedness in respect thereof are paid in full and discharged. In general, the lenders and the agent under the Ebok Facility Agreement (and/or creditors in respect of refinancings thereof) will have the exclusive right to make all decisions with respect to the enforcement of remedies relating to the Ebok Collateral. As a result, the holders of the Notes and the 2016 Notes will not generally, subject to certain limited exceptions, be able to force a sale of the Ebok Collateral securing the Notes and the Subordinated Guarantee or otherwise independently pursue the remedies of a secured creditor under the relevant security documents for so long as any amounts under our Ebok Facility Agreement or any refinancing indebtedness in respect thereof remain outstanding. Our creditors may have interests that are different from the interests of holders of the Notes and they may elect not to pursue their remedies under the relevant security documents at a time when it would be advantageous for the holders of the Notes and the 2016 Notes to do so. In addition, if the creditors or the agent under the Ebok Facility Agreement sell some or all of the shares in or assets of Afren Resources through an enforcement of their security interests, the liens over any such assets securing the Notes and the Subordinated Guarantee and the 2016 Notes and the subordinated guarantee by Afren Resources thereof, will be automatically released. See There are circumstances other than repayment or discharge of the Notes under which the Collateral securing the Notes and the Note Guarantees will be released automatically and under which the guarantees will be released automatically, without your consent or the consent of the Trustee and Description of NotesSecurity.

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Your rights to enforce remedies under the contractual first priority liens on the Okoro Collateral could in the future be limited if such collateral were to secure credit facility indebtedness Holders of the Notes will share in the Okoro Collateral securing the Notes and the Note Guarantees ratably with the holders of the 2016 Notes and may share with any future creditors that are permitted to be secured by the Okoro Collateral and whose creditor representative enters into a Pari Passu Intercreditor Agreement as permitted by the Indenture and the 2016 Notes Indenture. The Pari Passu Intercreditor Agreement will provide that a common security agent, who also serves as the security agent for the holders of the 2016 Notes will in general act with respect to such collateral only at the direction of those holders of the Notes, any additional Notes, the 2016 Notes and any additional 2016 Notes whose notes at that time aggregate more than 50% of the aggregate principal amount of all such debt outstanding. We may be able to incur additional debt in the future, which debt may take a variety of forms and may be secured by the assets constituting the Okoro Collateral. The Pari Passu Intercreditor Agreement may be amended or supplemented to provide, or any replacement pari passu intercreditor agreement may provide, that at any time when and for so long as the Okoro Collateral secures any indebtedness that is not capital markets indebtedness and whose creditor representative has acceded to the Pari Passu Intercreditor Agreement, the common security agent will act with respect to the Okoro Collateral only at the direction of such non-capital markets creditors, whether or not the holders of the Notes or the 2016 Notes agree or disagree with those actions. In general, the relevant instructing group (if (a) there is non-capital markets debt outstanding, such creditors or (b) all creditors are capital markets creditors, holders of the majority in aggregate principal amount thereof) will have the exclusive right to make all decisions with respect to the enforcement of remedies relating to the Okoro Collateral. As a result, in the event that and for so long as the Okoro Collateral secures non-capital markets debt, the holders of the Notes will not generally be able to force a sale of the Okoro Collateral securing the Notes and the Note Guarantees or otherwise independently pursue the remedies of a secured creditor under the relevant security documents for so long as any amounts under such non-capital markets debt remain outstanding. Such creditors may have interests that are different from the interests of holders of the Notes and they may elect not to pursue their remedies under the relevant security documents at a time when it would be advantageous for the holders of the Notes to do so. Certain Collateral securing the Notes will neither be perfected nor enforceable for the full amount of the indebtedness thereby secured unless and until additional stamp duties and registration fees are paid in respect thereof by or on behalf of the holders of the Notes In Nigeria, significant stamp duties are imposed on certain instruments creating security over a companys assets and, in the case of such instruments creating registrable charges under the Companies and Allied Matters Act Cap C20 LFN 2004 (the CAMA) significant registration fees are imposed in addition to the stamp duties. In order to minimize transaction costs, creditors in certain large financings in Nigeria customarily agree, at the request of the relevant obligors, to understamp, or pay stamp duties in respect of a fraction of the indebtedness secured by such collateral. In practice, the creditors or their agents retain custody of corporate authorizations, forms and other relevant documents to enable such creditors or their agents to upstamp or pay the additional stamp duty and registration fees owed to ensure that the collateral securing the relevant indebtedness is perfected and/or enforceable for the full amount of indebtedness thereby secured, in the event of an enforcement of such collateral. Such stamp duties and/or registration fees are generally payable in respect of certain security interests governed by Nigerian law or located in or granted by a Nigerian entity. The Security Documents meeting such criteria (the Nigerian Security Documents) pursuant to which the Collateral will be granted will be subject to such stamp duties and/or registration fees. The Nigerian Security Documents are or will be stamped and registered for only a fraction of the amount of indebtedness purported to be secured thereby. To the extent that the relevant Collateral Agent or the holders of Notes seek to enforce the Nigerian Security Documents and/or in other circumstances contemplated by the terms of the Indenture and the Ebok Intercreditor Agreement or the Pari Pasu Intercreditor Agreement, the Nigerian Security Documents would need to be upstamped for the portion of the indebtedness that was not initially stamped and registered for the remaining portion of the collateral to be perfected and/or enforceable, which stamp duties and registration fees could, based on current rates, amount to 1.375% of the debt secured minus the amount of the stamp duties and registration fees initially paid. There can be no assurances that the holders of the Notes or any other secured creditors will have funds available to upstamp the Nigerian Security Documents and the holders of the Notes will in effect be unsecured to the extent of any portion of indebtedness purported to be secured by the Nigerian Security Documents for which the full stamp duties and registration fees have not been paid. In addition, the Nigerian authorities may increase the rates of stamp duties and registration fees. Further, any subsequent third party security interest over assets secured pursuant to the Nigerian Security Documents which is perfected prior to the payment by or on behalf of the holders of the Notes of the full amount of stamp 40

duty and registration fees would rank ahead of the unstamped portion of the security created pursuant to the Nigerian Security Documents. The Indenture limits our ability to incur secured indebtedness. Although creditors may agree to terms regulating the timing of permitted upstamping, any breach of intercreditor arrangements related thereto would result only in a contractual or equitable claim against the breaching creditor and no other right at law to the collateral. In addition, any upstamping payment made within the three months preceding the insolvency or winding-up of a Nigerian entity could be deemed in certain circumstances to be a fraudulent preference under the provisions of section 495(1) of the CAMA and void against the liquidator of such entity. In the event of the Nigerian entitys insolvency, the noteholders may therefore be effectively secured only in respect of the amounts for which stamp duties and registration fees had been paid initially, but unsecured in respect of any amounts for which stamp duties and registration fees remain unpaid, and the enforcement of any Nigerian Security Documents in respect of such unpaid amounts could be impaired or challenged. The Subordinated Guarantee of Afren Resources will be subordinated to senior debt The Subordinated Guarantee will: be secured on a contractual second priority ranking basis by the shares in and assets of Afren Resources constituting Collateral; be subordinated in right of payment to existing and future senior debt of Afren Resources, including Indebtedness under the Ebok Facility to the extent described herein; rank senior in right of payment to any future Indebtedness of Afren Resources that is expressly subordinated in right of payment to the Subordinated Guarantee; be effectively senior to all of the Subordinated Guarantors existing and future unsecured Indebtedness to the extent of the assets securing the Subordinated Guarantee; and be fully and unconditionally released upon an enforcement action with respect to the assets securing the Ebok Facility (or any indebtedness that may be incurred to refinance the Ebok Facility) as initiated by the relevant creditors thereunder.

All payments under the Subordinated Guarantee will be blocked while the trustee is restricted from taking enforcement action against Afren Resources or in respect of the Ebok Collateral pursuant to the Ebok Intercreditor Agreement. Furthermore, the holders of the Notes and the 2016 Notes may not instruct the Ebok Collateral Agent to take enforcement action against Afren Resources or in respect of the Ebok Collateral unless (i) payment default has occurred under the Note Documentation (as such term is defined in the Ebok Intercreditor Agreement) and (a) the Senior Agent (as such term is defined below) has received notice thereof and of the relevant payment default, (b) a period of not less than 179 days (Standstill Period A) has passed from the date of receipt by the Senior Agent of such notice and (c) at the end of Standstill Period A, the relevant payment default is continuing and has not been remedied or waived and the relevant Indebtedness remains outstanding; (ii) the Notes or the 2016 Notes, as applicable, have been accelerated (otherwise than as a result of non-payment under the Note Documentation, or as a result of a cross default under the Note Documentation which is attributable to a default under the Ebok Facility) and (a) the Senior Agent has received notice thereof and of the relevant event of default, (b) a period of not less than 270 days has elapsed after the date on which the Senior Agent received such notice (Standstill Period B) and (c) at the end of Standstill Period B the relevant default has not been remedied or waived, the acceleration has not been cancelled and the relevant Indebtedness remains outstanding and immediately payable; (iii) Afren Resources has been declared bankrupt or insolvent by a court of competent jurisdiction and such declaration has not been appealed to a higher court within 10 business days and the requisite majority of lenders under the Ebok Facility Agreement have not instructed the Ebok Collateral Agent to enforce the Senior Ebok Security (as defined below) within 20 business days of such event; or (iv) the requisite majority of the lenders under the Ebok Facility Agreement have instructed the Ebok Collateral Agent to enforce the Senior Ebok Security (and/or creditors in respect of refinancings thereof) (in which case the same or equivalent action may be taken with respect to the enforcement of any of the Subordinated Ebok Security and demand may be made under the Subordinated Guarantee). Upon any distribution to creditors of the Subordinated Guarantor in a liquidation, winding-up or dissolution or in a bankruptcy, administration, reorganization, insolvency, receivership or similar proceeding, the holders of senior debt of the Subordinated Guarantor benefiting from security ranking in priority to the Ebok Collateral will be entitled to be paid in full before any payment is made with respect to the Subordinated Guarantee. As a result, holders of the Notes and the 2016 Notes making claims under the relevant Subordinated Guarantee may receive less, ratably, than the holders of any such senior debt of the Subordinated Guarantor, including the lenders under our Ebok Facility Agreement and/or creditors in respect of refinancings thereof). 41

As at October 31, 2011, after giving pro forma effect to the Offering and the application of proceeds therefrom, the aggregate amount of senior debt of Afren Resources would have been $217.8 million, comprising borrowings under the Ebok Facility Agreement. The Notes and each Note Guarantee will be structurally subordinated to the liabilities and any preferred stock of our non-guarantor subsidiaries Some, but not all, of our subsidiaries will guarantee the Notes. Unless a subsidiary is a Guarantor, our subsidiaries do not have any obligation to pay amounts due on the Notes or to make funds available for that purpose. Accordingly, you should only rely on the guarantees of the Notes to provide credit support in respect of payments of principal or interest on the Notes. Our operating subsidiaries are separate and distinct legal entities and those of our subsidiaries that do not guarantee the Notes have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make any funds available therefor, whether by dividends, loans, distributions or other payments, and do not guarantee the payment of interest on, or principal of, the Notes. Generally, claims of creditors of a non-guarantor subsidiary, including trade creditors, and claims of any preferred stockholders of the subsidiary, will have priority with respect to the assets and earnings of the subsidiary over the claims of creditors of its parent entity, including claims by noteholders under the Note Guarantees. In the event of any foreclosure, dissolution, winding-up, liquidation, reorganization, administration or other bankruptcy or insolvency proceeding of any of our non-guarantor subsidiaries, the creditors of the Guarantors (including the holders of the Notes) will have no right to proceed against such subsidiarys assets and holders of their indebtedness and their trade creditors will generally be entitled to payment in full of their claims from the assets of those subsidiaries before any Guarantor, as direct or indirect shareholder, will be entitled to receive any distributions from such subsidiary. As such, the Notes and each Note Guarantee will each be structurally subordinated to the creditors (including trade creditors) and any preferred stockholders of our non-guarantor subsidiaries. As of and for the ten months ended October 31, 2011, we and the Guarantors represented substantially all of our consolidated revenue and 67% of our total assets. We cannot assure you that our subsidiaries whose debt may be accelerated will be able to repay such indebtedness. We also cannot assure you that our assets and our subsidiaries assets will be sufficient to fully repay the Notes and our other indebtedness. See Description of Certain Financing Arrangements. Enforcement of the Note Guarantees across multiple jurisdictions may be difficult We are incorporated under the laws of England and Wales. The Notes will be issued by us and guaranteed by the initial and any additional Guarantors, which are organized or incorporated under the laws of multiple jurisdictions. In the event of bankruptcy, insolvency or a similar event, proceedings could be initiated in any of these jurisdictions and in the jurisdiction of organization of a future Guarantor. The rights under the Note Guarantees will thus be subject to the laws of a number of jurisdictions, and it may be difficult to effectively enforce such rights in multiple bankruptcy, insolvency and other similar proceedings. Moreover, such multi-jurisdictional proceedings are typically complex and costly for creditors and often result in substantial uncertainty and delay in the enforcement of creditors rights. In addition, the bankruptcy, insolvency, administration and other laws of our jurisdiction of organization and the jurisdiction of organization of the Guarantors may be materially different from, or in conflict with, one another, including creditors rights, priority of creditors, the ability to obtain post-petition interest and the duration of the insolvency proceeding. The application of these various laws in multiple jurisdictions could trigger disputes over which jurisdictions law should apply and could adversely affect the ability to realize any recovery under the Notes and the Note Guarantees. Your ability to enforce on the security granted over our assets may be limited As security for our obligations under the Notes, certain of our subsidiaries will grant security interests to the Primary Collateral Agent or the Ebok Collateral Agent, as applicable, for the benefit of the noteholders over all or substantially all of their assets and/or shares in certain of our subsidiaries directly owned by them. The Okoro Collateral (as defined below) will be granted to secure the Notes and the Note Guarantees on a contractual first priority basis, which Okoro Collateral also secures the obligations under the 2016 Notes, and the Ebok Collateral (as defined below) will be granted to secure the Notes and the Subordinated Guarantee on a contractual second priority basis, which Ebok Collateral also secures the obligations under the 2016 Notes. Certain security interests under English, French and Nigerian law will, as a matter of local law, will be granted to the Notes as junior ranking security interests in relation to the security granted in respect of the 2016 Notes. Nevertheless, the Pari Passu Intercreditor Agreement provides that as a contractual matter as among the Notes and the 2016 Notes, the Notes will be secured on a pari passu basis with the 2016 Notes and will be treated as such for purposes of the application of proceeds from the enforcement of such Okoro Collateral and Ebok Collateral. 42

The Notes and the Note Guarantees will be secured by contractual first priority Liens over the following assets (together, the Okoro Collateral): (i) the capital stock of AERL; (ii) bank accounts of each of AERL and Afren Okoro; (iii) the assets of AERL pursuant to fixed and floating charges, including property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Okoro field; (iv) the rights of Afren Okoro in respect of certain hedging agreements, entered into from time to time, and intercompany loans owed to it by AERL, entered into from time to time; and (v) subject to receipt of counterparty approvals, which we will use commercially reasonable efforts to obtain within six months, the rights and interests in AERLs primary operating, production sharing and off-take contracts. The security interests to be granted by AERL and Afren Okoro will not extend to assets, including bank accounts, held by or jointly held with our indigenous partners. The Notes and the Subordinated Guarantee will be secured by contractual second priority Liens over the same assets that secure Afren Resources obligations under the Ebok Facility and its guarantee of the 2016 Notes. These contractual second priority Liens will take the form of a contractual second priority floating charge over Afren Resources property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Ebok field, and contractual second priority Liens over: (i) the capital stock of Afren Resources; and (ii) bank accounts of Afren Resources, (the assets subject of such Liens, together the Ebok Collateral). The Collateral is granted under English, Nigerian or, with respect to the pledges of the Guarantors offshore bank accounts, French law and no action to create or perfect any such security has been, or will be, required other than action under English, Nigerian and French law (as appropriate) within England, Nigeria and France (as appropriate). To the extent action is or would be required to be taken to create or perfect the Collateral under the laws of jurisdictions other than England, Nigeria or France, holders of the Notes may not have a claim ranking senior to the claims of other creditors or any claim at all. For a description of certain perfection requirements in Nigeria, see The security interests in certain Collateral securing the Notes will not be perfected for the full amount of the indebtedness secured until upstamped by the creditors or relevant Collateral Agent at the time of enforcement. The security over Afren Resources assets as described in clause (ii) of the first sentence of the immediately preceding paragraph is charged by way of a contractual second ranking floating charge. A floating charge would rank after fixed security interests that may have been created prior to such floating charge taking effect as a fixed charge, and would rank in priority of payment after the interests of certain preferential creditors. A contractual second ranking floating charge will also rank after a prior ranking floating charge. Charges over offshore accounts of Nigerian companies may be subject to that companys obligation first to repatriate any export proceeds within 90 days of first receipt. In addition, such charges may be subject to an obligation for oil and gas companies to maintain 10% of their revenue in Nigeria in accordance with Section 52(3)(f) of the Nigerian Oil and Gas Industry Consent Development Act. Other than as prescribed in the Accounts Agreement dated June 23, 2010 entered into by Afren plc and Afren Resources in connection with the Ebok Facility, we will not require each bank with which an account is held to waive any bankers lien, right to combination of accounts or right of set-off with respect to such account. Therefore, on enforcement, you may not recover the full balance available in the relevant account prior to such enforcement. Enforcement of security interests in hydrocarbon project related assets in Nigeria by international creditors is untested, and there is therefore no precedent as to how enforcement would be implemented in practice. Generally, any enforcement of collateral in Nigeria may be delayed due to factors, including, but not limited to, bureaucratic court procedures, congested court systems and delaying tactics by counsel. Any delay resulting therefrom may affect the sale value of the assets over which the security is enforced. Moreover, the subordination of claims of the shareholders in a Nigerian insolvency proceeding is untested. Therefore, in the event of enforcement, holders of the Notes may not recover the full value of assets in Nigeria. See also Legal and RegulatoryNigeriaEnforcement of Security under Nigerian Law. Any enforcement of collateral, whether under Nigerian, English or French law, remains subject to relevant insolvency laws and regulations, and recovery of the value of any assets on insolvency may be limited or constrained by application of these laws and regulations. The value of the Collateral securing the Notes and the Note Guarantees may not be sufficient to satisfy the Companys and the Guarantors obligations under the Notes and the Note Guarantees, and the Collateral securing the Notes may be reduced or diluted under certain circumstances The Notes and the Note Guarantees will be secured by security interests in the Collateral described in this Offering Memorandum, which Collateral also secures the obligations under the 2016 Notes and, in the case of the Ebok Collateral, the Ebok Facility. In the event of foreclosure on the Collateral, the proceeds from the sale of the Collateral may not be sufficient to satisfy the obligations under the Notes, the 2016 Notes and the Ebok Facility, as applicable. No appraisals of any of the Collateral have been prepared by us or on our behalf in connection with the offering of the Notes. The value of the Collateral and the amount to be received upon a sale of such Collateral will depend upon many factors, including, among others, 43

whether or not our business is sold as a going concern, the condition of the Collateral and the industry in which we operate, the ability to sell the Collateral in an ordinary sale, the condition of the international, national and local economies and the availability of buyers. The book value of the Collateral should not be relied upon as a measure of realizable value for such assets. By their nature, portions of the Collateral, including any pledged capital stock or shares of any of our subsidiaries and contractual rights, may be illiquid and may have no readily ascertainable market value. In addition, the Indenture permits the granting of certain liens other than those in favor of the noteholders on assets constituting Collateral. To the extent that holders of other secured indebtedness or third parties enjoy liens, including statutory liens, whether or not permitted by the Indenture or the security documents governing the Collateral, such holders or third parties may have rights and remedies with respect to all or a portion of the Collateral that, if exercised, could reduce the proceeds available to satisfy our obligations under the Notes. Moreover, if we issue additional Notes under the Indenture or additional 2016 Notes under the relevant indenture, holders of such additional Notes and additional 2016 Notes will benefit from the same Collateral and Note Guarantees as the holders of the Notes being offered, effectively diluting your ability to benefit from the liens on the Collateral and the Note Guarantees. It may be difficult to realize the value of the Collateral securing the Notes The Collateral will be subject to any and all exceptions, defects, encumbrances, liens and other imperfections as may be accepted by the relevant Collateral Agent and any creditors that also have the benefit of liens on the Collateral from time to time, whether on or after the date the Notes are issued. The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adversely affect the value of the Collateral as well as the ability of the relevant Collateral Agent to realize or foreclose on such Collateral. No appraisals of any Collateral have been prepared in connection with the offering of the Notes. The value of the Collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers. By their nature, some or all of the charged assets may be illiquid and may have no readily ascertainable market value. We cannot assure you that the fair market value of the Collateral as at the date of this Offering Memorandum exceeds the principal amount of the debt secured thereby. The value of the assets charged as Collateral for the Notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition and other future trends. Realization of the Collateral by the relevant Collateral Agent may be subject to practical problems generally associated with the realization of security interests in Collateral. For example, the relevant Collateral Agent may be required to obtain the consent or cooperation of a third party to obtain or enforce a security interest in a contract. We cannot assure you that the relevant Collateral Agent will be able to obtain any such consent or cooperation. We also cannot assure you that the consents or cooperation of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, neither Collateral Agent may have the ability to foreclose upon those assets and the value of the Collateral may significantly decrease. Fraudulent conveyance laws, bankruptcy regulations and other limitations on the Note Guarantees may adversely affect their validity and enforceability The Subordinated Guarantor will guarantee the payment of the Notes on a senior subordinated basis while the Senior Guarantors will guarantee the payment of the Notes on a senior basis. The Guarantors are organized under the laws of the United Kingdom, the Cayman Islands, Nigeria and Cte dIvoire. Although laws differ among various jurisdictions, in general, under fraudulent conveyance and other laws, a court could subordinate or void any guarantee and, if payment had already been made under the relevant guarantee, require that the recipient return the payment to the relevant guarantor, if the court found that: the guarantee was incurred with actual intent to hinder, delay or defraud creditors or shareholders of the guarantor or, in certain jurisdictions, the recipient was merely aware that the guarantor was insolvent when it issued the guarantee; the guarantor did not receive fair consideration or reasonably equivalent value for the guarantee and the guarantor: (i) was insolvent or rendered insolvent as a result of having granted the guarantee; (ii) was undercapitalized or rendered undercapitalized because of the guarantee; or (iii) intended to incur, or believed that it would incur, indebtedness beyond its ability to pay at maturity;

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the guarantee was entered into without a legal obligation to do so, is prejudicial to the interests of the other creditors and both the Guarantor and the beneficiary of the guarantee were aware of or should have been aware of the fact that it was prejudicial to the other creditors; the guarantee was held to exceed the objects of the Guarantor or not in the best interests or not for the corporate benefit of the guarantor; or the aggregate amounts paid or payable under the guarantee were in excess of the maximum amount permitted under applicable law.

The measure of insolvency for purposes of fraudulent conveyance laws varies depending on the law applied. Generally, however, a guarantor will be considered insolvent if it cannot pay its debts as they become due and/or if its liabilities exceed its assets. If a court decided to void any Note Guarantee as a fraudulent conveyance, or held it unenforceable for any other reason, you would cease to have any claim in respect of the Guarantor and would be a creditor solely of the Company and the remaining Guarantors. The security over certain of the Collateral will be granted to the relevant Collateral Agent as a separate creditor rather than as an agent for holders of the Notes. The ability of the relevant Collateral Agent to enforce the Collateral may be restricted by French law The ability of the relevant Collateral Agent to enforce certain security is subject to mandatory provisions of French law. There is some uncertainty under French law as to whether obligations to beneficial owners of the Notes that are not identified as registered holders in a security document will be validly secured. In addition to being granted to the holders of the Notes, the security over the Collateral located in France will be granted in favor of the relevant Collateral Agent as beneficiary of debt guarantee obligations (the Parallel Debt) that are parallel to the obligations of the relevant obligor under its Note Guarantee (the Principal Obligations). The Parallel Debt obligations are in the same amount and payable at the same time as the Principal Obligations. Any payment in respect of the Principal Obligations will discharge the corresponding Parallel Debt and any payment in respect of the Parallel Debt will discharge the corresponding Principal Obligations. In respect of the security interests granted to secure the Parallel Debt, the holders of the Notes will not have direct security and will not be entitled to take enforcement action in respect of such security, except through the relevant Collateral Agent. As a result, the holders of the Notes bear some of the risks associated with a possible insolvency or bankruptcy of the relevant Collateral Agent. There is no assurance that such Parallel Debt structure will be upheld by the French courts as there is no final judicial or other guidance as to its efficiency. Enforcement of Collateral granted under French law requires a payment default The Collateral being granted on a second or further ranking basis has been drafted substantially in the same terms as the existing collateral agreements on the same assets. Such agreements specify that the collateral may be enforced in particular upon the occurrence of any Event of Default (as defined therein). Under French law, enforcement action with respect to security can only be taken to enforce payment obligations and French courts may therefore not give effect to all circumstances which are specified in the Collateral to authorize its enforcement. Insolvency laws and other limitations on the Note Guarantees and security may adversely affect their validity and enforceability The Companys obligations under the Notes will be guaranteed and secured by certain assets and contractual rights of the Company and the Guarantors. The Guarantors are organized under the laws of England and Wales, the Cayman Islands, Nigeria and Cte dIvoire. Although laws differ among jurisdictions, in general, applicable insolvency laws and limitations on the enforceability in such jurisdictions of judgments obtained in New York courts would limit the enforceability of judgments obtained in New York courts against the Company and the Guarantors on the Notes and the Note Guarantees. The following discussion of insolvency laws, although an overview, describes generally applicable terms and principles, which are defined under the relevant jurisdictions insolvency statutes. In an insolvency proceeding, it is possible that creditors of the Guarantors or appointed insolvency administrator may challenge the Note Guarantees and security, and intercompany obligations generally, as fraudulent transfers or conveyances or on other grounds. In certain situations the relevant bankruptcy court may also act ex officio and declare the Note Guarantees or other security interests as ineffective, unenforceable or void. If so, such laws may permit the court, if it makes certain findings, to:

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void or invalidate all or a portion of a Guarantors obligations under its Note Guarantee or the security provided by such Guarantor; direct that holders of the Notes return any amounts paid under a Note Guarantee or any security document to the relevant Guarantor or to a fund for the benefit of the relevant Guarantors creditors; or take other action that is detrimental to holders of the Notes.

In addition, in Nigeria, a floating charge on the undertaking or property of the Guarantor created within three months of the filing of a petition for the winding up of the Guarantor would be invalid unless it is proven that the Guarantor was solvent immediately after the creation of the charge. Different jurisdictions evaluate insolvency on various criteria, but a guarantor is generally considered insolvent at the time it issued a guarantee or created any security if: its liabilities exceed the fair market value of its assets; it cannot pay its debts as and when they become due; or the present salable value of its assets is less than the amount required to pay its total existing debts and liabilities, including contingent and prospective liabilities, as they mature or become absolute.

In Nigeria, a company would be considered insolvent if: (a) the guarantor is unable to pay debts of N=2,000 when due after a demand has been made for the debt; (b) the guarantor does not satisfy a judgment against it in favor of one of its creditors; or (c) the court, after taking into account the guarantors prospective or contingent liability, is of the opinion that the guarantor is unable to pay its debt. In the event of an insolvency of a guarantor incorporated in Nigeria, each of its creditors would be required to prove the existence of the debt and the amount claimed. We cannot assure you which standard a court would apply in determining whether a Guarantor was insolvent as of the date the Note Guarantees were issued or security was created or at any other date or time or that, regardless of the standard applied, a court would not determine that a Guarantor was insolvent on any such date or time, or that, regardless of whether or not a Guarantor was insolvent on any such date or time, a court would not determine that payments to holders of the Notes constituted fraudulent conveyance or are ineffective, unenforceable, void or voidable on any other grounds. There are circumstances other than repayment or discharge of the notes under which the Collateral securing the Notes and the Note Guarantees will be released automatically and under which the guarantees will be released automatically, without your consent or the consent of the Trustee Under various circumstances, Collateral securing the Notes and the Note Guarantees will be released automatically, including: in connection with any sale, assignment, transfer, conveyance or other disposition of such property or assets that does not violate the provisions set forth under Description of NotesRepurchase at the Option of Holders Asset Sales; in the case of a Subsidiary Guarantor that is released from its Note Guarantee pursuant to the terms of the Indenture, the release of the property and assets, and Capital Stock, of such Subsidiary Guarantor; if the Company designates any of its Restricted Subsidiaries to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture, the release of the property and assets of such Restricted Subsidiary; upon repayment in full of the Notes or upon legal defeasance, covenant defeasance or satisfaction and discharge as described under the captions Description of NotesLegal Defeasance and Covenant Defeasance and Description of NotesSatisfaction and Discharge; as described under Description of NotesAmendments and Waivers; upon the release and discharge of the initial lien giving rise to the obligation to provide such lien as described under Description of NotesLiens; and

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as otherwise permitted in accordance with the Indenture.

The lenders under the Ebok Facility will control enforcement actions with respect to the Ebok Collateral through the Ebok security agent, whether or not the holders of the Notes agree or disagree with those actions. See Description of NotesSecurityEnforcement of Security. Under various circumstances, the Note Guarantees will be released automatically, including: in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger, amalgamation or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the provisions set forth under the caption Description of NotesRepurchase at the Option of HoldersAsset Sales; in connection with any sale or other disposition of all of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the provisions set forth under the caption Description of NotesRepurchase at the Option of HoldersAsset Sales; if such Guarantor is a Restricted Subsidiary and the Company designates such Guarantor (or any parent entity thereof) as an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; upon repayment in full of the Notes or upon Legal Defeasance or Covenant Defeasance as described under the caption Description of NotesLegal Defeasance and Covenant Defeasance or upon satisfaction and discharge of the Indenture as described under the caption Description of NotesSatisfaction and Discharge; upon the liquidation or dissolution of such Guarantor provided no Default or Event of Default has occurred or is continuing; as described under Description of NotesAmendments and Waivers; upon such Guarantor consolidating with, merging into or transferring all of its properties or assets to the Company or another Guarantor, and as a result of, or in connection with, such transaction such Guarantor dissolving or otherwise ceasing to exist; as described in the fourth paragraph of the covenant described under Description of NotesLimitation on Note Guarantees of Indebtedness by Restricted Subsidiaries; or with respect to the Subordinated Guarantee, in connection with certain enforcement actions taken by the creditors under the Ebok Intercreditor Agreement or any Pari Passu Intercreditor Agreement.

See Description of Certain Financing ArrangementsEbok Intercreditor Agreement. We are subject to English insolvency laws, which may not be as favorable to you as those of another jurisdiction with which you may be familiar The English insolvency statutes empower English courts to make an administration order in respect of an English company. An administration order can be made if the court is satisfied that the relevant company is or is likely to become unable to pay its debts and that the administration order is reasonably likely to achieve the purpose of administration. Alternatively, the holder of a qualifying floating charge over the assets of an English company may appoint an administrator out of court, provided such floating charge has become enforceable. In this case, there is no requirement under the Insolvency Act of 1986 (the Insolvency Act) to show that the company is or is likely to become insolvent; however, the prospective administrator must be satisfied that the purpose of administration is reasonably likely to be achieved. An English company or the directors of such company may also appoint an administrator out of court if the company is or is likely to become unable to pay its debts as they fall due. The purpose of an administration is comprised of three parts which must be looked at successively: rescuing the company as a going concern or, if that is not reasonably practicable, achieving a better result for the companys creditors as a whole than would be likely if the company were wound up without first being in administration or, if neither of those objectives are reasonably practicable, and the interests of the creditors as a whole are not unnecessarily harmed thereby, realizing the value of property to make a distribution to one or more secured or preferential creditors. 47

The rights of creditors, including secured creditors, are particularly curtailed in an administration. Upon the appointment of an administrator, no step may be taken to enforce security over the companys property, except with the consent of the administrator or leave of the court. The same requirements for consent or leave apply to the commencement or institution of legal process (including legal proceedings, execution, distress or diligence) against the company or property of the company. In either case, a court will consider discretionary factors in determining any application for leave, in light of the hierarchy of statutory objectives of administration described above. Accordingly, if either we or a Guarantor incorporated in England were to enter into administration proceedings, the Notes and the Note Guarantees and the related security from us or such Guarantor could not be enforced while the relevant company was in administration, without the leave of the court or consent of the administrator. There can be no assurance that the security agent would obtain this leave of the court or consent of the administrator. In addition, an administrator is given wide powers to conduct the business and, subject to certain requirements under the Insolvency Act 1986, dispose of the property of a company in administration. However, the general prohibition against enforcement by secured creditors without consent of the administrator or leave of the court, and the administrators powers with respect to floating and other security, do not apply to any security interest created or arising under a financial collateral arrangement within the meaning of the Financial Collateral Agreements (No. 2) Regulations 2003 (UK). A financial collateral arrangement includes (subject to certain other conditions) a pledge over shares in a company, where both the collateral provider and collateral taker are non-natural persons. In addition to administration, the English courts have power under English insolvency law to wind-up a company that is unable to pay its debts (under Section 123 of the Insolvency Act). Any creditor, the company, the directors of the company or any of the companys shareholders may apply to the court for the winding up of a company. Any disposition of the companys property and any transfer of shares after commencement of the winding-up is void unless sanctioned by the court. Once a winding-up order is made, a stay on all proceedings against the company will be imposed. No legal action may be continued or commenced against the company without leave of the court. Alternatively, the shareholders and creditors of a company have the power to appoint a liquidator to the company where the company is insolvent. There is no automatic stay on proceedings against the company, however a liquidator (or creditor or shareholder) may apply to the court for such a stay. A liquidator has the power to disclaim any onerous property, which is any unprofitable contract and any other property of the company that cannot be sold, readily sold or may give rise to a liability to pay money or perform any other onerous act. A contract may be unprofitable if it gives rise to prospective liabilities and imposes continuing financial obligations on the company that may be detrimental to creditors. However, this power does not apply to an executed contract nor can it be used to disturb accrued rights and liabilities. The effect of liquidation is to bring the companys business to an end (except as far as it is needed to continue as part of the winding-up process), ensures that the assets of the company are used to pay off its debts and that creditors in the same class are treated equally. Under English insolvency law, the liquidator or administrator of a company may, among other things, apply to the court to unwind a transaction entered into by such company, if such company was unable to pay its debts (as defined in section 123 of the Insolvency Act) at the time of, or as a result of, the transaction (although this requirement is presumed to be satisfied if the transaction relates to a connected person) and enters into liquidation or administration proceedings within two years of the completion of the transaction. A transaction might be subject to a challenge if it was entered into by a company at an undervalue, that is, it involved a gift by the company, the company received no consideration or the company received consideration of less value than the consideration provided by such company. A connected person includes directors or associates (including another company controlled by the same person) of the company. However, a court generally will not intervene if a company entered into the transaction in good faith for the purpose of carrying on its business and at the time it did so there were reasonable grounds for believing the transaction would benefit such company. We believe that the Notes will not be issued on terms which would amount to a transaction at an undervalue, that the offering is in good faith for the purposes of carrying on its business and that there are reasonable grounds for believing that the transaction will benefit us. However, there can be no assurance that the issuance of the Notes will not be challenged by a liquidator or administrator or that a court would support our analysis. Similarly, a liquidator or administrator of a Guarantor incorporated in England could apply to the court to unwind the issuance of its guarantee if such liquidator or administrator believed that issuance of such Note Guarantee constituted a transaction at an undervalue. The analysis of such a claim would generally be the same as set out above in relation to the issuance of the Notes. We believe that each Note Guarantee will not be provided in a transaction at an undervalue and that each Note Guarantee will be provided in good faith for the purposes of carrying on the business of each Guarantor 48

incorporated in England and its subsidiaries and that there are reasonable grounds for believing that the transactions will benefit each such Guarantor. However, there can be no assurance that the provision of the Note Guarantees will not be challenged by a liquidator or administrator or that a court would support its analysis. If the liquidator or administrator can show that we or one of our Guarantors have given preference to any person within six months of the onset of liquidation or administration (or two years if the preference is to a connected person) and, at the time of the preference, we or that Guarantor were technically insolvent or became so as a result of the preferential transaction, a court has the power, among other things, to void the preferential transaction. For these purposes, a company gives preference to a person if that person is one of the companys creditors (or a surety or guarantor for any of the companys debts or liabilities) and the company takes an action which has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position that person would have been in if such action had not been taken. The court may not make an order avoiding a preferential transaction unless it is satisfied that the company was influenced by a desire to put that person in a better position, as described above. This provision of English insolvency law may affect transactions entered into or payments made by us or any of our Guarantors during the relevant period prior to its liquidation or administration. In addition, if it can be shown that a transaction entered into by an English company was made for no consideration, less than fair value or was gifted by that company and the purpose of such transaction was to shield assets from creditors or otherwise prejudice the interests of creditors, then the transaction may be set aside as a transaction defrauding creditors. Any person who is a victim of the transaction, and not just liquidators or administrators, may assert such a claim. There is no statutory time limit within which a claim must be made and the company need not be insolvent at the time of the transaction. The holder of a qualifying floating charge that has been created since September 15, 2003 over all or substantially all of the assets of an English company can generally no longer appoint an administrative receiver of that company. There is, however, an exception to this rule that applies to certain capital markets transactions that are expected to incur at least 50 million of debt. Any interest accruing under or in respect of the Notes for any period from the date of commencement of administration or liquidation proceedings, to the extent not fully covered by the assets securing the Notes, could be recovered by holders of the Notes only from any surplus remaining after payment of all other debts provided in the proceeding and such interest accrued but was unpaid up to the date of the commencement of the proceeding. Under English insolvency law, certain preferential claims, including unpaid contributions to occupational pension schemes in respect of the twelve month period prior to insolvency, unpaid employees remuneration in respect of the four month period prior to insolvency, certain contracts entered into by the administrator and administrators remuneration and expenses, will, while ranking behind the claims of holders of fixed security, rank ahead of floating charges. In addition, a prescribed part of floating charge realizations (being 50% of the first 10,000 of net realizations and 20% of the net floating charge realizations hereafter, up to a maximum of 600,000) is required to be set aside for the benefit of unsecured creditors and, as such, ranks ahead of the relevant floating charge. Certain of the Guarantors are subject to Nigerian insolvency laws, which may not be as favorable to you as those of another jurisdiction with which you may be familiar Nigerian law empowers Nigerian courts in certain circumstances to appoint a receiver or manager for a Nigerian company. A court may, on the application of a debenture holder, trustee or person interested, appoint a receiver or manager if the court is satisfied that a debenture holder has become entitled to realize its security or the security or property of the company is in jeopardy. Alternatively, the holder of a debenture or trustee may appoint a receiver or manager out of court, provided such debenture has become enforceable and the debenture empowers the holder thereof to appoint a receiver or manager. In this case, there is no requirement under the CAMA to show that the company is or is likely to become insolvent. The purpose of appointing a receiver is to work towards paying outstanding debt or redeeming security or freeing property from some jeopardy for the benefit of creditors and debenture holders on whose behalf the appointment is made. In addition to appointing a receiver or manager, the Nigerian courts have power under Nigerian law to upon the petition of any creditor, the company, the directors of the company or any of the companys shareholders wind-up a company that is unable to pay its debts (under section 408 of the CAMA). Any disposition of the companys property and any transfer of shares after commencement of the winding-up is void unless sanctioned by the court. Once a winding-up order is made, a stay on all proceedings against the company will be imposed. No legal action may be continued or commenced against the company without leave of the court.

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Alternatively, the shareholders and creditors of a company have the power to appoint a liquidator to the company where the company is insolvent. There is no automatic stay on proceedings against the company, however a liquidator (or creditor or shareholder) may apply to the court for such a stay. A liquidator has the power to disclaim any onerous property, which is any unprofitable contract and any other property of the company that cannot be sold, readily sold or may give rise to a liability to pay money or perform any other onerous act. A contract may be unprofitable if it gives rise to prospective liabilities and imposes continuing financial obligations on the company that may be detrimental to creditors. However, this power does not apply to an executed contract nor can it be used to disturb accrued rights and liabilities. The effect of liquidation is to bring the companys business to an end (except as far as it is needed to continue as part of the winding-up process), and ensure that the assets of the company are used to pay off its debts and that creditors in the same class are treated equally. Under Nigerian insolvency law, the liquidator may, among other things, apply to the court to unwind a transaction entered into by such company, if such company was unable to pay its debts (as defined in section 409 of the CAMA) at the time of, or as a result of, the transaction. If the liquidator can show that any of our Nigerian Guarantors has given preference to any person within three months of the onset of liquidation, a court has the power, among other things, to void the preferential transaction. For these purposes, a company gives preference to a person if that person is one of the companys creditors (or a surety or guarantor for any of the companys debts or liabilities) and the company takes an action which has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position that person would have been in if that thing had not been done. The court may not make an order avoiding a preferential transaction unless it is satisfied that the company was influenced by a desire to put that person in a better position, as described above. There is no established trading market for the Notes There is no existing market for the Notes. We have applied to list the Notes on the Official List of the Luxembourg Stock Exchange and admit the Notes for trading on the Euro MTF Market of the Luxembourg Stock Exchange. The Initial Purchasers have informed us that they intend to make a market in the Notes after this Offering is completed, however, they are not obliged to do so and there can be no assurance that the Notes will be listed on the Luxembourg Stock Exchange or on any other exchange. If the Notes are not listed on an organized market prior to the date that is 45 days prior to the first interest payment date, we may redeem the Notes in whole, but not in part, at any time, at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, and additional amounts, if any, to the date of redemption. Any market making that is commenced may be halted at any time. If a market develops, the Notes could trade at prices that are lower than the initial price for the Notes. In addition, changes in the overall market for high yield securities and changes in our financial performance or in the markets in which we operate may adversely affect the liquidity of any trading market in the Notes that does develop and any market price quoted for the Notes. As a result, there can be no assurance that an active trading market will actually develop for the Notes. Historically, the markets for high yield debt such as the Notes have been subject to disruptions that have caused substantial volatility in their prices. Any market for the Notes may be subject to similar disruptions. Any disruptions may have an adverse effect on the holders of the Notes. You may not be able to recover in civil proceedings for U.S. securities laws violations The Notes will be issued by us, and we are incorporated under the laws of England and Wales. All of our members of senior management and the majority of our Directors and executives currently reside outside the United States and the substantial majority of our assets are currently located outside the United States. As a result, you may be unable to effect service of process within the United States, or to recover on judgments of U.S. courts in any civil proceedings under the U.S. federal securities laws. In addition, original actions or actions for the enforcement of judgments of U.S. courts with respect to civil liabilities solely under the federal securities laws of the United States are not enforceable in England and Wales. See Service of Process and Enforcement of Civil Liabilities. Transfers of the Notes will be subject to certain restrictions The Notes have not been and will not be registered under the U.S. Securities Act or any U.S. state securities laws. You may not offer or sell the Notes, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. You should read the discussion under the heading Notice to Investors for further information about these transfer restrictions. It is your obligation to ensure that your offers and sales of Notes within the United States and other countries comply with any applicable securities laws.

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The Notes may only be transferred to investors outside the United States purchasing in offshore transactions pursuant to Regulation S or to qualified institutional buyers within the United States purchasing in reliance on Rule 144A of the U.S. Securities Act. We may not be able to raise the funds necessary to finance a change of control offer required by the Indenture Under the terms of the Notes and the 2016 Notes, we are required to offer to repurchase the Notes and the 2016 Notes, as applicable, upon the occurrence of a change of control as defined in the Indenture governing the Notes and the indenture governing the 2016 Notes. See Description of NotesPurchase of Notes upon a Change of Control. We may be unable to raise sufficient funds or be unable to raise sufficient financing on favorable terms at the time of a change of control to repurchase the Notes and the 2016 Notes. You may face currency exchange risks by investing in the notes The Notes will be denominated and payable in U.S. dollars. If you measure your investment returns by reference to a currency other than the currency of the Notes, investment in the Notes will entail foreign currency exchange-related risks due to, among other factors, possible significant changes in the value of the U.S. dollar relative to the currency you use to measure your investment returns, caused by economic, political and other factors which affect exchange rates and over which we have no control. Depreciation of the U.S. dollar against the currency by reference to which you measure your investment returns would cause a decrease in the effective yield of the Notes below their stated coupon rates and could result in a loss to you when the return on the Notes is translated into the currency by reference to which you measure your investment returns. There may be tax consequences for you as a result of any foreign currency exchange gains or losses resulting from your investment in the Notes. You should consult your tax advisor concerning the tax consequences to you of acquiring, holding and disposing of the Notes.

51

USE OF PROCEEDS Use of Proceeds The net proceeds from the sale of the Notes are expected to be approximately $294.5 million. We will use the proceeds from the Offering (i) to repay and cancel the BNPP/VTB Facility and (ii) for general corporate purposes. For descriptions of our current indebtedness, see Description of Certain Financing Arrangements. See also Capitalization.

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CAPITALIZATION The following table sets forth Afren plcs cash and cash equivalents and capitalization as of October 31, 2011 on a historical basis and as adjusted to reflect the issuance of the Notes, including application of the net proceeds of the offering of the Notes as described in Use of Proceeds, as if these events had occurred on October 31, 2011. The historical consolidated financial information has been derived from our unaudited interim condensed consolidated financial statements as of October 31, 2011 prepared in accordance with IAS 34 included elsewhere in this Offering Memorandum except that those statements exclude the required interim disclosures relating to the segments of the business. This table should be read in conjunction with Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Description of Certain Financing Arrangements and the consolidated financial statements and the accompanying notes appearing elsewhere in this Offering Memorandum. Except as set forth below, there have been no other material changes to our capitalization since October 31, 2011.
Historical As of October 31, 2011 Adjustments As Adjusted (in thousands of $)

Cash and cash equivalents(1) ................................................................... Borrowings: Notes(2) ................................................................................................... Ebok Facility .......................................................................................... 2016 Notes ............................................................................................. BNPP/VTB Facility (drawing November 2011)(3) ................................. BNPP/VTB Facility (drawing February 2012)(4) ................................... BNPP/VTB repayment(5) ....................................................................... Socar Facility ............................................................................................. Less deferred financing costs(6) .................................................................. Total borrowings ...................................................................................... Total equity .............................................................................................. Total capitalization(7) ...............................................................................
(1)

279,456 217,807 500,000 50,000 (25,517) 742,290 1,142,571 1,884,861

100,000 300,000 100,000 100,000 (200,000) 300,000 300,000

379,456 300,000 217,807 500,000 50,000 (25,517) 1,042,290 1,142,571 2,184,861

A portion of our cash and cash equivalents is held in reserve and other project accounts and is not currently available for use. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity. The original issue discount will be treated as an expense of the Offering. Such original issue discount and the fees and other expenses associated with the Offering have not been deducted from cash and cash equivalents. The Notes have been reflected in the table at their aggregate principal amount excluding issuance costs, which will be amortized over the life of the Notes as additional interest expense. We intend to use a portion of the net proceeds from the Offering of the Notes to repay and cancel the BNPP/VTB Facility and for general corporate purposes. See Use of Proceeds. We drew $100 million under the BNPP/VTB Facility in early November 2011 to fund the payments in connection with the Ain Sifni block in December 2011 and January 2012. We expect to repay the BNPP/VTB Facility in full on the Issue Date using a portion of the proceeds from the offering of the Notes. See Use of Proceeds. We drew $100 million under the BNPP/VTB Facility with a utilization date of March 1, 2012 to fund a portion of the final payment on the Barda Rash acquisition. We expect to repay the BNPP/VTB Facility in full on the Issue Date using a portion of the proceeds from the offering of the Notes. See Use of Proceeds. Repayment amount excludes accrued and unpaid interest and fees, if any, to the date of repayment. Does not reflect deferred financing costs in connection with the Notes. Capitalization is calculated as the sum of total borrowings and total equity.

(2)

(3)

(4)

(5) (6) (7)

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SELECTED FINANCIAL DATA The following tables present selected consolidated financial data for Afren plc. The financial statement data presented as at and for each of the years ended December 31, 2008, 2009 and 2010, and has been derived from our audited annual financial statements, included elsewhere in this Offering Memorandum, except that certain 2008 information has been derived from the comparative information included in the annual financial statements for the year ended December 31, 2009 to reflect the finalization of preliminary fair values in line with IFRS 3, Business Combinations, as described in Presentation of Financial and Other Information. The financial statement data for and for the ten months ended October 31, 2010 and 2011 has been derived from our unaudited interim financial statements, included elsewhere in this Offering Memorandum. The unaudited interim financial statements have been prepared using the same accounting principles and on the same basis as the audited annual financial statements for the year ended December 31, 2010 and include certain normal recurring adjustments that management considers necessary for a fair representation of interim results. These interim results are not necessarily indicative of full year results. The financial information for the twelve months ended October 31, 2011 is unaudited and has been calculated by aggregating the income statement data for the twelve months ended December 31, 2010 and the income statement data for the ten months ended October 31, 2011 and subtracting the unaudited income statement data for the ten months ended October 31, 2010. The financial statement data in the following tables should be read in conjunction with Presentation of Financial and Other InformationFinancial InformationNon-IFRS Financial Measures, Capitalization, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Selected Financial Data and our interim and annual financial statements and related notes included elsewhere in this Offering Memorandum. Interim results may not be indicative of full-year results and historical results may not necessarily be indicative of results that may be expected for any future period. We operate in markets that have historically exhibited fluctuations due to current market rates for oil and gas. These fluctuations may result in volatility in our operating results. Summary of Afren plc Consolidated Financial Data Consolidated Income Statement Data
Year ended December 31, Ten months ended October 31, Twelve months ended October 31, 2011

2008

2009

2010 2010 (in thousands of $)

2011

Revenue ............................................................................. Cost of sales ...................................................................... Gross (loss)/profit.............................................................. Operating (loss)/profit ....................................................... Finance costs ..................................................................... (Loss)/profit from continuing activities before taxes ........ Income tax expense ........................................................... (Loss)/profit from continuing activities after taxes ........... Consolidated Balance Sheet Data

42,501 335,818 319,447 298,920 404,026 424,553 (70,537) (230,036) (190,451) (171,574) (212,201) (231,078) (28,036) 105,782 128,996 127,346 191,825 193,475 (44,057) 45,791 88,988 94,576 160,555 154,967 (25,760) (36,950) (11,320) (9,861) (46,306) (47,765) (55,602) 483 78,796 78,550 132,747 132,993 (520) (17,261) (32,923) (29,120) (66,560) (70,763) (56,122) (16,778) 45,873 49,430 66,187 62,630

As at December 31, As at October 31, 2011

2008

2009 2010 (in thousands of $)

Non-current assets ................................................................................. Current assets ......................................................................................... 54

710,738 211,403

683,969 416,013

1,223,057 220,619

2,203,131 519,458

Assets held for sale ................................................................................ Total assets ............................................................................................ Current liabilities ................................................................................... Non-current liabilities ............................................................................ Total liabilities ....................................................................................... Net current (liabilities)/assets ................................................................ Net assets ............................................................................................... Share capital .......................................................................................... Share premium ....................................................................................... Merger reserves ..................................................................................... Other reserves ........................................................................................ (Accumulated losses)/retained earnings ................................................ Total equity ............................................................................................ Consolidated Cash Flow Statement Data

922,141 (256,973) (314,222) (571,195) (45,570) 350,946 8,806 446,958 18,173 (122,991) 350,946

1,099,982 (257,613) (184,121) (441,734) 158,400 658,248 15,702 755,169 17,272 (129,895) 658,248

2,812 1,446,488 2,722,589 (310,218) (682,845) (277,555) (897,173) (587,773) (1,580,018) (86,787) (163,187) 858,715 1,142,571 17,007 18,617 896,812 914,024 179,358 22,764 24,550 (77,868) 6,022 858,715 1,142,571

Year ended December 31, 2008 2009 2010 (in thousands of $)

Ten months ended October 31, 2010 2011

Net cash (used)/generated in operating activities............... Net cash used in investing activities .................................. Net cash provided by/(used) in financing activities ........... Other Financial Data

(26,811) (459,418) 526,909

278,288 (209,059) 137,416

209,317 (368,188) (22,436)

128,627 (274,024) (50,680)

241,307 (708,217) 606,350

As of and for the year ended December 31,

As of and for the ten months ended October 31, As of and for the twelve months ended October 31, 2011(1)

2008

2009

EBITDAX(2) ................................................................................... Adjusted EBITDAX(2) .................................................................... Net debt/(cash)(3)............................................................................. Finance costs .................................................................................. Net debt/Adjusted EBITDAX ......................................................... Adjusted EBITDAX/finance costs .................................................. Capital expenditures(4) ....................................................................
(1)

2010 2010 2011 (in thousands of $ except ratios)

33,114 (7,162) 287,445 25,760 555,932

190,731 245,103 (54,232) 36,950 6.63x 150,173

185,411 200,226 127,500 11,320 0.64x 17.69x 624,212

166,460 283,450 177,338 295,979 113,437 462,834 9,861 46,306 0.64x 1.56x 17.98x 6.39x 535,723 1,051,356

302,401 318,867 462,834 47,765 1.45x 6.68x 1,139,845

The financial information for the twelve months ended October 31, 2011 is unaudited and has been calculated by aggregating the income statement data for the twelve months ended December 31, 2010 and the income statement data for the ten months ended October 31, 2011 and subtracting the income statement data for the ten months ended October 31, 2010. Balance sheet information is presented as of October 31, 2011. EBITDAX is a non-IFRS measure commonly defined as earnings before interest, taxes, depreciation, depletion and amortization and exploration costs. We further adjust for investment revenue and impairment charges (reversal) of oil and gas assets.

(2)

Adjusted EBITDAX is defined as EBITDAX, less market-to-market changes in derivative financial instruments and share-based payments charge. We believe that EBITDAX and Adjusted EBITDAX are useful to investors in evaluating our operating performance and our ability to incur and service our indebtedness. EBITDAX, Adjusted EBITDAX and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing EBITDAX or Adjusted EBITDAX as reported by us to EBITDAX or Adjusted EBITDAX of other companies. For more information, see Presentation of Financial and Other InformationFinancial InformationNon-IFRS Financial Measures. The following table reconciles net income to EBITDAX and Adjusted EBITDAX for the periods indicated. 55

Year ended December 31,

Ten months ended October 31, Twelve months ended October 31, 2011 62,630 70,363 (386) 47,765 1,491 120,538 302,401 11,780 4,686 318,867

2008 (Loss)/profit from continuing activities after tax ............................................ Income tax expense ......................................................................................... Investment revenue ......................................................................................... Finance costs ................................................................................................... Impairment charges (reversal) of oil and gas assets(a) .................................... Depreciation, depletion and amortization ....................................................... EBITDAX........................................................................................................ Share based payments charge.......................................................................... Derivative financial instruments (unrealized)(b) .............................................. Adjusted EBITDAX ........................................................................................ (a) (b) (56,122) 520 (5,286) 25,760 38,212 30,030 33,114 10,819 (51,095) (7,162)

2009 (16,778) 17,261 (626) 36,950 (859) 154,783 190,731 9,292 45,080 245,103

2010 2010 (in thousands of $) 45,873 49,430 32,923 29,120 (298) (280) 11,320 9,861 1,614 956 93,979 77,373 185,411 166,460 8,333 7,541 6,482 3,337 200,226 177,338

2011 66,187 66,560 (368) 46,306 833 103,932 283,450 10,988 1,541 295,979

Impairment charges (reversal) of oil and gas assets includes exploration and evaluation expenditures. Derivative financial instruments (unrealized) reconciles to the amount of derivative financial instruments shown on the consolidated income statement as follows: Year ended December 31, Ten months ended October 31, Twelve months ended October 31, 2011 (4,686) (9,065) (13,751)

2008 Unrealized........................................................................................................... Realized .............................................................................................................. Total ................................................................................................................... (3) (4) Net debt is defined as total borrowings less cash and cash equivalents. 51,095 3,587 54,682

2009 (45,080) 11,445 (33,635)

2010 2010 (in thousands of $) (6,482) (3,337) (2,412) (1,498) (8,894) (4,835)

2011 (1,541) (8,151) (9,692)

Capital Expenditures includes capital expenditures, acquisition costs, capitalized finance costs and decommissioning costs. For a further description of our Capital Expenditures, see Managements Discussion and Analysis of Financial Condition and Results of OperationsCapital Expenditures.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We encourage you to read the following discussion in conjunction with the section entitled Selected Financial Data as well as with our consolidated financial statements and the related notes thereto included elsewhere in this Offering Memorandum. Unless otherwise indicated, all production figures are presented on a net basis. Where gross amounts are indicated, they are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest, where applicable, and effective working interest in the relevant fields and license areas are separately disclosed. See Description of Our Assets. The following discussion includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. For a discussion of some of those risks and uncertainties please refer to the sections entitled Forward Looking Statements and Risk Factors. Overview We are a leading independent oil and gas exploration and production company focused on the exploration, development and production of oil and gas assets. We have a balanced and diverse portfolio of 29 assets with reserves, development opportunities and exploration prospects across twelve countries. We were founded in December 2004 and within seven years established ourselves as a significant independent upstream company in Sub-Saharan Africas key offshore and onshore hydrocarbon basins and exploration fairways. We have recently extended our footprint beyond greater Africa through the acquisition of two assets in the Kurdistan Region of Iraq, an area that offers a full spectrum of oil and gas exploration development and production opportunities. Our resulting portfolio positions us in the worlds top twelve oil producing countries and top ten proved oil reserve holding countries. Prior to 2008, our operating activities comprised primarily exploration activities, and we had no producing assets and no revenues. We produced our first oil in June 2008, when the Okoro field in Nigeria was brought into production. In September 2008, we acquired Devon Energys interests in Cte dIvoire, which included producing oil and gas assets (the Cte dIvoire Assets). In April 2011, production commenced at our Ebok field. We also have development assets in Nigeria and the Kurdistan Region of Iraq and exploration assets in Nigeria, Congo-Brazzaville, offshore Nigeria and So Tom & Prncipe JDZ, Ghana, Kenya, Ethiopia, Madagascar, Seychelles, Tanzania and South Africa. The key trends in the financial statements during the periods under review are as follows: the announcement of the acquisition of interests in the Barda Rash block and Ain Sifni block on July 27, 2011, followed by the completion of the acquisition of the interest in the Barda Rash block on September 7, 2011 and the completion of the acquisition of the interest in the Ain Sifni block on November 2, 2011; the commencement of production at the Ebok field in April 2011; the completion of the Black Marlin Acquisition in October 7, 2010; the completion of the acquisition of the Cte dIvoire Assets on September 23, 2008; the commencement of revenues in 2008 resulting from production at the Okoro field beginning in June 2008; the increases in non-current assets at each of October, 31, 2011, December 31, 2010, December 31, 2009 and December 31, 2008, in each case as compared with the prior balance sheet date, which have been driven by: investment in the development of the Ebok field during 2011, 2010, 2009 and 2008, which was partly offset by depreciation on the Okoro field; investment in the development of the Okoro field during 2008; the acquisition of the Cte dIvoire Assets in September 2008 and the Black Marlin Acquisition in October 2010; and investment in other intangible oil and gas assets;

57

the increases in liabilities at December 31, 2008 driven by debt financing incurred in relation to the development of the Okoro field and the acquisition financing for the Cte dIvoire Assets; the subsequent decrease in liabilities at December 31, 2009 as a result of voluntary debt repayment; the increase in liabilities at December 31, 2010 reflecting higher deferred tax and trade and other payables; and the increase in liabilities at October 31, 2011 reflecting additional debt incurred pursuant to the 2016 Notes and accrued costs in connection with the Kurdistan Acquisitions; increases in equity in the years ended December 31, 2008, 2009 and 2010 and the ten months ended October 31, 2011, resulting primarily from private placements in April 2008, May 2009, December 2009 and July 2011 and the early conversion of convertible bonds in July 2008; and an after tax profit for the year ended December 31, 2010 following our history of losses that were due primarily to the incurrence of general and administrative costs, pre-production operating costs, finance costs and impairments in periods prior to our first revenues, and which resulted in a substantial accumulated loss position.

Recent Developments Recent Acquisitions We completed the acquisition of a 60% interest in the Barda Rash production sharing contract on September 7, 2011 and the acquisition of a 20% interest in the Ain Sifni production sharing contract on November 2, 2011. RPS has estimated gross contingent resources at the Barda Rash block and the Ain Sifni block to be 1,473 mmbls (2C). We are currently developing our exploration and production program at both fields, with production anticipated at Barda Rash in the second half of 2012. The total acquisition cost was $588.4 million, of which $418.5 million related to the acquisition of the 60% interest in the Barda Rash production sharing contract and $169.9 million related to the acquisition of the 20% interest in the Ain Sifni production sharing contract. The initial payment for the Kurdistan Acquisitions were financed through a corporate credit facility (the BNPP/VTB Facility) ($100 million) in combination with equity financing ($184.5 million) and cash on hand. We drew $100 million under the BNPP/VTB Facility in early November 2011 to fund the payments in connection with the Ain Sifni block in December 2011 and January 2012. A portion of the acquisition costs for the Kurdistan Acquisitions were deferred until 2012 with a final payment of $190.5 million due in early March 2012 in connection with the Barda Rash acquisition. We intend to fund the final payment on the Barda Rash acquisition in part through an additional draw-down of $100 million under the BNPP/VTB Facility and cash on hand. We expect to repay the BNPP/VTB Facility in full on the Issue Date using a portion of the proceeds from the offering of the Notes. See Use of Proceeds. The assets were originally capitalized on our balance sheet as intangible assets as neither asset had an approved field development plan. Thereafter, on November 22, 2011, following approval of the field development plan for the Barda Rash block, the Barda Rash assets were reclassified as tangible assets. Ain Sifni assets remain classified as intangible assets during the exploration and appraisal phase. For 2012, we anticipate that 26% of our capital expenditure in connection with development activities will be allocated to the Barda Rash block. However, this estimate is under continuous review and is subject to ongoing adjustment depending on the success of project phases. On March 24, 2011, we acquired a 74% interest in the Tanga Block in Tanzania and on October 26, 2011 we acquired a 25% interest in the Block 2B in South Africa, which remains subject to a final government approval expected during the first half of 2012. The acquisition cost for the interests in the Tanga Block and the Block 2B were $2.8 million and $750,000, respectively. The acquisition costs were financed with cash on hand. We do not anticipate that administrative costs or cost of sales will increase in connection with these acquisitions. See also Our BusinessKurdistan Region of Iraq, Our BusinessEast and Southern AfricaTanzaniaTanga BlockField Development Plan and Outlook and Our BusinessEast and Southern AfricaSouth AfricaBlock 2BField Development Plan and Outlook. Ebok Production and 2011 Exit Rate In April 2011, we commenced production at the Ebok field, with production increasing to an exit rate of approximately 40,000 bopd at the end of December 2011. Ebok Phase 1 is now complete following the successful commissioning of all 14 production wells. Reservoir performance and well deliverability recorded at the field to date are in line with our expectations, with production progressing and regular crude oil offtake operations running smoothly. Production at Ebok ramped up significantly during the last two months of 2011, with two liftings in December 2011. Phase 2 of development is underway, and we are initially drilling four wells in the D1 and LD-1F reservoirs.

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Okoro East Exploration Well During December 2011 and January 2012, we successfully drilled an exploration well at the Okoro East field which has similar sub-surface characteristics to the main Okoro field and is estimated to have similar resource potential. The well encountered 549 feet true vertical thickness of net oil pay (580 feet gross) and 41 feet of net gas pay. We have completed logging operations, and testing operations are underway to determine the optimal development of the discovery. We expect to drill one development well from the existing unmanned wellhead platform at the Okoro field. Funding costs associated with the drilling of this well was shared 50/50 with our partner, Amni. See also Our BusinessNigeriaOkoro and Setu (OML 112)Field Development Plan and Outlook. Farm-down Agreement at the Keta Block On October 25, 2011, we completed the farm-down of a 35% working interest and transfer of operatorship of the Keta Block to Eni. Under the terms of the farm-down, we will receive a 100% carry up to $80 million gross costs through the drilling of one exploration well, as well as back costs and a carry through future seismic acquisition. First Hydrocarbon Nigeria Acquisition of OML 26 On December 1, 2011, First Hydrocarbon Nigeria, a Nigerian company in which we hold a 45% interest, completed the acquisition of a 45% interest in OML 26 through its wholly-owned subsidiary, FHN 26. OML 26 is located onshore Nigeria and holds two producing assets, the Ogini and Isoko fields, and three discovered but undeveloped assets, the Aboh, Ozoro and Ovo fields. As a result of our shareholding interest, First Hydrocarbon Nigerias profit/loss is proportionately reflected in our income statement in the line item Share of gain/(loss) of an associate. Therefore, the future results of any production and development at OML 26 may impact our financial results. Cost recovery at Okoro Cost-recovery of the initial development expenditure at the Okoro field was reached in mid-2010. During the initial cost recovery period we were entitled to 95% of the distributable revenues, after which our entitlement reverted to our 50% interest. In the fourth quarter of 2011, our cost-recovery increased to approximately 75% in connection with the drilling of two additional infill wells that we funded 100%. We achieved cost-recovery in January 2012 and, following this, our working interest again reverted to 50%. Future capital expenditure is expected to be funded 50/50 with our partner, Amni. For a description of contractual arrangements with respect to Okoro, see Our BusinessMaterial Agreements Relating to Our AssetsOkoro and Setu. Significant Factors Affecting Results of Operations Price of crude oil Our operations are significantly affected by the prevailing price of crude oil. Crude oil prices have historically been highly volatile and dependent upon the balance between supply and demand and particularly sensitive to OPEC production levels. We commenced production at Okoro in June 2008 and at Ebok in April 2011. The average Brent quotation increased by 42.4% from $75.9 for the ten months ended October 31, 2010 to $108.0 for the ten months ended October 31, 2011. The average Brent quotation decreased by 39.0% from $101.2 per barrel for the year ended December 31, 2008 to $61.7 per barrel for the year ended December 31, 2009, and thereafter increased by 25.4% to $77.4 per barrel for the year ended December 31, 2010. The following table presents information on Brent crude oil prices during our periods of production.
Year ended December 31, 2008 2009 2010 (in $/bbl) Ten months ended October 31, 2010 2011

Average price for the period .................................................................. Highest price for the period ................................................................... Lowest price for the period ....................................................................
Source: Bloomberg, Platts

101.23 147.54 50.08

61.70 79.18 36.24

77.35 94.00 67.57

75.89 86.79 67.57

108.03 126.65 93.69

59

Volatility and future decreases in crude oil prices could materially and adversely affect our business, prospects, financial condition and results of operations. We attempt to moderate our exposure to the risk of changes in oil price through limited use of derivative financial instruments. See Derivative financial instruments. Our oil sales are based on various benchmark prices. However, we use Brent crude prices, with adjustments for quality, transportation, feed and a regional price differential, as a proxy for market prices. The size of the lifting is also a factor in our average price per barrel. In December 2009 we began using the Ima Terminal, an oil and gas terminal onshore Nigeria owned by our partner, Amni, to optimize our production margins at Okoro. By transporting oil from Okoro to the Ima Terminal, we increased our batch size and through economies of scale achieved an improved pricing differential against Brent as compared with smaller cargos previously loaded directly from the FSO. This approach has improved our gross profit at Okoro as compared with direct FSO lifting on an ongoing basis through an increase in revenue (oil priced at a premium to Brent as a result of larger cargos) which was partially offset by an increase in cost of salesoperating expenses (terminal usage costs, transportation and fuel costs). For the year ended December 31, 2010, the differential against Brent improved by approximately $4 per barrel which more than offset the approximately $2.5 per barrel increase in operating costs. Ebok crude oil production is exported and sold via the FSO and the average cargo size has been approximately 700,000 bbls. Production volumes In addition to oil prices, production volumes are our other primary revenue driver. Our production levels also affect the level of our reserves and depreciation. The volume of our crude oil and gas resources and production volumes may be lower than estimated or expected. At the Ebok field production commenced in April 2011. For the ten months ended October 31, 2011, gross production at Ebok was approximately 1.8 mmbbls (average gross daily production rate of approximately 9,800 bopd). However, production ramped-up substantially during the last two months of 2011, and we achieved a stabilized exit rate of approximately 40,000 bopd. We commenced production at the Okoro field in 2008 with the first lifting in October 2008. For the ten months ended October 31, 2011, gross production at Okoro was approximately 4.7 mmbbls (average gross daily production rate of approximately 15,600 bopd). Two infill wells were brought onstream during April 2011 increasing gross production by approximately 1.0 mmbbls (average gross daily production rate of approximately 4,900 bopd). In Cte dIvoire, for the ten months ended October 31, 2011 gross production at Block CI-11 was approximately 3.8 bcf and approximately 0.2 mmbbls, equivalent to average gross daily production rates of approximately 12.5 mmcfd and 800 bopd, respectively. Over the same period, natural gas liquids output at the Lion Gas Plant was equivalent to an average gross daily production rate of approximately 575 boepd. Production in Cte dIvoire during the ten months ended October 31, 2011 was below expectation due to the impact of political and social unrest delaying the import of necessary equipment and resources required to conduct routine maintenance of the compressor unit during the first quarter of 2011. Following completion of necessary work, gas production at Block CI-11 was restored to a gross rate of 22.0 mmcfd by November 2011. The Lion Gas Plant also received reduced third party inlet volumes from adjacent blocks operated by CNR during the ten months ended October 31, 2011 which we understand was due to offshore mechanical difficulties experienced by CNR. This, in turn, reduced tariff revenue from the use of our Block CI-11 pipeline infrastructure. The following table presents information on our effective working interest oil and gas production. We commenced production at Okoro in June 2008 and at Ebok in April 2011, and we did not produce in any prior period.
Year ended December 31, 2008 2009 2010 (annualized) Ten months ended October 31, 2010 2011 (averaged over ten months)

Average oil production (bopd) .............................................................. Total oil production (mmbbl) ............................................................... Average condensate/LPG production (boepd) ...................................... Total condensate/LPG production (mmboe) ......................................... Average gas production (mmcfd) ......................................................... Total gas production (bcf)..................................................................... Total average production (boepd) ......................................................... Total production (mmboe) ....................................................................

3,287 1.2 274 0.1 1.8 0.6 3,866 1.4

18,461 6.7 1,143 0.4 14.3 5.2 22,064 8.1

11,693 4.3 721 0.3 11.1 4.1 14,300 5.2

12,275 3.9 774 0.2 12.7 3.9 15,700 4.8

14,445 4.4 575 0.2 6.0 1.8 16,100 4.9

60

Derivative financial instruments In 2007 and 2008, we entered into derivative financial instruments with respect to a portion of our production from Okoro and Block CI-11, such that we will receive a minimum price if the market price falls below certain levels, but will be subject to a discount from the market price if the oil price is above the minimum level. The hedged volume of our production diminishes according to a schedule set forth in each hedging agreement. For further description of these arrangements, see Qualitative and Quantitative Disclosures about Market RiskCommodity price risk management and Description of Certain Financing ArrangementsHedging Arrangements. These instruments are marked-to-market at each balance sheet date and any movements are reflected as income or expenses in our income statement. With volatile oil markets, there can be significant movement year on year. In 2008, we had derivative financial instrument gain of $54.7 million, compared with derivative financial instrument loss of $33.6 million in 2009 and derivative financial instrument loss of $8.9 million in 2010. The instruments in relation to the Okoro field covered production through the end of 2011. The investments in relation to Block CI-11 cover production through June 2012. In February 2011 and May 2011, we purchased a number of deferred put options allowing us to sell approximately 5.9 mmbbl in the period from April 2011 to December 31, 2013 at a price of $90/bbl (1.5 mmbbl) and $80/bbl (4.4 mmbbl). Of these, 1.9 mmbbl of production were sold in 2011, 2.8 mmbbl of production will be sold in 2012 and 1.2 mmbbl of production will be sold in to 2013. The average cost of the hedges is $4.7/bbl, giving us effective protection and a price floor of $85.3/bbl in respect of the $90/bbl hedges and a price floor of $75.3/bbl in respect of the $80/bbl hedges. These instruments have been classified under IFRS as cash flow hedges, with a portion of the gains and losses on the instruments that are determined to be an effective hedge taken to equity and the ineffective portion, as well as any change in time value, recognized in the income statement for each period. In the ten months to October 31, 2011, we had realized and unrealized losses of $9.7 million in connection with derivative financial instruments, of which $8.2 million was realized. While historically our commodity hedging was tied to our borrowing base availability under our financings for Ebok and Okoro, our current commodity hedging strategy is based on risk mitigation and liquidity rather than just liquidity. Oil and gas reserves The costs of developing a field are spread over the life of the field based on the total net entitlement reserves and charged to net income based on our share of the number of barrels produced out of the total net entitlement reserves (the unit of production method of accounting under IFRS). The reserves of the field are based on the latest technical estimates based on production history, pressure measurements, porosity of source rock, estimates of likely reservoir limits and other factors, and cannot be known with certainty during the life of the field. If there is a significant change in the estimated net reserves for a producing field, the total costs will be spread over a smaller or larger reserves number significantly increasing or decreasing, respectively, the cost per barrel and therefore the total cost of sales in a period. These reserves will also underpin the total value of the field used for impairment calculations, so in very significant cases a reduction to the reserves estimate can lead to an impairment write-down. Exploration success and impairment We face risks in connection with our appraisal, exploration and development activities. There are risks inherent in our strategy of geographic diversification and acquisition of new exploration and development properties. Our success or failure in our exploration and appraisal activities will affect the level of our reserves and resources. In the ten months ended October 31, 2011, we had an impairment charge of $0.8 million primarily relating to the relinquishment of our interests in the licenses for Blocks 2 and 6 in Ethiopia. We had an impairment charge of $38.2 million, an impairment reversal of $0.9 million and an impairment charge of $1.6 million in the years ended December 31, 2008, 2009 and 2010, respectively, with respect to our oil and gas assets, following certain unsuccessful exploration and appraisal activities in 2008 and 2010. See Critical accounting policiesDepletion and amortizationoil and gas assets. Project success and impairment We face risks in connection with our project development and production activities. Our efficiency, safety, production technology and consistency in our drilling and extraction activities affect our costs as well as our level of production. Our capital expenditure is dependent on the number of wells that we drill, our efficiency in drilling such wells and our need for vehicles, drilling rigs and other facilities and equipment, which may be impacted by geological conditions and environmental and other factors. There are risks inherent in our geographic areas of operation and our activities may be affected by insurgent groups or community disturbances. The value of our developments and producing fields are reviewed 61

at least semi-annually to compare the expected value of the asset (based on discounted cash flows) with the carried value on our balance sheet. If the expected value is lower than the carried value, any impairment is written down as accelerated depreciation in the period. For a further description, see Critical accounting policiesDepletion and amortizationoil and gas assets. Acquisitions One of our strategies is to seek out and pursue selective acquisition opportunities where we have strategic and competitive advantages. Our results may be positively affected by successful acquisitions. However, we may direct significant resources to identifying and evaluating potential acquisition opportunities, without any assurance that an acquisition will be completed successfully. To the extent that the purchase price for any acquisition is paid in cash, such acquisition would affect our liquidity and cash position in the relevant period. We acquired Devon Energys interests in Cte dIvoire in September 2008. We also acquired Black Marlin in an all equity transaction that completed on October 7, 2010. On December 1, 2011, First Hydrocarbon Nigeria, a Nigerian company in which we hold a 45% interest, announced the completion of its acquisition of a 45% interest in OML 26 through its wholly owned subsidiary, FHN 26, from Shell Petroleum Development Company of Nigeria Ltd, Total E&P Nigeria Ltd and Nigeria Agip Oil Company. In September 2011, we completed the acquisition of a 60% interest in the Barda Rash production sharing contract, and in November 2011, we completed the acquisition of a 20% interest in the Ain Sifni production sharing contract. In January 2011 and October 2011, we acquired two additional exploration blocks, a 75% interest in the Tanga Block production sharing contract in Tanzania and 50% interest in the Block 2B in South Africa production sharing contract, respectively. See also Our BusinessKurdistan Region of Iraq, Our BusinessDescription of Our Assets. Interest rates Our exposure to the risk of changes in market interest rates relates primarily to our borrowings under the Ebok Facility, the BNPP/VTB Facility and the Socar Facility, each of which currently has floating interest rates. We have historically managed interest rate risk using a mix of fixed and variable rates on convertible bonds, loan notes, notes and bank borrowings. We may be affected by changes in market interest rates at the time we need to refinance any of our borrowings. Exchange rates Our results are somewhat affected by changes in the $/ exchange rate, as a significant amount of our staffing and other administrative costs are denominated in pound sterling, and by the $/local currency exchange rates in relation to the countries in which we have operations, notably Nigeria, Cte dIvoire and Iraq. Overall cost-effectiveness of production Our profitability and cash flow are also affected by the cost-effectiveness of our production. We look at our Adjusted EBITDAX as a key indicator of our success. We calculate EBITDAX by adding back to our profit/(loss) before interest, taxes, impairments (including exploration and evaluation expenditures), depreciation, depletion and amortization. Adjusted EBITDAX is defined as EBITDAX, less unrealized derivative financial instruments and share-based payments charge. Our Adjusted EBITDAX measure provides additional information that may be used to better understand our operations. Neither EBITDAX nor Adjusted EBITDAX are measurements of performance under IFRS or U.S. GAAP and you should not consider EBITDAX and Adjusted EBITDAX as alternatives to (a) operating profit or profit for the year (as determined in accordance with IFRS) as a measure of our operating performance, (b) cash flows from operating, investing and financing activities as a measure of our ability to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. The following table reconciles net income to EBITDAX and Adjusted EBITDAX for the periods indicated.

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Year ended December 31,

Ten months ended October 31, Twelve months ended October 31 , 2011

2008

2009

2010 2010 (in thousands of $)

2011

(Loss)/profit from continuing operations after tax ...................................... Income tax expense........... Investment revenue ........... Finance costs..................... Impairment charges (reversals) of oil and gas assets(a) ...................................... Depreciation, depletion and amortization ...................................... EBITDAX ......................... Share based payments charge ...................................... Derivative financial instruments (unrealized)(b) ...................................... Adjusted EBITDAX .........
(a) (b)

(56,122) (16,778) 520 17,261 (5,286) (626) 25,760 36,950 38,212 (859)

45,873 32,923 (298) 11,320 1,614

49,430 29,120 (280) 9,861 956

66,187 66,560 (368) 46,306 833

62,630 70,363 (386) 47,765 1,491 120,538 302,401 11,780 4,686 318,867

30,030 154,783 93,979 77,373 103,932 33,114 190,731 185,411 166,460 283,450 10,819 9,292 8,333 7,541 10,988

6,482 3,337 1,541 (51,095) 45,080 (7,162) 245,103 200,226 177,338 295,979

Impairment charges (reversals) of oil and gas assets include exploration and evaluation expenditures. Derivative financial instruments (unrealized) reconciles to the amount of derivative financial instruments shown on the consolidated income statement as follows: Year ended December 31, Ten months ended October 31, Twelve months ended October 31, 2011 (4,686) (9,065) (13,751)

2008 Unrealized.......................................... Realized ............................................. Total .................................................. 51,095 3,587 54,682

2009 (45,080) 11,445 (33,635)

2010 2010 (in thousands of $) (6,482) (3,337) (2,412) (1,498) (8,894) (4,835)

2011 (1,541) (8,151) (9,692)

Explanation of Income Statement Items Revenue Revenue consists of sales value, net of VAT and royalties paid in kind or where the financial obligation for the royalty does not fall directly to us, of our share of oil liftings in the period net of royalty together with gas and material tariff income. Oil and gas revenue is recognized when the product has been delivered to a custody transfer point, persuasive evidence of a sales arrangement exists, the rights and responsibilities of ownership pass to the purchaser upon delivery, collection of revenue from the sale is reasonably assured, and the sales price is fixed or determinable. Cost of Sales Our cost of sales consists primarily of operating expenses, depreciation, depletion and amortization, royalties paid by us in cash and oil stock provisions related to our producing assets. Cost of Salesoperating expenses Our operating expenses consist primarily of running costs or lease costs of production facilities (e.g. MOPU platform or FPSO), logistics costs, direct lifting costs, fuel and management costs.

63

Cost of Salesdepreciation, depletion and amortization Our depreciation, depletion and amortization costs consist primarily of allocations of acquisition, exploration, development, financing and expected future capital and abandonment costs. These are allocated on a unit-of-production basis except for the Lion Gas Plant where the costs are spread on a straight line basis over the expected life of the plant. Cost of Salesroyalties Our royalty cost consists of the cash liability for royalties due on our production to the relevant governments in the countries and regions in which we operate. Cost of Salesoil stock provisions Our oil stock provisions consist primarily of the value of the oil produced but not yet sold, valued at the lower of cost and realizable value. Administrative expenses Our administrative expenses consist primarily of employee expenses related to staff in our operating offices in Lagos, Nigeria, Abidjan, Cte dIvoire and Nairobi, Kenya as well as our technical office in Houston, USA and our corporate office in London, England. Other Operating Income/expenses Other operating income and expenses include mark-to-market movements of our oil price hedging instruments and unsuccessful exploration costs that are written off. Investment revenue Investment revenue primarily includes interest on bank deposits. Finance costs Finance costs include borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to develop for their intended use or sale. These financing costs are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Other financial costs of debt are allocated over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition of the liability and are amortized and charged to the income statement as finance costs over the term of the debt. Other gains and losses Other gains and losses include foreign exchange gains or losses and mark-to-market provisions for certain warrants issued to third parties for services. In addition, costs related to Gasol as an investment are included up until February 11, 2009 when our stake in Gasol increased and it became an associate company for accounting purposes. Income Taxes Income tax represents the sum of tax currently payable and deferred tax. The tax rates applicable are dependent on the tax regime relevant for the individual asset. Block CI-11 is a production sharing contract arrangement where the taxation is part of the governments share of the field. The Lion Gas Plant enjoys tax exempt status. The Okoro arrangement is subject to income tax under the Nigerian Companies Income Tax Act (CITA) at 30% and the Ebok field is a marginal field subject to marginal field tax terms with tax at 55%. In addition, production from both the Okoro field and Ebok field are also subject to an additional Education Tax of 2%. For a further description of the tax regimes applicable to our Nigerian assets, see Legal and Regulatory. Results of Operations The following table sets out certain of our historical revenue and expense items for the ten months ended October 31, 2010 and 2011 and for the years ended December 31, 2008, 2009 and 2010. 64

Ten months ended October 31, Years ended December 31, 2008 2009 2010 2010 2011 (in thousands of $)

Revenue ........................................................................................................... Cost of sales...................................................................................................... Gross profit/(loss) ........................................................................................... Administrative expenses ................................................................................... Other operating income/(expenses) derivative financial instruments .................................................................... impairment reversal/(charge) on oil and gas assets ....................................... Operating profit/(loss) .................................................................................... Investment revenue ........................................................................................... Finance costs .................................................................................................... Other gains/(losses) foreign currency (losses)/gains ..................................................................... change in fair value of financial liabilities and financial assets .................... impairment reversal/(charge) on available for sale investments ................... Share of gain/(loss) of an associate ................................................................... Profit/(loss) from continuing activities before tax ........................................ Income tax expense .......................................................................................... Profit/(loss) from continuing activities after tax........................................... Loss for the period from discontinued operations ............................................. Profit/(loss) for the period ..............................................................................

42,501 335,818 319,447 298,920 404,026 (70,537) (230,036) (190,451) (171,574) (212,201) (28,036) 105,782 128,996 127,346 191,825 (32,491) (27,215) (29,500) (26,979) (20,745) 54,682 (38,212) (44,057) 5,286 (25,760) (15,382) 26,607 (2,296) (55,602) (520) (56,122) (56,122) (33,635) 859 45,791 626 (36,950) (2,770) (5,034) 97 (1,277) 483 (17,261) (16,778) (16,778) (8,894) (1,614) 88,988 298 (11,320) 305 (8,100) 8,625 78,796 (32,923) 45,873 (614) 45,259 (4,835) (956) 94,576 280 (9,861) (303) (5,538) (604) 78,550 (29,120) 49,430 (24) 49,406 (9,692) (833) 160,555 368 (46,306) 727 (97) 17,500 132,747 (66,560) 66,187 (2,626) 63,561

Comparison of results of operations for the ten months ended October 31, 2011 and October 31, 2010 Revenue Revenues increased by 35.2% to $404.0 million for the ten months ended October 31, 2011 from $298.9 million for the ten months ended October 31, 2010, driven primarily by liftings from the Ebok field which commenced production in April 2011, and by higher realized oil prices at the Okoro field. Our revenues from the Okoro field were negatively impacted during the ten months ended October 31, 2010 when we achieved cost-recovery on the initial development of the Okoro field in mid-2010, thereby reducing our effective working interest from 95% to 50%. For further description of our legal and working interests, see Our BusinessDescription of Our Assets. Our oil sales are based on various benchmark prices. However, we use Brent crude prices, with adjustments for quality, transportation fees and a regional price differential, as a proxy for market prices. For the ten months ended October 31, 2011, total revenue from Ebok was $150.0 million. The average price per barrel achieved from Ebok before royalties was $102.9/bbl for the ten months ended October 31, 2011. For the ten months ended October 31, 2011, total revenue before royalties from Okoro was $270 million, as compared with $331 million for the ten months ended October 31, 2010. The average price per barrel achieved from Okoro before royalties was $113.9/bbl for the ten months ended October 31, 2011, as compared with $79.6/bbl for the ten months ended October 31, 2010. Higher prices were achieved due to higher Brent prices during the ten months ended October 31, 2011 compared with the prior period. The decline in production volumes at Okoro was less than expected, with gross average production at Okoro of 15,600 bopd and 16,800 bopd for the ten months ended October 31, 2011 and 2010, respectively. The anticipated reduced production is in part due to natural decline. However, the increase in water cut in the initial wells was less than originally anticipated, and the natural decline of production was further offset by the strong performance of the two new infill wells that began production in April 2011. Production from the two new infill wells averaged approximately 4,900 bopd up to October 31, 2011. The production volume at Ebok averaged 9,800 bopd equivalent from commencement of production to October 31, 2011. Block CI-11 contributed revenues of $22.6 million and $20.3 million for the ten months ended October 31, 2011 and 2010, respectively. In addition to production from Block CI-11, gas production from adjacent Blocks CI-26 and CI-40, operated by Canadian Natural Resources Limited, is processed at the Lion Gas Plant, providing third party tariff revenue from the use of the Block CI-11 pipeline infrastructure, and additional gasoline and butane sales revenue at the Lion Gas Plant. The Lion Gas Plant contributed revenue of $11.3 million in the ten months ended October 31, 2011, as compared with $9.4 million in the ten months ended October 31, 2010. Production in Cte dIvoire during the ten months ended October 31, 2011 was below expectation due to the impact of political and social unrest delaying the import of necessary equipment and resources required to conduct routine maintenance of the compressor unit during the first quarter of 2011. In addition, a gas 65

leak at CI-11 shut down gas production in mid-August 2011; however, following successful repairs, full production resumed in mid-October 2011. Gross profit increased by 50.7% to $191.8 million for the ten months ended October 31, 2011 from $127.3 million for the ten months ended October 31, 2010, driven primarily by the commencement of production at Ebok in April 2011 and higher realized oil prices at the Okoro field. Cost of Sales Cost of sales increased by 23.7% to $212.2 million for the ten months ended October 31, 2011 from $171.5 million for the ten months ended October 31, 2010, driven primarily by the commencement of production at Ebok in April 2011. Cost of sales constituted 52.5% and 57.4% of total revenues for each of the ten months ended October 31, 2011 and 2010, respectively. Cost of salesoperating expenses Operating costs increased by 1.6% to $92.0 million in the ten months ended October 31, 2011 from $90.5 million in the ten months ended October 31, 2010, primarily driven by the costs associated with the commencement of production at Ebok, which were mostly offset by the revision of our working interest to 50% in the Okoro field following cost-recovery in mid-2010. Operating expenses constituted 30.0% and 22.7% of total revenues for each of the ten months ended October 31, 2010 and 2011, respectively. The decrease was primarily driven by the higher realized oil prices for the ten months ended October 31, 2011. Cost of salesdepreciation, depletion and amortization Depreciation, depletion and amortization costs increased by 34.3% to $103.9 million in the ten months ended October 31, 2011 from $77.4 million in the ten months ended October 31, 2010, primarily reflecting the commencement of production at the Ebok field in April 2011. In addition, the lease of the Ebok FSO is deemed a finance lease under IFRS, and, as such, the majority of the lease costs are capitalized and depreciated over the life of the field beginning on the commencement of production, thus increasing the depreciable base. Okoro accounted for $67.6 million and $60.7 million of our depreciation, depletion and amortization costs in the ten months ended October 31, 2010 and 2011, respectively. Depreciation, depletion and amortization costs constituted 25.7% and 25.8% of total revenues for each of the ten months ended October 31, 2011 and 2010, respectively. During the ten months ended October 31, 2011, oil and gas asset depreciation, depletion and amortization averaged $22.1 per barrel, as compared with an average of $17.0 per barrel for the ten months ended October 31, 2010, in each case excluding stock adjustments, mainly due to an increase in net reserves at Okoro. Administrative expenses Administrative expenses decreased by 23.1% to $20.7 million for the ten months ended October 31, 2011 from $27.0 million for the ten months ended October 31, 2010. Following a review of our transfer pricing policies, from January 1, 2011 we reclassified certain costs, including staff costs and other overhead costs incurred directly in support of our exploration and production activities, from administrative expenses into operating expenditure. Administrative expenses constituted 5.1% and 9.0% of total revenues in each of the ten months ended October 31, 2011 and 2010, respectively. We have operating offices in both Lagos, Nigeria and Abidjan, Cte dIvoire as well as a technical office in Houston, USA and a corporate office in London, all of which were open throughout 2011. During the ten months ended October 31, 2011, we established a new office in Nairobi, Kenya. Our total full time equivalent staff increased to an average of 272 people during the ten months ended October 31, 2011 from an average of 202 people during the ten months ended October 31, 2010, primarily related to an increase in the size of the Lagos office. Other operating income/expensesderivative financial instruments Our other operating income/expenses related to derivative financial instruments and reflected an expense of $9.7 million for the ten months ended October 31, 2011 compared with an expense of $4.8 million for the ten months ended October 31, 2010. The increase in costs reflected the higher Brent oil prices for the period ended October 31, 2011 and the associated stronger forward curve. In February 2011 and May 2011, we entered into hedging arrangements to protect against exposure to decreases in the price of oil from production at our Ebok field. These instruments have been classified as cash flow hedges, with a portion of the gains and losses on the instruments that are determined to be an effective hedge eligible to be taken to equity and the ineffective portion, as well as any change in time value, recognized in the income statement for each period. The gains and losses arising out of the changes in fair value of the instruments which are not designated for 66

hedge accounting, or are not determined as an effective hedge are accounted for in the income statement. For further description of these arrangements, see Description of Certain Financing ArrangementsHedging Arrangements. The fair values of these derivative instruments are likely to remain volatile as they are marked-to-market at each balance sheet date and their value will depend on both the spot price and the forward curve for oil prices. Other operating income/expensesimpairment of oil and gas assets For the ten months ended October 31, 2011, we had an impairment charge of $0.8 million, primarily related to the relinquishment of our interests in the licenses for Blocks 2 and 6 in Ethiopia. For the ten months ended October 31, 2010, a total of $0.9 million was written off as a charge against intangible oil and gas assets due to impairment, which related primarily to remaining costs from the unsuccessful Tie Tie NE well drilled in the La Noumbi Permit in Congo-Brazzaville. Investment revenue Investment revenue increased by 31.4% to $0.4 million for the ten months ended October 31, 2011 from $0.3 million for the ten months ended October 31, 2010. The relatively higher investment revenue in the ten months ended October 31, 2011 reflected an increase in our cash balances for the period. Finance costs The following table sets forth our finance costs for the ten months ended October 31, 2010 and 2011.
Ten months ended October 31, 2010 2011 (in thousands of $)

Finance lease interest charge ............................................................................................................... Bank and 2016 Notes interest payable ................................................................................................. Borrowing costs, amortization and facility fee charges ....................................................................... Interest on loan notes ........................................................................................................................... Unwinding of discount on loan notes .................................................................................................. Unwinding of discount on decommissioning....................................................................................... Less: Capitalized interest ..................................................................................................................... Total ....................................................................................................................................................

9,430 6,451 875 2,311 1,189 (10,395) 9,861

4,782 55,372 13,505 1,411 2,455 4,870 (36,089) 46,306

Finance costs increased by 369.5% to $46.3 million for the ten months ended October 31, 2011 from $9.9 million for the ten months ended October 31, 2010. The increase in finance costs is attributable to amortized issuance costs and interest associated with the 2016 Notes issued in February 2011 and by further draw downs on our Ebok Facility during the ten months ended October 31, 2011. The increase is also attributable to the finance cost element of the finance lease for the Ebok FSO which has been charged to the income statement since commencement of production at Ebok in April 2011. This was partly offset by the increased capitalization of our interest related to the Ebok development, and to a lesser extent the infill wells at Okoro. Other gains and losses We made a gain of $0.7 million due to foreign exchange differences for the ten months ended October 31, 2011, compared with a loss of $0.3 million for the ten months ended October 31, 2010. The foreign exchange movements primarily arise from the revaluing of certain pound sterling denominated cash balances held to fund the UK pound sterling denominated costs. In addition, we made a gain of $17.5 million for the ten months ended October 31, 2011, as compared with a loss of $0.6 million for the ten months ended October 31, 2010 in connection with our share of gain/(loss) of an associate. The gain for the ten months ended October 31, 2011 was predominately related to our share of the increase in First Hydrocarbon Nigerias net assets following additional equity investments made during the period in First Hydrocarbon Nigeria by third-party shareholders (which were non-dilutive to our shareholding).

67

Taxation For the ten months ended October 31, 2011, we incurred a tax charge of $66.6 million, relating to operations on the Okoro field in Nigeria ($45.3 million), operations on the Ebok field in Nigeria ($17.6 million) and on the CI-11 field in Cte dIvoire ($3.7 million). For the ten months ended October 31, 2010, we incurred a tax charge of $29.1 million, relating to operations on the Okoro field in Nigeria ($26.0 million) and on CI-11 in Cte dIvoire ($3.1 million). The higher tax charge related to operations on the Okoro field for the ten months ended October 31, 2011 reflects the utilization of available losses on the field in 2010. Profit/(Losses) We had profit from continuing activities after tax of $66.1 million for the ten months ended October 31, 2011 compared with a profit from continuing activities after tax of $49.4 million for the ten months ended October 31, 2010. The higher net profit reflects the commencement of production at the Ebok field, stable production from the Okoro field and higher realized oil prices for the ten months ended October 31, 2011 than during the prior period. Comparison of results of operations for the years ended December 31, 2008, 2009 and 2010 Revenue Revenue was $319.4 million in 2010, $335.8 million in 2009 and $42.5 million in 2008. We announced first oil from Okoro in June 2008 and production built up as planned over the following two months. However, a delay in receiving a necessary government approval resulted in the commencement of lifting in October 2008, significantly reducing the total production in the period. In total, gross production at Okoro reached 5.9 mmbbls in 2010, as compared with 6.9 mmbbls in 2009 and 1.2 mmbbls in 2008. We sold 5.9 mmbbls gross during 2010, compared with 6.4 mmbbl gross during 2009. In 2010, our revenue from Block CI-11 was impacted by political and social unrest in connection with disputed election results from that year. Our oil sales are based on various benchmark prices; however, we use Brent crude prices, with adjustments for quality, transportation feed and a regional price differential, as a proxy for market prices. In 2010, total revenue from Okoro was $286.5 million net of royalties, as compared with $292.1 million net of royalties in 2009 and $37.1 million net of royalties in 2008. Cost of Sales Total cost of sales was $190.5 million in 2010, $230.0 million in 2009 and $70.5 million in 2008. Cost of sales constituted 59.6%, 68.5% and 166.0% of total revenues for each of the year ended December 31, 2010, 2009 and 2008, respectively. Cost of sales declined in the year ended December 31, 2010 on a relative basis in the year ended December 31, 2009, due mainly to a lower depreciation, depletion and amortization charge reflecting our lower working interest in Okoro. Cost of sales increased on a relative basis in the year ended December 31, 2009 as compared with the year ended December 31, 2008, largely reflecting start up and operating costs for Okoro prior to initially generating revenues and then reaching full production levels and lower depreciation rates in the year ended December 31, 2009, as described below. Cost of salesoperating expenses Total operating expenses constituted 31%, 27% and 99% as a percentage of total revenues for each of 2010, 2009 and 2008, respectively. In 2010, total operating expenses (excluding stock adjustment) for the Okoro field amounted to $70.2 million, as compared with $73.4 million in 2009 and $38.7 million in 2008. Operating expenses for the Okoro field in 2010 benefited from efficiency savings on boats and helicopter usage in connection with the increased sharing of resources with the Ima field. These savings were partly offset by the higher costs associated with the utilization of the Ima Terminal for oil export which, in turn, facilitates higher realized oil prices compared with benchmark oil prices due to the increased parcel sizes. Operating expenses for Okoro in 2009 related to the full year of operations which was aligned with a full year of production, while in 2008 operating expenses were incurred for nine months although we had only three months of sales. The FPSO for the Okoro field, the most significant component of operating expenses at Okoro, arrived on site in March 2008, and we began incurring operating costs in relation to the FPSO in June 2008 when our certificate of readiness was signed. However, due to a logistical licensing delay, sales of production from the Okoro field commenced in October 2008, resulting in relatively high 68

operating expenses per barrel in 2008. Additionally, costs in 2008 were affected by a ramp up period for initial production as the wells were completed while the majority of the operating costs are fixed. In Cte dIvoire, total operating costs were $20.5 million in 2010, $16.6 million in 2009 and $3.5 million in 2008. The increase in 2010 related to additional maintenance undertaken following a review of the platform condition. The increase in costs in 2009 was due to the time of acquisition of the Cte dIvoire Assets at the end of September 2008, as we incurred expenses for just three months in 2008 and for the full year in 2009. Cost of salesdepreciation, depletion and amortization Total field depreciation decreased to $90.5 million in 2010, as compared with $152.2 million in 2009 and $28.7 million in 2008. Due to the nature of the cost sharing agreement with our partner at the Okoro field, pursuant to which we funded the full field development cost and recovered such costs out of sales revenues, we apply a relatively high depreciation rate. During 2010, this totaled $75.1 million, as compared with a total of $134.2 million in 2009 and $24.6 million in 2008. The increase between 2008 and 2009 reflected the impact of full year production at the Okoro field, following the field reaching a plateau in the last quarter of 2008. The subsequent decline in 2010 reflects both the lower net production, mostly in connection with achieving cost-recovery in mid-2010 reducing our effective working interest to 50%, and a lower rate per barrel due to an increase in estimated reserves by NSAI. Depreciation for Cte dIvoire Assets was calculated as $15.4 million in 2010, $18.0 million in 2009, and $4.1 million in 2008, primarily relating to costs associated with the acquisition of the Cte dIvoire Assets in September 2008 and the associated abandonment liabilities. Cost of salesoil stock provisions In 2008, the cost of the acquisition of the Cte dIvoire Assets was allocated over the acquired oil and gas assets as well as our other assets, as required under IFRS. As part of this allocation, the inventory acquired was valued at fair value at the time of completion, which was approximately $98/bbl. The next lifting following the Cte dIvoire acquisition occurred in December 2008 and the acquired inventory was effectively sold at approximately $40/bbl, leading to a significant loss on disposal. This $5.2 million cost has been expensed as a cost of sales. Administrative expenses Total administrative expenses increased to $29.5 million in 2010 from $27.2 million in 2009 and $32.5 million in 2008. The increase in 2010 was primarily in connection with the increased size of the business. The decrease between 2008 and 2009 was primarily due to cost control initiatives and favorable exchange rate movements. Our total staff numbers increased to an average of 219 people in 2010 from an average of 172 people in 2009 and 92 people in 2008. At the end of 2010, we had operating offices in both Lagos, Nigeria and Abidjan, Cte dIvoire as well as a technical office in Houston, USA and the corporate office in London. In 2010, 2009 and 2008, significant business development time and resources were dedicated to reviewing and analyzing new opportunities and deals through the year. The costs related to the deals that did not come to fruition are expensed as administrative expenses. Other operating income/expensesderivative financial instruments The mark-to-market loss from derivative financial instruments was $8.9 million in 2010, compared with a loss of $33.6 million in 2009 and a gain of $54.7 million in 2008. In 2010, the oil price increased from approximately $80/bbl at the start of the year to approximately $90/bbl at the end of the year. For the first time since 2008, the oil price rose such that the year-end mark to market value of the hedges was a small loss. During 2009, the oil price increased gradually, with Brent moving from approximately $40 per barrel in early January to approximately $80 at year end. This movement offset much of our prior year gain on derivative financial 69

instruments, with losses of $15.3 million relating to Okoro and $18.3 million relating to Cte dIvoire, net of cash gains on the derivative instruments, which amounted to $11.4 million in aggregate in 2009. Following an increase during the first half of 2008 (approximately $90/bbl to approximately $120/bbl), during the second half of 2008, there was a significant weakening in the oil price, with Brent moving from approximately $120/bbl in June to approximately $40/bbl in December. The change in fair value of the derivative instruments resulted in a gain of $13.4 million relating to Okoro and $41.3 million relating to Cte dIvoire in 2008, net of cash gains on the derivative instruments, which amounted to $3.6 million in aggregate in 2008. Other operating income/expensesimpairment of oil and gas assets In 2010, a total of $1.6 million of impairments was booked. Approximately $1.8 million of impairments booked reflected the residual costs on the La Noumbi license in Congo-Brazzaville. We hold a 14% interest in the La Noumbi Permit and there are several prospects on the block. One of the prospects, the Tie Tie NE well, was spudded at the end of 2009 and completed in February 2010. Following the results of the Tie Tie NE well, all costs incurred on the well have been expenses. Other small adjustments on various assets resulted in a net $0.2 million reversal for the year ended December 31, 2010. In 2009, a total of $0.9 million of previous impairments reversed, which consisted of the following: In December 2008, we announced that the deep offshore Cuda-1x well on the Keta Block in Ghana had been plugged and abandoned after encountering an unexpectedly severe high pressure zone. The costs of the well were written off as it is unlikely that a significant part of the well will be reused. The total cost to us, expensed in 2008, was $23.8 million. This was subject to an insurance claim which was settled. The net effect of the insurance claim was a credit in the 2009 income statement of $7.8 million. In 2005, we entered into a finance and production sharing agreement with Bicta Energy and Management System Ltd (Bicta), an indigenous Nigerian oil company for the development of the Ogedeh field, offshore Nigeria. Following further technical work on the field and a review of the potential development solutions, we have formally agreed with Bicta to relinquish our interest in the Ogedeh field in Nigeria. All remaining costs of $2.5 million relating to the asset have been written off. The Iris Marin license in Gabon was due for renewal in May 2010. Following the analysis of the well results on the block from 2008, the operator made a formal recommendation to relinquish the block. We reviewed our position in the last quarter of 2009 and have formally relinquished our interest in the license. We also have a 20% interest in the Ibekelia License area (under a Technical Evaluation Agreement (TEA)), which is adjacent to the Iris Marin block. If the area was successful, we and our partners may have considered converting this interest into an exploration and production sharing contract. As the partners are unlikely to go ahead with the Ibekelia TEA if there is no interest in the Iris Marin license, we have written off all costs related to the remaining Gabon licenses ($2.1 million). Following the results of the Tie Tie NE well, all costs incurred on the well in 2009 ($2.1 million) were expensed.

In 2008, a total of $38.2 million was written off as a charge against our oil and gas assets, which consisted of the following: During December 2007 and January 2008, the Admiral prospect in the Themis Marin license in Gabon was drilled by the operator, Sterling Energy. The well was drilled on budget within 11 days, but the reservoir target was encountered with limited hydrocarbon shows. The license period expired in March 2008, and a decision was taken by the partners to relinquish the block. As such, we wrote down all the costs on the license. In addition, in July 2008, an exploration well (ICM-1) was drilled on the Charlie prospect in the Iris Marin license area. The well encountered a thick reservoir section but was water bearing and all costs relating to the Charlie well were written off. A total of $5.2 million of costs relating to Gabon were written off in 2008. As noted above, in December 2008 we announced that the deep offshore Cuda-1x well on the Keta Block in Ghana had been plugged and abandoned at a total cost to us, expensed in 2008, of $23.8 million, part of which was recovered under an insurance claim in 2009.

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In July 2007, we entered into a financing and technical services agreement with Excel Exploration and Production Ltd. (Excel), an established indigenous Nigerian company, for the development of the Eremor Field, onshore Nigeria. Following further technical work and concerns over the potential offtake solutions, all costs related to the project were written off during 2008. This resulted in a $6.0 million write-down in 2008. In April 2009, we and Excel entered into a deed of release and settlement whereby they agreed to terminate the Eremor financing, production sharing and technical services agreement dated July 17, 2007. Certain other items written off in 2008 in the aggregate totaled $3.2 million.

Investment revenue Our investment revenue comprises interest on bank deposits and was $0.3 million, $0.6 million and $5.3 million in 2010, 2009 and 2008, respectively. The relatively lower investment revenue in 2009 and 2010 and higher investment revenue in 2008 reflected relatively lower and higher average cash balances through the respective years and a decrease in the average interest rate in 2009. Finance costs The following table sets out our finance costs for the years ended December 31, 2008, 2009, 2010.
Years ended December 31, 2008 2009 2010 (in thousands of $)

Convertible bond interest payable ................................................................................. Incentive on early conversion of bonds ......................................................................... Bank interest payable ..................................................................................................... Borrowing costs, amortization and facility fee charges ................................................. Interest on loan notes ..................................................................................................... Unwinding of discount on loan notes ............................................................................ Unwinding of discount on decommissioning................................................................. Less: Capitalized interest ............................................................................................... Total ..............................................................................................................................

5,512 9,332 19,750 6,905 414 422 350 42,685 (16,925) 25,760

21,270 11,941 1,822 2,625 1,050 38,708 (1,758) 36,950

10,521 9,042 1,138 2,787 1,468 24,956 (13,636) 11,320

Total gross interest expense (including facility fees, amortization of costs and unwinding of discount on loan notes where applicable (but excluding the incentive on early conversion of bonds and unwinding of discount on decommissioning)) amounted to $23.5 million in 2010, compared with $37.7 million in 2009 and $33.0 million in 2008. The increase in interest expense in 2009 is primarily attributable to increased borrowings under the Okoro facility, resulting from drawings in 2008 and the facilities for the acquisition of the Cte dIvoire Assets. In March 2010, we secured the Ebok Facility to fund the ongoing development of Ebok, Okwok and the OML 115 area. In addition, in November 2010 we refinanced the Okoro facility with a new reserve based lending facility of up to $80 million to fund the drilling of two infill wells on the field and repay the original facility used to develop the Okoro field. We repaid the Okoro facilities in full with the proceeds from the 2016 Notes. In 2009, we also incurred a charge of $1.1 million relating to the unwinding of the discount from the decommissioning provisions for the Okoro field and Block CI-11 compared to $0.4 million for the corresponding charge in 2008. In July 2008, an agreement was reached for early conversion of our 41.3 million senior unsecured convertible bonds resulting in a one off conversion incentive of $9.3 million being paid to the holders of the convertible bonds. As the bonds were repaid in July, $5.5 million in interest was paid on the bonds for seven months in 2008. Capitalized interest was $13.6 million in 2010, as compared with $1.8 million in 2009 and $16.9 million in 2008. Capitalized interest includes all the interest charged relating to part of the Ebok project financing in 2010 and 2009, including charges related to project approval, and the Okoro facility up to first oil in June 2008, plus a share thereafter during completion of the drilling program in late 2008. During the fourth quarter of 2009, the Ebok field transferred to development and a proportion of the borrowing cost since that date has been capitalized using a weighted average rate of borrowing of 6.1%. The effective interest rates used for 71

the interest capitalization on Okoro in 2008 are 11.1% and 15.2% in respect of the FCMB loan and the convertible bond. The Okoro Facility interest was based on LIBOR plus a margin of between 4.5% and 5.6%. Upon conversion of the bond, interest expense on remaining debt was capitalized based on rates of between 12.2% and 13.7%. Other gains and losses We made a gain of $0.3 million due to foreign exchange movement in 2010, compared with a loss of $2.8 million in 2009 and a loss of $15.4 million in 2008. In July 2008, following conversion of the pound sterling denominated convertible bonds into shares, we reviewed the functional currency of Afren plc, the holding company, and concluded that it should be changed from pound sterling to U.S. dollars, aligning it with all our major subsidiaries, which have used the U.S. dollar as their functional currency since 2007. The revised functional currency was adopted effective July 1, 2008. The U.S. dollar equivalent of the pound sterling balances fell with the change in the exchange rate from approximately $1.98/1.00 at the start of July 2008 to approximately $1.44/1.00 at the year end, leading to the charge in 2008. A secondary effect of the change in functional currency from pound sterling to U.S. dollars in July 2008 was a change in the accounting for warrants issued by us that are not related to contracts for work. The change in functional currency has resulted in certain pound sterling denominated warrants being accounted for as derivatives from that date, as they are no longer convertible at a fixed price in the holding companys functional currency. Accordingly the fair value of the warrants on July 1, 2008 of $27.1 million was recorded as a liability which resulted in a charge to retained earnings, after reversing the amounts previously recorded in equity, of $23.7 million. As our share price decreased significantly between July 1, 2008 and the year end, there was a corresponding reduction in the value of the warrants to the warrant holder and the deemed liability to us. The fair value of the warrants on December 31, 2008 was $0.5 million and the resultant movement since July 2008 of $26.6 million appears as a gain in the 2008 income statement. The fair value of the warrants on December 31, 2009 was $5.5 million and the resultant movement since December 31, 2008 of $5.0 million appears as a loss in the 2009 income statement. The fair value of the warrants on December 31, 2010 was $11.2 million and the resultant movement since December 31, 2009 of $8.1 million appears as a loss in the 2010 income statement. The fair value of the warrants is likely to remain volatile, and increases in the share price will result in a charge to the net income as the value of the warrants to the warrant holder, and our liability, increases. For the year ended December 31, 2010, we incurred a gain of $8.6 million in connection with our interests in First Hydrocarbon Nigeria and Gasol. At December 31, 2010, we held a 45% interest in First Hydrocarbon Nigeria and a 20.9% interest in Gasol. We incurred a gain of $9.9 million arising from our proportionate share of the increase in the net asset value of First Hydrocarbon Nigerias balance sheet in the year. The gain principally reflects the incremental non-dilutive equity funding of First Hydrocarbon Nigeria by third parties during 2010, which is attributable to our 45% interest. However, this gain was offset by a loss of $1.3 million relating to our proportionate share of Gasols losses for the period. In 2010, the carrying value of our shares in Gasol was fully written off. Taxation At December 31, 2010, 2009 and 2008, we had tax losses of $105.3 million, $97.2 million and $102.0 million, respectively, in respect of which deferred tax assets were not recognized as there was insufficient evidence of future taxable profits. Such losses can be carried forward indefinitely. We had temporary differences of $25.2 million as at December 31, 2010, as compared with $15.6 million as at December 31, 2009 and $34.2 million as at December 31, 2008 in respect of share-based payments, property, plant and equipment and pensions in respect of which deferred tax assets have not been recognized as there is insufficient evidence of future taxable profits. In 2010, we incurred a tax charge of $32.9 million. The increase in the tax charge from 2009 reflects the increased profitability of the Company in 2010. Of this, $0.9 million has been paid locally in Nigeria in respect of production on the Okoro field. In 2009, we incurred a tax charge of $17.3 million, relating to our operations in Nigeria and Cte dIvoire, reflecting the current and deferred tax expense for the Okoro field and the Block CI-11 operations. In 2008, we incurred a small overseas corporation tax charge of $0.5 million relating to the Block CI-11 operations acquired in September 2008. Profit/(Losses) We had profit after tax of $45.3 million in 2010, as compared with losses of $(16.8) million and $(56.1) million in 2009 and 2008, respectively. The year ended December 31, 2010 was the first full year of profit after tax in our history 72

which was driven by a lower depreciation, depletion and amortization charge, lower financing costs and a smaller loss recognized on derivative financial instruments. The losses in 2009 were primarily related to impairment charges, accounting for the mark-to-market of the hedging position, administrative expenses, finance costs and foreign exchange losses. The 2008 results were also adversely impacted by the high level of operating costs during the startup phase of Okoro. Block CI-11 contributed a $0.4 million loss to our result in 2010 before tax following delays in oil sales impacted by political and social unrest in connection with disputed election results from that year, as compared with a profit of $4.5 million in 2009 and a loss of $10.1 million for the period from the acquisition date in September 2008 to December 31, 2008. In addition to production from Block CI-11, gas production from adjacent Blocks CI-26 and CI-40, operated by Canadian Natural Resources Limited, is processed at the Lion Gas Plant, providing third party tariff revenue from the use of the Block CI-11 pipeline infrastructure, and additional gasoline and butane sales revenue at the Lion Gas Plant. The Lion Gas Plant contributed a $2.0 million loss to our result in 2010, as compared with a $3.4 million profit in 2009 and a $1.4 million profit for the period from the acquisition date to December 31, 2008. Liquidity Our liquidity requirements arise principally from our capital expenditure and working capital requirements. For the periods presented, we met our working capital requirements primarily from the proceeds of equity and debt financings and, beginning in October 2008, oil sales. Historically, we have utilized a combination of short and long-term financial instruments to supplement cash flow from operations to finance our cash needs and the growth of our business. We believe that, following the Offering, our operating cash flows, available borrowing capacity under the Ebok Facility and the proceeds of the Notes offered hereby will be sufficient to meet our requirements and commitments for at least the next twelve months. However, we are leveraged and have significant debt service obligations. Our actual financing requirements will depend on a number of factors, many of which are beyond our control. In particular, the ongoing instability in the international financial markets has resulted in a contraction in lending volumes in global capital markets, which could make it more difficult for us to refinance our existing debt or to incur additional debt, on terms acceptable to us, should the need arise. See Risk FactorsRisk factors relating to the NotesOur level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position. Net cash generated from operating activities was $241.3 million for the ten months ended October 31, 2011, compared with $128.6 million for the ten months ended October 31, 2010. For the years ended December 31, 2010 and December 31, 2009, we generated $209.3 million and $278.3 million in net cash flows from operating activities, respectively, and in the year ended December 31, 2008, a net $26.8 million was used in operating activities. We held cash and cash equivalents of $279.5 million at October 31, 2011, $140.2 million at December 31, 2010, $321.3 million at December 31, 2009 and $117.7 million at December 31, 2008. Our cash and cash equivalents balance at October 31, 2011 included $76.8 million which we had restricted access as a result of restrictions relating to our Ebok Facility agreement and certain shared partner accounts. At December 31, 2010, our cash and cash equivalents balance included $31.9 million to which we had restricted access as a result of short term restrictions on project cash, as the funds were designated for specific projects. This compares with $5.4 million and $58.9 million to which we had restricted access at December 31, 2009 and December 31, 2008, respectively, mostly pending completion of certain milestones. See Our BusinessMaterial Agreements Relating to Our Assets. Cash Flow The following table sets forth consolidated cash flow information for the ten months ended October 31, 2010 and 2011 and for the years ended December 31, 2008, 2009 and 2010.
Ten months ended Year ended December 31, October 31, 2008 2009 2010 2010 2011 (in thousands of $)

Operating profit/(loss) for the year .................................................................. (44,057) Depreciation, depletion and amortization........................................................ 30,030 Derivative financial instruments ..................................................................... (55,499) Impairment of oil and gas assets ..................................................................... 38,212 1,206 Provision for inventoriesspare parts ............................................................ Share-based payments charge ......................................................................... 10,819 Operating cash flows before movements in working capital ........................... (19,289)

45,791 154,783 48,458 (859) 9,292 257,465

88,988 93,979 6,482 1,614 8,333 199,396

94,576 84,006 3,337 956 5,379 188,254

160,555 110,528 1,541 833 6,597 279,784

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Ten months ended October 31, Year ended December 31, 2008 2009 2010 2010 2011 (in thousands of $)

Cash used by operating activities held for sale................................................ (28) (23) (Increase)/decrease in trade and other operating receivables .......................... (25,149) 533 16,046 (33,723) Increase/(decrease) in trade and other operating payables .............................. 22,498 31,761 (11,793) (34,567) 5,895 8,765 Increase in inventory (crude oil) ..................................................................... (5,608) (11,588) 737 117 (199) (79) Currency translation adjustments .................................................................... Net cash generated/(used) in operating activities ...................................... (26,811) 278,288 209,317 128,627 Purchases of property, plant and equipment: Oil and gas assets ................................................................................... (224,297) (97,810) (295,443) (237,074) Other ...................................................................................................... (5,115) (3,770) (3,209) (1,570) Exploration and evaluation expenditure ......................................................... (62,396) (90,365) (59,739) (34,202) Expenditure on acquisitions pending completion ........................................... Increase in inventoriesspare parts............................................................... (2,709) (9,700) (10,386) (3,746) Purchase of investments ................................................................................. (1,501) (1,815) (1,998) Investment revenue ........................................................................................ 5,349 599 298 279 Completion payment on 2008 acquired subsidiaries ...................................... (6,198) Acquisition of subsidiaries, net of cash acquired ........................................... (168,749) 2,289 2,289 Net cash used in investing activities ............................................................ (459,418) (209,059) (368,188) (274,024) Issue of ordinary share capital ........................................................................ 238,313 326,969 5,191 2,056 Costs of share issues....................................................................................... (7,663) (14,236) (2,381) (2,120) Proceeds from borrowings ............................................................................. 362,502 100,217 62,039 Borrowing costs ............................................................................................. (11,597) Incentive paid on early conversion of bonds .................................................. (9,332) Repayment of borrowings .............................................................................. (29,032) (148,447) (110,970) (98,711) Interest and financing fees paid ...................................................................... (16,282) (26,870) (14,493) (13,944) Net cash provided by/(used in) financing activities ................................... 526,909 137,416 (22,436) (50,680) 40,680 206,645 (181,307) (196,077) Net increase/(decrease) in cash and cash equivalents................................ Cash and cash equivalents at beginning of period .......................................... 91,783 117,719 321,312 321,312 Effect of foreign exchange rates ..................................................................... (14,744) (3,052) 216 332 Cash and cash equivalents at end of period .................................................... 117,719 321,312 140,221 125,567

(2,610) (59,542) 47,638 (24,275) 312 241,307 (351,483) (3,379) (294,032) (57,908) (991) (750) 326 (708,217) 198,181 638,985 (189,402) (41,414) 606,350 139,440 140,221 (205) 279,456

Net cash generated by/used in operating activities Net cash generated from operating activities was $241.3 million for the ten months ended October 31, 2011, compared with $128.6 million for the ten months ended October 31, 2010. In the ten months ended October, 31, 2011, net cash inflow from operating activities primarily related to the sale of oil produced at the Ebok and Okoro fields, and benefited from higher realized oil prices than during the prior period. For the ten months ended October 31, 2010, the net cash inflow from operating activities primarily related to the sale of oil produced at Okoro. Net cash generated from operating activities was $209.3 million in 2010, compared with net cash inflows of $278.3 million in 2009 and net cash outflows of $26.8 million in 2008. In 2010 and 2009, the net cash inflow from operating activities primarily related to the sale of oil produced at Okoro. In 2008, the net cash outflow from operating activities primarily related to the operating loss for the year, together with an increase in working capital requirements. Net cash used in investing activities Net cash used in investing activities was $708.2 million for the ten months ended October 31, 2011, compared with $274.0 million for the ten months ended October 31, 2010. In the ten months ended October 31, 2011, the net cash used in investing activities primarily related to the acquisition of an interest in the Barda Rash block ($228.0 million), higher development costs for the development of the Ebok field, the cost of the infill wells at the Okoro field and an installment payment for the acquisition of the interest in the Ain Sifni block ($56.3 million), with the remaining costs related to various exploration costs and immaterial acquisitions. Further payments were made in connection with the acquisition of the interest in the Ain Sifni block in December 2011 and January 2012 ($107.5 million). In addition, a portion of the acquisition costs for the interest in the Barda Rash block were deferred until 2012 with a final payment of $190.5 million due in early March 2012. In the ten months ended October 31, 2010, the net cash used in investing activities primarily related to development costs for the development of the Ebok field. Net cash used in investing activities amounted to $368.2 million, $209.1 million and $459.4 million in 2010, 2009 and 2008, respectively, primarily related to investments in the Okoro and the Ebok fields and the acquisition of Devon 74

Energys interests in Cte dIvoire. In 2010, the majority of our expenditures related to the development of the Ebok field. In 2009, our invested cash in Ebok related to the appraisal and the development of the field, which started in the latter part of the year. Our investment in Okoro in 2009 related to the final invoices paid after the drilling completed at the end of 2008. In 2008, a major part of our investment cash flow related to Okoro as the facilities were constructed and the wells drilled. The other major component of investments in 2008 was the drilling of the Cuda well in Ghana and the acquisition of the Cte dIvoire Assets from Devon Energy in September 2008. The remaining costs reflect various exploration costs and minor acquisitions. The decrease in net cash used in investing activities in 2009 as compared with 2008 is primarily due to the acquisition of Devon Energys assets in Cte dIvoire in 2008 and lower investments in property, plant and equipmentoil and gas assets in 2009 as the development of the Okoro field was near completion and the Ebok field was still in its early stages until late in 2009. Expenditures in 2008 related to the ongoing development of the Okoro field which began producing in June 2008. This decrease in investment in oil and gas assets was partially offset by an increase in spending on exploration and evaluation in 2009, mostly related to the appraisal costs on Ebok and residual costs related to the Cuda-1x well. For a more detailed description of our recent capital expenditure, see Capital expenditures. Net cash provided by/used in financing activities Cash outflow from financing activities was $50.7 million for the ten months ended October 31, 2010, compared with a cash inflow of $606.4 million for the ten months ended October 31, 2011. The cash inflow in the ten months ended October 31, 2011 primarily relates to the issuance of the 2016 Notes in February 2011, the equity placement of $184.5 million (net of costs) in July 2011, additional draw downs on the Ebok Facility and the draw down of the Socar Facility. The cash inflow was partly offset by the use of the proceeds of the 2016 Notes to refinance our then existing third party debt other than the Ebok Facility. The cash outflow in the ten months ended October 31, 2010 mostly reflected net debt repayments (after including the $60.0 million drawdown from the Ebok Facility) of $98.7 million. Net cash used in financing activities was $22.4 million in 2010, and net cash provided by financing activities was $137.4 million and $526.9 million in 2009 and 2008, respectively. In March 2010, we entered into the Ebok Facility to fund the ongoing development of Ebok, Okwok and OML 115 area. In addition in November 2010, we refinanced the Okoro facility with a new reserve based lending facility of up to $80 million to fund the drilling of two infill wells on the field and repay the original facility used to develop the Okoro field. In November 2009, we raised 104.9 million ($175.0 million) before commissions and expenses by placing 129.5 million new ordinary shares with institutional investors at a price of 81 pence per share, in conjunction with the admission of our shares to the Official List and to the London Stock Exchanges main market. In conjunction with the placing, certain shareholders including some of the Directors exercised 40 million warrants over ordinary shares issued pursuant to our Founders Scheme (the Founders Scheme), raising 15.2 million (before expenses). Pursuant to the Founders Scheme, introduced in June 2007, our founders invested a total of $5.0 million equivalent in our shares prior to September 30, 2008 and were, in turn, granted a total of 40 million warrants. In May 2009, we raised $126.3 million (before expenses) via a placement of 265 million shares with institutional investors. During 2009, we also made significant debt repayments totaling $148.4 million. In 2008, we raised $235.0 million (before expenses) via private placements of shares with institutional investors. In addition, in October 2008, we issued loan notes for proceeds of $45.0 million (before expenses) to Sojitz, a Japanese investment and industrial conglomerate, as part of a new strategic alliance. We repaid these loan notes with proceeds from the 2016 Notes. Bank borrowings also increased significantly in 2008, as a result of drawdowns on the Okoro facility, a drawdown of a $50.0 million facility from the Afren Nigeria facility in 2007 and the financing for the acquisition of the Cte dlvoire assets in September 2008. We repaid both the Okoro facility and the Afren Nigeria facility with proceeds from the 2016 Notes. In July 2008, we issued 71.1 million shares upon the early conversion of our 41.3 million senior unsecured convertible bonds originally issued in July 2006 in a non-cash transaction. For a more detailed description of our recent financing activities, see Financing. Capital expenditures For the ten months ended October 31, 2011 and the years ended December 31, 2010, 2009 and 2008, we spent $1,051.4 million, $624.2 million, $150.2 million and $555.9 million, respectively, on capital expenditure to support our development plans and to meet investment and capital expenditure requirements under the licenses and related agreements 75

pursuant to which we operate. These totals also include acquisition costs, financing costs and abandonment estimates. Capital expenditures have historically comprised the costs of development and exploratory drilling, including testing of wells in the fields in which we operate, seismic data acquisition, as well as the purchase of other facilities and equipment. The following table sets forth a breakdown of our capital expenditures by period.
Year ended December 31, Ten months ended October 31, 2011

2008

2009 2010 (in thousands of $)

Capital expenditures ................................................................................ Acquisition costs...................................................................................... Capitalized finance costs ......................................................................... Decommissioning costs ........................................................................... Total ........................................................................................................

325,988 202,949 16,900 10,095 555,932

119,242 28,621 1,800 510 150,173

411,857 186,940 13,600 11,815 624,212

610,244 410,568 36,089 (5,544) 1,051,357

Our capital expenditure in the ten months ended October 31, 2011 mostly consisted of Ebok development costs, including the drilling of 10 wells, platform installation, hook-up and commissioning. Other notable capital expenditures during the period related to the completion of the Okoro infill wells and the acquisition of seismic data covering block OML 115 and the Okwok and Ebok fields. In addition, we completed the acquisition of an interest in the Barda Rash block on September 7, 2011 and a portion of the costs related to the acquisition of our interest in the Ain Sifni field has been recognized as of October 31, 2011. During 2010, we acquired Black Marlins East African business. The allocated fair value of the oil and gas exploration assets acquired was $186.9 million. Our carrying value at December 31, 2010 also includes $104.2 million in respect of CI-01 field in Cte dIvoire, as compared with $102.5 million in 2009; $30.1 million relating to the La Noumbi permit in Congo-Brazzaville, as compared with $29.2 million in 2009; $18.1 million in respect of JDZ Block 1 of NigeriaSo Tom & Prncipe, as compared with $17.6 million in 2009; $27.8 million in respect of OPL 310 field in Nigeria, as compared with $14.3 million in 2009; $20.3 million in respect of Keta Block in Ghana, as compared with $16.0 million in 2009; and $36.4 million in respect of Okwok field in Nigeria, as compared with no costs in 2009. Our capital expenditures in 2008 were primarily related to Okoro and subsequent expenditures were primarily related to Ebok. The Okoro development started in 2007 with the majority of the expenditure in 2008 ($334.9 million) and the Ebok development started in 2009 with full accelerated development during 2010 ($329.0 million). Capitalized finance costs reflect these two developments. Other major elements of the expenditure are the Cuda well on the Keta Block in Ghana in 2008 ($38.5 million) and work on OPL 310, including the current ongoing seismic work ($11.8 million). The largest element of the acquisition costs are the $184.3 million invested in the Cte dIvoire Assets in 2008. Acquisition costs in 2009 primarily relate to Ebok ($15.3 million) and OPL 310 ($13.0 million). Future capital expenditures Our capital expenditures are driven largely by our development of new oil and gas projects through to production, and therefore, will fluctuate in accordance with our level of success in exploration and acquisition activities. Our capital expenditures for 2010 were $411.9 million, including approximately $310 million associated with our development activities at Ebok. Substantially all of the $610.2 million of capital expenditures for the ten months ended October 31, 2011 related to the development of the Ebok field, the acquisition of seismic over OML 115 and the Okwok and Ebok fields and the drilling of the infill wells on the Okoro field. We estimate our capital expenditures for 2012 to be approximately between $450 and $500 million. We expect that approximately 41% of this amount will be allocated to our production assets, of which 62% will relate to Ebok, 26% will relate to Barda Rash and 12% will relate to Okoro. In addition, we anticipate that approximately 38% of this amount will be allocated to our exploration and appraisal activities and 21% to seismic acquisitions and non-drilling exploration activities. We continually evaluate our capital needs and compare them with our estimated funds available and our actual future capital expenditures may be higher or lower than our budgeted amounts. It is important to note, that the dynamic nature of our business limits our ability to precisely predict our future capital expenditures. In particular, our capital expenditures may increase as additional exploration opportunities are presented to us or to fund development costs associated with additional successful wells. Thus, we believe the timing of approximately 60% of our capital expenditures is discretionary, which provides us with a significant degree of flexibility to adjust to the size and timing of our expenditures in response to changes in our projects or the needs of our business. The final determination with respect to the drilling of any 76

well, including those currently budgeted, will depend on multiple factors, including the results of our development and exploration efforts, the availability of sufficient capital resources for drilling prospects, economic and industry conditions at the time of drilling, including prevailing and anticipated prices that we can receive for our oil and gas, the availability of drilling rigs and crews, and our financial condition. Ebok Significant exploration costs incurred in 2008 include our farm-in for the development of the Ebok field located offshore South East Nigeria. In April 2008, we signed a farm-in agreement with Oriental, a leading Nigerian-based international oil and gas company, for the appraisal and potential development of the Ebok field. The first appraisal well on this discovery was spudded in November 2008. In July 2009, we allotted 2,701,138 ordinary shares with a market value 1.35 million to Energy Investment Holdings Limited, representing a milestone payment in relation to the Ebok project. In December 2009, Phase 1 of the Ebok development commenced, following completion of a three-well appraisal campaign. Production commenced at the Ebok field on April 30, 2011. Total costs as at October 31, 2011 (including signature bonuses paid) amounted to $1,023.0 million and as at December 31, 2010 amounted to $494.0 million. Okoro In 2006, we entered into a Production Sharing and Technical Services Agreement with Amni, the license holder, to further appraise and develop the Okoro and Setu fields within a defined exclusive area in the eastern part of the block. In accordance with this agreement, we funded the development costs for the field and provide technical services to Amni. In 2007, our interest in the Okoro field was transferred to tangible oil and gas assets in property, plant and equipment following receipt of final approval for the Field Development Plan from the Nigerian Government. In June 2008 the Okoro field came on stream. Pursuant to the arrangement with Amni, we are recovering our costs, plus an additional uplift, through production. Following the completion of the development and full production in the first half of 2009 with its associated depreciation, the carried value fell to $202.7 million as at October 31, 2011 from $223 million at December 31, 2010, as compared with $202.4 million as at October 31, 2010 and $264.3 million at December 31, 2009. In November 2010, we commenced a two-well infill drilling program, targeting the Lower Sand updip from the existing producing Okoro-4 and Okoro-5 wells. Following tie-back operations in early 2011, production started from these wells in April 2011, averaging around 4,900 bopd total incremental production. Cte dIvoire acquisition In September 2008, we completed the acquisition of Devon Energys interests in Cte dIvoire. This comprised a 48.0% working interest and operatorship of the producing Block CI-11; a direct 65% interest and operatorship (with rights over an additional 15% interest) in the undeveloped Block CI-01; and a 100% interest in the onshore Lion Gas Plant. The acquisition gave us a fully functioning, integrated upstream oil and gas and midstream business with high quality assets and approximately 100 experienced staff members. The adjusted consideration for the acquisition, including transaction costs and working capital adjustments, was $184.3 million. The transaction took the form of an acquisition of 100% of the ordinary shares of Devon Cte dIvoire Ltd (Block CI-11), Devon CI One Corporation (Block CI-01) and Lion G.P.L, SA (Lion Gas Plant). The cash outflow on acquisition (the total consideration, less cash and cash equivalents acquired, accrued consideration and non-cash costs of acquisition) was $168.7 million. Other intangible oil and gas assets Other intangible oil and gas assets with significant carrying balances as at October 31, 2011 relate to La Noumbi ($30.8 million), JDZ Block 1 ($18.4 million), Keta Block, Ghana ($21.2 million), Okwok ($40.5 million) and OPL 310 ($32.6 million). Additional amounts are payable in relation to JDZ Block 1 if proved reserves are discovered and upon approval of a field development program. The amount payable is based on the level of proved reserves and prevailing oil and gas prices and is subject to adjustment upon any subsequent amendments to such oil and gas reserves. Production bonuses are payable based on attainment of certain levels of cumulative production of crude oil. Contractual obligations and contingent liabilities The following table sets out our outstanding contractual obligations as of December 31, 2010.

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Payments due by period Less than 1 year 1-5 years (in thousands of $) More than 5 years

Contractual Obligations(1)

Total

Long-term debt obligations ........................................................................................ Operating lease obligations (FPSO)(2)........................................................................ Other operating lease obligations(3)............................................................................ Total ..........................................................................................................................
(1) (2) (3)

267,721 89,254 178,467 37,000 14,800 22,200 89,268 82,368 6,900 393,989 186,422 207,567

Contractual obligations do not include interest costs and do not include capital commitments presented below. Operating lease obligations related for the FPSO used on the Okoro field. See Our BusinessMaterial Agreements Relating to Our AssetsOkoro and Setu. Other operating lease commitments represents rentals payable by us for certain of our office properties, long term logistics contracts and contracts for use of other field facilities. Property leases are negotiated for an average term of three years and rentals are fixed for an average term of three years. See Our BusinessMaterial Agreements Relating to Our Assets.

We entered into a services contract for the provision of a floating production storage and offloading unit with Mercator on or about January 13, 2010 in connection with the Ebok field. The contract is characterized as a finance lease under IFRS, and our contractual obligation during the seven year term of the contract is $180 million, of which $150 million was recognized as a liability on acceptance of the FSO from Mercator in May 2011. The majority of the lease costs are capitalized and depreciated over the life of the field. On December 13, 2010, Afren plc, as lender, and Mercator, as borrower, entered into a facility agreement for $9.4 million pursuant to which Afren plc provided working capital funds. Mercator has been settling the facility in monthly installments of $1.0 million since March 2011. As is common within our industry, we have entered into various commitments and operating agreements related to the exploration and evaluation of and production from proved oil and gas properties. The following table sets out our future capital commitments for oil and gas asset development and oil and gas asset exploration and evaluation as at December 31, 2008, 2009 and 2010. These amounts represent our obligations during the course of the following year to fulfill our contractual commitments. We believe that such commitments will be met without a material adverse effect on our financial position, results of operation or cash flows.
At December 31, 2008 2009 2010 (in thousands of $)

Capital commitments Oil and gas assetsDevelopment .............................................................................................. Oil and gas assetsExploration & Evaluation ........................................................................... Total ...........................................................................................................................................

58,952 231,691 11,154 5,637 124,594 11,154 64,589 356,285

As at December 31, 2010, $163.0 million of the outstanding $231.7 million of capital commitments for development related to the FSO and MOPU in respect of the Ebok field. The increase as at December 31, 2009 compared to the previous period primarily represents commitments related to the development of Ebok. The decrease in development commitments to nil as at December 31, 2008 relates to our satisfaction of commitments in relation to the Okoro field and no further letters of credit outstanding in relation to development commitments. Our exploration and evaluation commitments as at December 31, 2010 and as at December 31, 2009 were primarily related to Nigeria, and as at December 31, 2008, our primary exploration and evaluation commitments related to a $6.0 million stand-by letter of credit issued by a bank in respect of contractual arrangements of the FPSO. As part of the contractual arrangements on the Ofa field in Nigeria, we may be liable for to a maximum of $0.5 million in respect of the abandonment should certain events specified in the contract occur. We have also entered into certain hedging arrangements. For a description of our hedging, see Qualitative and Quantitative Disclosures about Market Risk. Financing As noted above, our liquidity requirements arise principally from our capital expenditure and working capital requirements. For the periods presented, we met our working capital requirements primarily from the proceeds of equity and 78

debt financings and, beginning in October 2008, oil sales. Historically, we have utilized a combination of short and longterm financial instruments to supplement cash flow from operations to finance our cash needs and the growth of our business. We believe that, following the issuance of the Notes, our operating cash flows and borrowing capacity under the Ebok Facility and the proceeds of the Notes hereby will be sufficient to meet our requirements and commitments for at least the next twelve months. However, we are leveraged and have significant debt service obligations. Our actual financing requirements will depend on a number of factors, many of which are beyond our control. See Risk FactorsRisk factors relating to the NotesOur level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position. Equity financing In July 2011, we placed 83,679,544 ordinary shares, raising a total of 113.0 million ($184.5 million) before fees, which was used, together with cash and debt resources, to fund the Kurdistan Acquisitions. In November 2009, we raised 104.9 million ($175.0 million) before commissions and expenses by placing 129.5 million new ordinary shares with institutional investors, in conjunction with the admission of our shares to the Official List and to the London Stock Exchanges main market. In conjunction with the placing, certain shareholders including some of the Directors exercised 40 million warrants over ordinary shares issued pursuant to our Founders Scheme, raising 15.2 million (before expenses). In May 2009, we raised $126.3 million (before expenses) via a placement of 265 million shares with institutional investors. In July 2008, an agreement was reached for early conversion of our 41.3 million senior unsecured convertible bonds originally issued in July 2006. We issued 71.1 million shares upon conversion of the bonds. In April 2008, we raised $235.0 million (before expenses) via a placement of 95 million shares with institutional investors. Debt financing Total borrowings as at October 31, 2011 amounted to $742.3 million. The following table presents information on our borrowings as at October 31, 2011 as adjusted to give effect to the Offering.
Adjusted as at October 31, 2011 Noncurrent Current

Notes(1) ................................................................................................................................................. 2016 Notes(2) ........................................................................................................................................ Bank borrowings(2) ............................................................................................................................... Total ....................................................................................................................................................
(1) (2) Does not reflect deferred financing costs in connection with the Notes. Includes deferred financing costs.

86,000 86,000

300,000 481,012 175,278 956,290

Socar Facility On August 3, 2011, Afren plc, as borrower, and Socar Trading S.A., as agent and original lender, entered into a $50 million facilities agreement (the Socar Facility). The Socar Facility is intended for use by us for our general corporate purposes and has an interest rate of LIBOR plus 4.5%. Borrowings include a balance of $50 million at October 31, 2011. 2016 Notes On February 3, 2011, we issued $450,000,000 aggregate principal amount of 111/2% senior secured notes due February 1, 2016 (the Original 2016 Notes). The Original 2016 Notes were issued pursuant to an indenture dated February 3, 2011. Pursuant to this indenture, we issued an additional $50,000,000 aggregate principal amount of 111/2% senior secured notes due February 1, 2016 (the Additional 2016 Notes, and together with the Original 2016 Notes, the 2016 Notes). A portion of the proceeds of 2016 Notes offering was used to repay borrowings amounting to $175.6 million.

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Ebok Facility As of October 31, 2011, the borrowing capacity under the Ebok Facility was $228.4 million, and the outstanding balance as at October 31, 2011 was $217.8 million. As of January 1, 2012, commitments under the Ebok Facility were $245 million in accordance with the reduction schedule provided for in the Ebok Facility. The Ebok Facility began amortizing on January 1, 2012 with the first repayment due on July 1, 2012. In March 2010, we secured the Ebok Facility with a maturity of up to five years. The Ebok Facility is secured by (i) a fixed and floating charge and security over substantially all of the assets and undertakings of Afren Resources, (ii) a pledge by Afren Nigeria Holdings (Nigeria) Limited of the shares in Afren Resources, (iii) account pledges over Afren Resources onshore and offshore bank accounts and (iv) assignment of insurances, reinsurance rights and major contracts (including the floating production storage and offloading unit services contract entered into on or about January 13, 2010). This facility provides us with additional financial flexibility with respect to the broader EbokOkwok complex development program. The facility is available for development of the Ebok, Okwok and OML 115 areas, offshore Southeast Nigeria. The following table presents information on our debt maturity profile as at October 31, 2011 and December 31, 2008, 2009 and 2010.
As at December 31, As at October 31, 2011

2008

2009 2010 (in thousands of $)

Due within one year ................................................................................. Due within two to five years .................................................................... Due after five years .................................................................................. Total ........................................................................................................

111,218 293,496 405,164

117,634 149,446 267,080

89,254 178,467 267,721

86,000 656,290 742,290

We expect that we will be able to repay our borrowings through cash flow from operations. For a more detailed description of our financing contracts, including the covenants, see Description of Certain Financing Arrangements. Qualitative and Quantitative Disclosures about Market Risk Financial risk management Our principal financial instruments are cash and cash equivalents, trade and other receivables and our derivative instruments. We manage liquidity risk by ensuring that sufficient funds are available to meet our commitments as they fall due. We use projected cash flows to monitor funding requirements for our activities. Our exposure to the risk of changes in market interest rates is mitigated by regular reviews of available fixed and variable rate debts and taking the most favorable for our needs. The interest on our Ebok Facility, BNPP/VTB Facility and Socar Facility are all based on LIBOR plus a margin and therefore the interest charged is affected by movement in LIBOR. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to us. We review the credit risk of the entities that we sell our products to or that we enter into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to us. Our business is diversified in terms of both region and the number of counterparties and, other than transactions with major oil companies with high credit ratings and government organizations in Cte dIvoire, we do not have significant exposure to any single counterparty or group of counterparties with similar characteristics. We have a policy of depositing the majority of our cash with internationally recognized banks in Paris and London, some of which are entities backed by government guarantees. Our total maximum exposure to credit risk as at December 31, 2010 was $181.6 million, made up of cash and bank balances, derivative financial instruments and trade and other receivables. Liquidity risk management Liquidity and refinancing risks refer to the risk that we will not be able to obtain sufficient financing from lenders and the capital markets to meet our working capital and project financing and refinancing requirements. We maintain a 80

rolling 18 month cash flow forecast which is reviewed on an ongoing basis by senior members of the finance team and at least monthly by our Chief Executive Officer. Should the cash flow forecast show a reduced working capital level, then forecast expenditure profiles are reviewed and unfunded commitments deferred until new financing is obtained. Commodity price risk management
As at December 31, 2008 Current Noncurrent 2009 Current 2010 Noncurrent Current (in thousands of $) Noncurrent As at October 31, 2011 Noncurrent Current

Derivative assets .................................... Derivative liabilities............................... Total ......................................................

29,161 29,161

20,354 20,354

4,523 (5,240) (717)

2,153 (379) 1,774

(4,927) (4,927)

(499) (499)

14,491 (8,375) (13,758) (8,375) 733

In February 2012, we purchased additional deferred put options at $90/bbl for the second half of 2012 and deferred put spreads at $90/bbl and $60/bbl for 2013. These allow us to sell 300,000 bbls in 2012 at $90/bbl and a further 720,000 bbls in 2013 at $90/bbl. However, if the actual oil price falls below $60/bbl during 2013, we will be liable for the difference between the actual oil price and $60/bbl. This effectively limits the benefit of the 2013 hedges to $30/bbl above the market price in the event the actual price of oil falls below $60/bbl. The average cost of these new hedges is $4.32/bbl. In February 2011 and May 2011, we entered into hedging arrangements to protect against our exposure to the variability in the price of oil from production at our Ebok field. We purchased a number of deferred put options allowing us to sell approximately 5.9 mmbbl in the period from April 2011 to December 31, 2013 at a price of $90/bbl (1.5 mmbbl) and $80/bbl (4.4 mmbbl). Of these, 1.9 mmbbl of production were sold in 2011, 2.8 mmbbl of production will be sold in 2012 and 1.2 mmbbl of production will be sold in to 2013. The average cost of the hedges is $4.7/bbl, giving us effective protection and a price floor of $85.3/bbl in respect of the $90/bbl hedges and a price floor of $75.3/bbl in respect of the $80/bbl hedges. These instruments have been classified as cash flow hedges, with a portion of the gains and losses on the instruments that are determined to be an effective hedge taken to equity and the ineffective portion, as well as any change in time value, recognized in the income statement for each period. In 2007 and 2009, we entered into derivative financial instruments with respect to a portion of our production from Okoro field, such that we will receive a minimum price if the market price falls below certain levels, but will be subject to a discount from the market price if the oil price is above the minimum level. These instruments covered production through the end of 2011. During 2008, on acquisition of Block CI-11 in Cte dIvoire from Devon Energy, we entered into similar instruments to protect against variability in price of Block CI-11 crude oil production for 2008, 2009, 2010, 2011 and 2012. In the ten months to October 31, 2011, we had a loss of $9.7 million. For further description of these arrangements, see Description of Certain Financing ArrangementsHedging Arrangements. Critical accounting policies For a more detailed description on the preparation of our financial statements, please refer to our unaudited condensed consolidated interim financial statements and our consolidated financial statements and related notes included elsewhere in this Offering Memorandum. Exploration, evaluation and oil and gas assets We follow the successful efforts method of accounting for exploration and evaluation (E&E) costs rather than the full cost method, also allowed under IFRS. All license acquisition, exploration and evaluation costs are initially capitalized as intangible fixed assets in cost centers by field or exploration area, as appropriate, pending determination of commerciality of the relevant property. Directly attributable administration costs are capitalized insofar as they relate to specific exploration activities. Prelicense costs and general exploration costs not specific to any particular license or prospect are expensed as incurred.

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If prospects are deemed to be impaired (unsuccessful) on completion of the evaluation, the associated costs are charged to the income statement. If the field is determined to be commercially viable, the attributable costs are transferred to property, plant and equipment in single field cost centers. These costs are then depreciated on a unit of production basis. All field development costs are capitalized as property, plant and equipment. Property, plant and equipment related to production activities are amortized in accordance with our depletion and amortization accounting policy. Depletion and amortizationoil and gas assets All expenditure carried within each field is amortized from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field-by-field basis. Reserves estimates used for this calculation are based on 2P numbers derived from third party Competent Persons Report (CPR). Currently, we utilize the services of NSAI to produce these reports and ensure independent evidence of the likely reserves base. Costs used in the unit of production calculation comprise the net book value of capitalized costs plus the estimated future field development costs. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. These estimates are subject to annual management assessment and audit review. Where there has been a change in economic conditions that indicate a possible impairment in a discovery field, the carrying value of the assets at the balance sheet date are compared with the expected discounted cash flows from each project. For the discounted cash flows to be calculated, we use a production profile based on its best estimate of proven and probable reserves of the assets and a range of assumptions, including an internal oil price profile benchmarked to mean analysts consensus. In addition, we apply an appropriate project discount rate which is assessed on a project by project basis. Any impairment identified is charged to the income statement as additional depletion and amortization. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been charged since the impairment. Intangible assets We are required to assess impairment in respect of intangible exploration assets. Note 12 to our financial statements as of and for the year ended December 31, 2010, included elsewhere in this Offering Memorandum, discloses the carrying value of such assets. The triggering events are defined in IFRS 6. In making the assessment, we are required to make judgments on the status of each project and the future plans towards finding commercial reserves. The judgments will be based on the technical view of the probability of success and the likely size and nature of any accumulation, a commercial view on the likely cost of developing any discovery including offtake solutions and political risks and the future plans of the company. The status of each project is subject to annual management assessment and audit review. Decommissioning We reserve for decommissioning all development and production assets where we will have a liability at the end of the period of operation. Thus, we currently have decommissioning obligations in Nigeria and Cte dIvoire only. The extent to which a provision is required depends on the legal requirements at the date of commissioning, the costs and timing of work and the discount rate applied. Estimates are made of the total cost required to decommission a field and the likely timing of that decommissioning unsuccessful exploration wells are plugged and abandoned while successful wells are suspended as future producers. Dividend policy The Directors do not expect that we will pay any dividends in the foreseeable future, and in any event until such time as it is prudent to do so, having regard to the level of revenue generated by our operations and the retained earnings to fund our operations and exploration and development programs. For the foreseeable future, any earnings will be reinvested in developing our businesses.

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COUNTRY, INDUSTRY AND MARKET DATA Certain of the projections and other information set forth in this section have been derived from external sources including the BP Statistical Review of World Energy, the Energy Information Administration of the U.S. Department of Energy, BBC News Country Profiles and Wood Mackenzie, among others. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys and forecasts are reliable but we have not independently verified them and cannot guarantee their accuracy or completeness. The projections and forward-looking statements in this section are not guarantees of future performance and actual events and circumstances could differ materially from current expectations. Numerous factors could cause or contribute to such differences. See Risk Factors and Forward-Looking Statements. Regional Overview Between 1990 and 2010, Africas proven oil reserves have increased by 225% and Africas oil production has witnessed a 129% increase over the same period (Source: BP Statistical Review of World Energy, June 2011 (BP 2011)). There are an estimated 132.1 billion barrels of proved oil reserves in Africa, of which approximately 28% is located in Nigeria (Source: BP 2011). A significant proportion of our asset base lies in sedimentary basins along the West African margin. This margin was created by the rifting of South America from Africa, beginning in the earliest Cretaceous, and the subsequent opening of the South Atlantic. All basins share a history of early Cretaceous extension or transtension, followed by deposition of a later Cretaceous to Tertiary post-rift sequence. The early extensional tectonics created depocenters and structural trapping geometries. In most cases, the post-rift sequence has been modified to some extent by later tectonic or halokinetic processes, creating further potential structural and stratigraphic trapping configurations for hydrocarbons. Compared with other deepwater regions such as the Gulf of Mexico, Africas Atlantic margin is relatively under-explored. There are high expectations of discovery from the pre-salt succession in the deepwater of the Lower Congo Basin of Angola and Congo-Brazzaville and the pre-salt structures in deepwater Gabon are believed to contain gas. Nigeria General Nigeria is located in Western Africa, bordered by the Atlantic Ocean in the south and Cameroon, Benin and Niger in the east, west and north, respectively. The country is made up of 36 states and has a population of approximately 155 million, which consists of over 250 ethnic groups with the Hausa/Fulani, Yoruba and Igbo being the largest ethnic groups (Source: U.S. CIA World FactbookNigeria (CIA World FactbookNigeria). English is the official language and is widely spoken. The countrys capital is Abuja, located in the center of the country. Abuja is mostly a governmental administrative city with Lagos recognized as the commercial capital of the country. Nigerias currency is the Naira (N=) whose value ranged between approximately N==.0061 to .0065 per $1.00 during 2011. The countrys 2010 gross domestic product (GDP) using the official exchange rate was $216.8 billion with a GDP per capita of $2,500 (Source: CIA World FactbookNigeria). Nigerias political structure is a Federal regime with a strong central government supported by a bicameral legislature (the National Assembly) consisting of the Senate and House of Representatives. Currently there are a number of political parties with three major parties, namely the Congress for Progressive Change (CPC), Peoples Democratic Party (PDP) and Action Congress of Nigeria (ACN). The PDP is the dominant party with a majority of governors, a large majority of Senators and House of Representative Members as well as the President and Vice-President of the country (Source: CIA World FactbookNigeria). Overview of Oil and Gas Resources Nigeria has the second largest oil reserves and largest natural gas reserves in Africa and is the continents primary oil producer. According to the BP Statistical Review of World Energy, Nigeria holds the ninth largest natural gas reserves in the world. Nigerias proven oil reserves are estimated at approximately 37.2 billion barrels. The majority of Nigerias oil and gas reserves are found along the Niger River Delta and additional oil reserves are found offshore in the Bight of Benin, the Gulf of Guinea and the Bight of Bonny. The Nigerian economy is heavily dependent on its oil industry and oil revenue accounts for over 95% of export earnings and approximately 40% of government revenue. Over 40% of Nigerias oil 83

production is exported to the U.S. and the light, sweet quality crude is a preferred gasoline feedstock (Source: U.S. Department of Energy, Energy Information Administration (EIA), Country Analysis BriefsNigeria, August 2011 (EIANigeria, 2011)). Nigeria is pursuing a number of reforms targeted at restructuring its oil and gas industry. These initiatives include the streamlining and revision of obsolete laws, rules and policies that regulate operations in the industry. In 2008, the Nigerian government submitted to the National Assembly a Petroleum Industry Bill (PIB) that proposes various reforms. Despite several years of public hearings, debates and review, the PIB is yet to be passed into law. The ongoing debates have delayed oil investments and projects. In addition to the reform agenda, a significant issue facing Nigeria is the continued violence and militant activity in the Niger Delta region. Local groups seeking a share of the oil wealth often attack oil infrastructure and staff, forcing companies to declare force majeure on oil shipments. In addition, oil theft, commonly referred to as bunkering, has led to pipeline damage that has often been severe, causing loss of production and pollution, and has forced companies to shut-in production (Source: EIANigeria, 2011). As a member of OPEC, Nigeria has agreed to crude oil production limits that have varied over the years but is currently set at around 1.673 million bopd (Source: EIANigeria, 2011). Actual production has been largely unaffected by the quota system and is more impacted by militancy, civil unrest, labor disputes, operational issues and project deferrals (Source: Wood MackenzieNigeria, November 2011). In addition, following the Deepwater Horizon explosion in the U.S. Gulf of Mexico in April 2010, attention has been drawn to the environmental damage caused by oil spills in the Niger Delta. (Source: EIANigeria, 2010). See Risk FactorsRisk factors relating to our businessThe drilling rig explosion and oil spill in the Gulf of Mexico could increase our cost of doing business. The following table sets forth Nigerias oil and natural gas production and reserves for the year ended December 31, 2010.
For the year ended December 31, 2010

Production in Nigeria

Total oil production (thousand bopd) ................................................................................................................ Crude oil production (thousand bopd) ............................................................................................................... Natural gas production (bcf) ..............................................................................................................................

2,458.4 2,455.3 1,024

As of December 31, 2010

Reserves in Nigeria

Oil proved reserves (billion barrels) .................................................................................................................. Natural gas proved reserves (tcf) .......................................................................................................................
Source: U.S. Department of Energy, Energy Information Administration

37.2 185

Oil Production and Development The EIA estimates that Nigerias nameplate oil production capacity in 2010 amounted to approximately 2.9 million bopd, but that as a result of disruptions, monthly crude oil production ranged between 1.7 million bopd and 2.1 million bopd. Disruptions have been attributed to direct attacks on oil infrastructure as well as pipeline leaks and explosions resulting from bunkering (Source: EIANigeria, 2011). Nigeria produces oil from over 220 fields. Historically, most oil production in Nigeria has come from individual fields with an average production of less than 10,000 bopd. The majority of these fields are located onshore in the Niger Delta area. However, in more recent periods, there has been a significant production contribution from the shallow water Niger Delta and deepwater areas with the commissioning of some large scale projects (Source: Wood MackenzieNigeria, November 2011). Successive licensing rounds have resulted in the award of licenses for exploration blocks, comprising acreage in Nigerias onshore, continental shelf and deepwater areas. In the course of licensing rounds to date, awards have been made to both international and indigenous companies.

84

Offshore Nigeria and So Tom & Prncipe The So Tom & Prncipe JDZ is in the center of the Gulf of Guinea, a part of the Atlantic Ocean southwest of Africa, offshore Nigeria. The Gulf of Guinea is regarded by industry sources as one of the worlds most prospective oil and gas exploration regions, and that the acreage offshore Nigeria and So Tom & Prncipe holds large scale potential within the outermost toe-thrust zones of the Niger Delta. Natural Gas Production and Development In 2010, Nigeria produced approximately 1,024 bcf of marketed natural gas. The majority of Nigerias natural gas reserves are located in the Niger Delta and, as such, the sector is also impacted by the security issues affecting the Nigerian oil industry. Projects are often delayed or shut-in as a result of sabotage, bunkering and general insecurity. For example, the Escravos Gas to Liquids project was delayed until 2013 (from 2010) (Source: EIANigeria, 2011). In 2010, Nigeria flared 536 bcf natural gas, about a third of gross natural gas it produced. The NNPC claimed that gas flaring cost Nigeria $2.5 billion per year in lost revenue. Most of Nigerias marketed natural gas production is processed into liquefied natural gas (LNG) (Source: EIANigeria, 2011). Most of Nigerias oil fields produce significant amounts of associated gas, approximately 2 bcf per day of which is flared. Although the existing zero flaring legislation in Nigeria, the Associated Gas Re-injection Act, generally proscribes gas flaring, it empowers the Minister of Petroleum to permit flaring subject to certain conditions, including the payment of a fee prescribed from time to time for each standard cubic meter of gas flared. The government of Nigeria has been working to end natural gas flaring for several years, but the deadline to implement the policies and fine oil companies has been repeatedly postponed with some analysts pushing the date forward as far as 2013. In 2009, the Nigerian Government developed a Gas Master Plan (the Gas Master Plan) that would promote the development and utilization of gas in Nigeria with multiplier effects on the economy, including enabling new gas-fired power plants to be established, thereby reducing gas flaring and providing electricity generation. In the same year, the Gas Flaring Bill, which seeks to prescribe an ultimatum for gas flaring in Nigeria and impose significantly increased gas flaring penalties, was developed by the government; however, progress has been limited (Source: EIANigeria, 2011). For a further description of gas regulation in Nigeria, see Legal and Regulatory. NigeriaCompany Overview We currently hold a working interest in eight assets in Nigeria, spanning shallow water, offshore and onshore areas. One of our main assets in Nigeria is the Ebok field, located in offshore south east Nigeria. In April 2011, we commenced production at Ebok, and the field had an average production rate of 11,900 bopd for the period from the commencement of production through December 31, 2011. We also own a working interest in Okoro Setu. By the end of 2010, the Okoro field produced 13.9 mmbbls of oil and production averaged 16,055 bopd throughout the year. For a further description of our assets in Nigeria, see Our BusinessDescription of Our AssetsNigeria. Cte dIvoire General Cte dIvoire is located in Western Africa, bordered by Liberia and Guinea to the west, Mali and Burkina Faso to the north, Ghana to the east and the Gulf of Guinea to the south. Cte dIvoires population is over 21 million (Source: CIA World FactbookCte dIvoire). French is the official language; however, over 65 languages are spoken in Cte dIvoire. Yamoussoukro is the countrys capital with Abidjan as the commercial and administrative center (Source: CIA World FactbookCte dIvoire). The currency is the West African CFA franc (XOF) whose value ranged between approximately XOF=.0020 and .0022 per $1.00 during 2011. Cte dIvoire is the worlds largest producer and exporter of cocoa beans and a significant producer and exporter of coffee and palm oil. Since 2006, oil and gas production have become important areas of economic growth. The countrys GDP for 2010 at the official exchange rate was estimated at $37.02 billion with a GDP per capita estimated at $1,800 (Source: CIA World FactbookCte dIvoire). The government of Cte dIvoire is a semi-presidential republic with an executive branch, legislative branch and judicial branch. The legal system is based on French civil law. The country is divided into 19 administrative regions that are responsible for voting on members of the unicameral National Assembly (Source: CIA World FactbookCte dIvoire). 85

Overview of Oil and Gas Resources Gas is the dominant source of power generation in Cte dIvoire, with current demand met by existing domestic production but with limited capacity to satisfy the significant forecast demand growth over the medium to longer term. The gas reserves discovered in the 1980s have begun to be developed and utilized. The main producing fields include Lion, Panthre and Foxtrot. Cte dIvoires recoverable oil reserves have been estimated at 100 million barrels (Source: U.S. Department of Energy, EIA, Cte dIvoire Energy Profile, 2010 (EIACte dIvoire 2010)) and the estimated recoverable gas reserves ranges from 673 bcf (Source: Wood Mackenzie, Nigeria and Central Africa Upstream ServiceCte dIvoire, April 2011 (Wood MackenzieCte dIvoire, April 2011)) to 1 tcf (Source: EIACte dIvoire 2010). The following table sets forth Cte dIvoires oil and natural gas production and reserves for the year ended December 31, 2010.
For the year ended December 31, 2010

Production in Cte dIvoire

Total oil production (thousand bopd) ................................................................................................................ Crude oil production (thousand bopd) ............................................................................................................... Natural gas production (bcf) ..............................................................................................................................

44.9 43.8 57
As of December 31, 2010

Reserves in Cte dIvoire

Oil proved reserves (billion barrels) .................................................................................................................. Natural gas proved reserves (tcf) .......................................................................................................................
Source: U.S. Department of Energy, Energy Information Administration

0.1 1

Oil Production and Development Approximately 134 exploration and appraisal wells have been drilled in the Cte dIvoire Tano Basin, with varying success rates. Approximately 106 of these wells have been drilled in water depths less than 400 meters, targeting the Albian stratigraphic traps. Between the late 1970s and early 1980s, ExxonMobil, Agip and Phillips were among the operators that carried out drilling campaigns. Drilling activity increased in the late 1990s and the Baobab field was discovered by CNR in 2001. The Baobab field was the first significant hydrocarbon discovery in water depths greater than 1,500 meters to be made in Cte dIvoire. Subsequent drilling activity has been met with mixed results. However, seismic data has suggested that the potential for large scale structures, analogous to those that have yielded recent large discoveries in Ghana, exists in Cte dIvoire, which has generated significant interest from a number of operators (Source: Wood MackenzieCte dIvoire, April 2011). Natural Gas Production and Development Natural gas production started in Cte dIvoire in 1995 when the Panthre gas field was introduced onstream. The Foxtrot gas field in Cte dIvoire started production in 1999. The Foxtrot gas field has delivered an annual average of 70 mmcfd of gas to various internal gas markets under the take-or-pay contract which has been in place since 1997. According to Wood Mackenzie, during 2008, Foxtrot International initiated discussions with the Cte dIvoire government with a view to increasing the take-or-pay contract to 130 mmcfd and also plans to develop the Mahi field in Cte dIvoire. Cte dIvoires Espoir field has undergone re-development and came onstream in February 2002. Natural gas production at Espoir is expected to be maintained at a level of 20-25 mmcfd until approximately 2020 (Source: Wood MackenzieCte dIvoire, April 2011). Cte dIvoireCompany Overview We engage in production, appraisal and exploration activities in Cte dIvoire and currently hold three assets in the country, CI-11, CI-01 and the Lion Gas Plant. CI-11 is an oil and natural gas production site, and we are currently developing appraisal and exploration opportunities at CI-01. The Lion Gas Plant processes gas from CI-11 and two adjacent blocks operated by Canadian Natural Resources. The plant has an inlet capacity of 75 mmcfd and strips gasoline and butane from the gas stream. This butane is sold on the local market, and the gasoline is released into the CI-11 crude stream and sold on the international market. For a further description of our assets in Cte dIvoire, see Our BusinessDescription of Our AssetsCte dIvoire. 86

Ghana General Ghana is located in Western Africa, bordered by Cte dIvoire and Burkina Faso to the west, Togo to the east and the Gulf of Guinea to the south. Ghana has a population of over 24 million (Source: CIA World FactbookGhana). English is the official language; however, Ghana is home to over 100 different ethnic groups and many people speak at least one additional local language. Accra is the capital (Source: CIA World FactbookGhana). The currency is the Ghanaian cedi (GHS) whose value ranged between approximately GHS=.6021 and .6609 per $1.00 during 2011. Ghanas economy continues to revolve around agriculture, with oil production expected to increase in the coming years. Gold and cocoa production, in addition to individual remittances, are the major sources of foreign exchange in Ghana. The countrys GDP for 2010 at the official exchange rate was estimated at $31.08 billion with a GDP per capita estimated at $2,500 (Source: CIA World FactbookGhana). The government of Ghana is a constitutional democracy with an executive branch, legislative branch and judicial branch. The legal system is based on English common law. The country is divided into 10 administrative regions that are responsible for voting on members of the unicameral Parliament (Source: CIA World FactbookGhana). Overview of Oil and Gas Resources Oil production in Ghana commenced in 1978 when the Saltpond field came onstream. Ghana has historically only had a modest upstream oil industry with its one onshore and five offshore sedimentary basins, which have not been extensively explored. More recently, Ghana has experienced considerable exploration and appraisal success, with discoveries in the deepwater Cretaceous fairways opening up a world class hydrocarbon exploration province. In June 2007, Kosmos Energy drilled its first exploration well on the West Cape Three Points Block and discovered the Mahogany field. This was followed, also in 2007, by Tullow Oils Hyedua-1 exploration well on the Deepwater Tano Block which also encountered a significant oil accumulation. The results of the Hyedua-1 well confirmed the Mahogany-Hyedua field as one continuous structure, extending across the two blocks. This new field was renamed Jubilee. Jubilee was the largest discovery to be made in Sub-Saharan Africa during 2007 with initial probable reserves estimated at 480 million barrels (subsequently upgraded to over one billion barrels following successful appraisal wells). Tullow Oil has been designated the operator of the Jubilee field. (Source: Wood Mackenzie, Nigeria and Central Africa Upstream ServiceGhana, November 2011 (Wood MackenzieGhana, November 2011)). The Dzata field, discovered in early 2010, encountered a gas/condensate reservoir similar to the Baobab field in Cte dIvoire. The Tweneboa-2 appraisal well was also completed in the first quarter of 2010. The appraisal results have led to the review of the Tweneboa recoverable reserves from 250 to 400 mmboe. On the West Cape Three Points Block, the Dahoma-1 exploration well was completed in April 2010; however, the well encountered was dry (Source: Wood MackenzieGhana, November 2011). The following table sets forth Ghanas oil and natural gas production and reserves for the year ended December 31, 2010.
For the year ended December 31, 2010

Production in Ghana

Total oil production (thousand bopd) ................................................................................................................ Crude oil production (thousand bopd) ............................................................................................................... Natural gas production (bcf) ..............................................................................................................................

8.9 7.2 0
As of January 1, 2011

Reserves in Ghana

Oil proved reserves (billion barrels) ................................................................................................................... Natural gas proved reserves (tcf) ........................................................................................................................
Source: U.S. Department of Energy, Energy Information Administration

0.7 0.8

87

Oil Production and Development Oil production in Ghana commenced in 1978 when the Saltpond field came onstream. It produced a total of four million barrels over six years, peaking at 3,000 bopd. Saltpond was shut down in 1985 as production dropped to about 250 bopd. The field was redeveloped and brought back onstream in June 2002. Daily production from the field is approximately 500 bopd. The Jubilee field partners have opted for a phased development. Phases 1, 1b and 1c are expected to develop the Jubilee Unit Area and are expected to exploit 700 million barrels. Wood Mackenzie estimated that production from Phase 1 will peak at 120,000 bopd by the middle of 2012 (Source: Wood MackenzieGhana, November 2011). Natural Gas Production and Development According to Wood Mackenzie, Jubilee has 1 tcf of associated gas reserves. The Ghanaian government recently agreed on commercial terms for development of the Jubilee associated gas. Under the terms of the agreement, GNPC will take the first 200 bcf of gas free, after which the gas price will be consistent with the West Africa Gas Pipeline price. Wood Mackenzie anticipates that commercial gas production from Jubilee will start in 2013 and expects that the gas supply from the Jubilee field will be based on the Ghanaian domestic demand and the potential start up of the West Africa Gas Pipeline Project. The West Africa Gas Pipeline Project, which was commissioned in April 2010, could influence gas supply from the Jubilee field, as this gas is on a take-or-pay contract. Wood Mackenzie expects the gas supply from Jubilee will be based on the growth in the Ghanaian domestic demand. The potential also exists for additional gas production to come from the Tweneboa and the shallow Tano fields. Wood Mackenzie estimates the Tweneboa field has about 858 bcf of associated gas reserves and Wood Mackenzie does not model the reserves from the Tweneboa and shallow Tano fields (Source: Wood MackenzieGhana, November 2011). GhanaCompany Overview We have a 35% working interest in the Keta Block, which is located along the prolific West African Transform Margin. Studies conducted on Keta Block have yielded positive results and demonstrate the potential for significant oil discoveries. For further information on our assets in Ghana, see Our BusinessDescription of Our AssetsGhana. Congo-Brazzaville General Congo-Brazzaville (Congo) is located in Central Africa, bordered by Cameroon and the Central African Republic to the north, Gabon to the west and the Democratic Republic of the Congo to the south and east, with Angola and the Atlantic Ocean to the south west. Congo has a population of over 4 million (Source: CIA World FactbookCongo). French is the official language; however, as with many of its neighboring countries, there are many local languages and dialects. Brazzaville is the capital (Source: CIA World FactbookCongo). The currency is the Central African CFA franc (XAF) whose value ranged between approximately XAF=.0020 and .0022 per $1.00 during 2011. Congos economy is a mixture of agriculture with an industrial sector based largely on oil and support services. Oil has replaced forestry as the countrys mainstay, providing a major share of government revenue and national exports. The countrys GDP for 2010 at the official exchange rate was estimated at $11.53 billion with a GDP per capita estimated at $4,100 (Source: CIA World FactbookCongo). The government of Congo is a republic with an executive branch, legislative branch and judicial branch. The legal system is based on a mixture of French civil law and customary law. The country is divided into ten administrative regions that are responsible for voting on members of the bicameral Parliament (Source: CIA World FactbookCongo). Overview of Oil and Gas Resources Congo is the fifth largest oil producer in Sub-Saharan Africa. The city of Pointe Noire is the main hub of the countrys oil industry. Congos total oil production amounted to approximately 302.2 thousand bopd in 2010 and approximately 0.3% of the world total (Source: U.S. Department of Energy, EIA, Congo (Brazzaville) Energy Profile (EIACongo, 2010)). Congos total natural gas production amounted to approximately 298 bcf in 2010 (Source: EIA Congo, 2011). Oil and gas production in the country has increased over the past several years due to an upsurge in investment and high oil prices on the international market. The following table sets forth Congos oil and natural gas production and reserves for the year ended December 31, 2010. 88

Production in Congo-Brazzaville

For the year ended December 31, 2010

Total oil production (thousand bopd) ................................................................................................................ Crude oil production (thousand bopd) ............................................................................................................... Natural gas production (bcf) ..............................................................................................................................

302.2 302.7 298

As of December 31, 2010

Reserves in Congo-Brazzaville

Oil proved reserves (billion barrels) .................................................................................................................. Natural gas proved reserves (tcf) .......................................................................................................................
Source: U.S. Department of Energy, Energy Information Administration

1.6 3.2

Oil Production and Development The first oil production in Congo commenced in 1960, when the small onshore Pointe Indienne field came onstream. Only modest amounts of oil were produced. Offshore production commenced in 1972 with the start-up of the Emeraude field. Actual production rates from this field have never been high, but the field is expected to have a long life of 40 years and is still likely to be producing after many of Congos more recent field developments have been abandoned. The most significant of the recent offshore developments, the NKossa field, commenced production in June 1996. This is one of the largest developments in Congo and production from this field, despite being significantly lower than originally expected, has been sufficient to offset the decline in Congos older fields (Source: Wood Mackenzie West Africa Upstream Service Congo (Brazzaville), July 2011 (Wood MackenzieCongo (Brazzaville), July 2011)). The large onshore MBoundi field is another major contributor to Congos oil production, after coming onstream in 2003. Production from the development pushed total Congo production to over 270,000 bopd in 2006. Moho Bilondo was the first deepwater project to come onstream in Congo in 2008. Production from the other Mer Zone D fields is due by the end of 2016, which will push the developments total output to over 100,000 bopd. This will help stem Congos production decline going forward (Source: Wood MackenzieCongo (Brazzaville), July 2011 and May 2010). Natural Gas Production and Development Most of the associated gas in Congo is currently either flared or used in field operations (for power, re-injection and gas lift). A small amount of associated gas from Enis Kitina, Djambala and Foukanda fields is separated onshore at Djeno and used in a 25 MW power plant. The government is increasingly putting pressure on the oil companies to stop flaring and utilize gas (Source: Wood MackenzieCongo (Brazzaville), July 2011). Congo-BrazzavilleCompany Overview We currently own a 14% working interest in La Noumbi, a permit located onshore, to the north of and on trend with the large producing MBoundi oil field in Congo-Brazzaville. Exploration is in progress, and the field has gross prospective resources of 251 mmbbls. For a further description of our assets in Congo-Brazzaville, see Our BusinessDescription of Our AssetsCongo- Brazzaville. East Africa While oil and gas exploration in East Africa is still in its infancy, activity in and focus on the region are increasing. Such increased attention is partially attributable to two notable successes, the discovery by Tullow Oil of over one billion boe in Uganda and the Anadarko and Sasol Oil (Proprietary) Limited finds of recoverable gas reserves of 2 tcf each in Mozambique (Source: Wood Mackenzie, Upstream Insight, East Africa: much promise, but a long-term play, September 2010 (Wood MackenzieEast Africa, September 2010)). Following these relatively recent successes, it is expected that greatest activity in East Africa will be in Uganda and Mozambique; however, interest is also developing in other countries in East Africa, including Madagascar, Ethiopia, Kenya and Tanzania. Madagascar does not currently produce oil or gas and, while there has been a large heavy oil field discovery this is not yet in production. A small gas discovery is unlikely to be developed in light of the lack of domestic market (Source: Wood Mackenzie, Southern & East Africa Upstream Service, Country OverviewMadagascar, December 2011). To date, Ethiopia and Kenya each do not have any known or discovered oil fields. Ethiopia does, however, have two technical gas fields with reserves of 4 tcf in aggregate (Sources: Wood Mackenzie, Southern & East Africa Upstream 89

Service, Country OverviewEthiopia, July 2011 and Wood Mackenzie, Southern & East Africa Upstream Service, Country OverviewKenya, November 2011). Oil and gas exploration in Tanzania is still in the early stages; however the country is planning a licensing round for deep water blocks in 2012. All of Tanzanias current gas and oil production is sourced from two fields, the Songo Songo and Mnazi Bay gas fields, which hold 930 and 500 bcf of recoverable gas reserves, respectively. There are plans to develop a third field, the Kiliwani North field in the near future (Source: Wood MackenzieTanzania, October 2011). Due to the increasing exploration interest in East Africa, and the discovery of deepwater gas reserves in Tanzania, competition for the licenses is expected to be substantial. (Source: Wood MackenzieTanzania, October 2011). Notwithstanding known reserves in the region, commercializing any find will be challenging and is not expected to occur until the latter half of this decade (i.e., 2015-2020) (Source: Wood MackenzieEast Africa, September 2010). The principal obstacles to commercialization in this region are a lack of domestic market and insufficient infrastructure. Oil markets in East Africa are more developed than gas markets (which are small and limited) and, consequently, it is expected that the commercialization of oil discoveries will be easier. The relatively recent successes, coupled with a worldwide push by large international oil companies into frontier acreage, have resulted in increasing acreage in the most prospective basins being licensed. Opportunities, therefore, have now arisen for farm-ins and acquisitions to occur with greater frequency in this region. East AfricaCompany Overview We currently have interests in assets in Ethiopia, Madagascar, Kenya, Seychelles and Tanzania. These assets cover an extensive geographic area of 135,880 km2 on a gross basis, and are focused on Cretaceous, Jurassic and Tertiary rift basins. For a further description of our assets in East Africa, see Our BusinessDescription of Our AssetsEast and Southern Africa. South Africa General South Africa is located at the southern tip of Africa, and is bordered by the Indian Ocean, the South Atlantic Ocean, Namibia, Botswana, Zimbabwe, Lesotho, Swaziland and Mozambique. The country is made up of nine provinces and has a population of approximately 50 million (Source: CIA World FactbookSouth Africa). The country has eleven official languages, with the most widely spoken being IsiZulu, IsiXhosa, and Afrikaans. English is also an official language. The countrys capital is Pretoria, located in the northeast of the country. Pretoria is mainly a governmental administrative city while Cape Town is recognized as the commercial capital of the country. South Africas currency is the Rand (ZAR) whose value ranged between approximately 1218 and .1446 ZAR per $1.00 during 2011. The countrys 2010 GDP using the official exchange rate was $357.3 billion with a GDP per capita of $10,700 (Source: CIA World FactbookSouth Africa). South Africas political structure is a parliamentary republic with a strong central government supported by a bicameral legislature consisting of the National Council of Provinces and the National Assembly. Currently there are a number of political parties with the two major parties being the African National Congress (ANC) and the Democratic Alliance. The ANC has a majority in the legislature, and the current President is also a member of the ANC (Source: CIA World FactbookSouth Africa). Overview of Oil and Gas Resources South Africa is predominately a coal producing country and has a limited number of conventional oil and natural gas deposits. South Africas proven oil reserves are estimated to be approximately 15 million barrels as of January 2011. All of South Africas gas and oil production originates offshore in the Outeniqua Basin (Source: Wood MackenzieSouth Africa, December 2011). The following table sets forth South Africas oil and natural gas production and reserves for the year ended December 31, 2010.
For the year ended December 31, 2010

Production in South Africa

Total oil production (thousand bopd) ................................................................................................................ 90

182.6

Crude oil production (thousand bopd) ............................................................................................................... Natural gas production (bcf) ..............................................................................................................................

168.5 34
As of December 31, 2010

Reserves in South Africa

Oil proved reserves (million barrels) ................................................................................................................. Natural gas proved reserves (tcf) .......................................................................................................................
Source: U.S. Department of Energy, Energy Information Administration

20.0

Oil Production and Development South Africas first oil field, Oribi, emerged in 1997. Oryx was the second oil field to come onstream in 2000, followed by the Sable oil field in 2003, which ceased production in 2008 (Source: Wood MackenzieSouth Africa, December 2011). All of South Africas proven and potential petroleum resources are located in eight offshore basins and sub-basins. Almost all of the oil companies exploiting these oil reserves are indigenous, and the Petroleum Oil and Gas Corporation of South Africa (PetroSA) holds most offshore licenses. Over 60% of drilling explorations have taken place in the Bredasdorp Basin on the southern coast, and the Orange Infanta and Pletmost basins host the majority of remaining drilling operations. The Bredasdorp, Orange, and Pletmos basins are likely to have the most commercially viable discoveries. Due to the countrys relatively small oil production industry, oil infrastructure is limited (Source: Wood MackenzieSouth Africa, December 2011). Natural Gas Production and Development Offshore gas production commenced in 1992 at Mossel Bay. PetroSA operates the GTL plant, which may be closed in the near future due to declining reserves. More exploration of Mossel Bay is needed if the GTL plant is to stay open. Indeed, all onstream gas reserves are expected to be fully depleted by 2015; however, a new field project is expected to commence in 2013 and may produce for up to ten years (Source: Wood MackenzieSouth Africa, December 2011). In 2010, South Africa produced an estimated 34 bcf of natural gas. Natural gas exploration has come onshore in recent years, and several international oil companies have investigated exploration of the Karoo Basin for natural gas reserves. It is estimated that South Africa could hold significant shale gas resources; however, in 2011, the South African government issued a moratorium on onshore licensing in an effort to address the negative environmental repercussions of hydraulic fracturing in the region. Once the ban is lifted, it is expected that exploration activity will increase substantially (Source: Wood MackenzieSouth Africa, December 2011). South AfricaCompany Overview We own a 25% equity interest in Block 2B, located on the Orange River Basin offshore shallow water area. Oil was successfully discovered in 1989 at the A-J1 exploration well and the 2010 gross prospective resources were 250 mmbbls. Exploration drilling at this site is expected to commence in 2012. For further information on our asset in South Africa, see Our BusinessDescription of Our AssetsEast and Southern Africa. Iraq General Iraq is located in the Middle East, and is bordered by Turkey, Iran, the Persian Gulf, Kuwait, Saudi Arabia, Jordan, and Syria. Iraq has a population of over 30 million, which consists of several ethic groups, the most prevalent being Arab, Kurdish, Turkoman, and Assyrian. Arabic and Kurdish are the official languages (Source: CIA World FactbookIraq). The country is comprised of 18 administrative divisions known as governorates, and the capital is Baghdad (Source: CIA World FactbookIraq). Iraqs currency is the Iraqi dinar (IQD), whose value remained at approximately .0008 per $1.00 during 2011. The countrys 2010 GDP based on the official exchange rate was $82.15 billion with a GDP per capita of $3,800 (Source: CIA World FactbookIraq). Iraqs political structure is an Islamic, democratic, federal parliamentary republic, which is supported by a unicameral legislature. The major political parties of the legislature are the Iraqi National Movement and the State of Law coalition, which secured 25.9% and 25.8% of election votes in 2010, respectively. Apart from established political parties, 91

there are also political pressure groups, such as Sunni and Shia militias, that associate with and seek to influence political parties (Source: CIA World FactbookIraq). Kurdistan Region of Iraq The Kurdistan Region of Iraq is located in northern Iraq and has a population of over four million. The Kurdistan Region of Iraq is comprised of three provinces or governorates, with the most widely spoken language being Kurdish. The Kurdistan Regional Government (the KRG) exercises executive power according to the Kurdistan Region of Iraqs laws as enacted by the democratically elected Kurdistan Parliament. Iraqs Constitution recognizes the KRG and the Kurdistan Parliament as the Kurdistan Region of Iraqs institutions, and the Peshmerga guard as the legitimate regional forces. Overview of Oil and Gas Resources Iraqs economy is dominated by the oil sector, which provides over 90% of government revenue and 80% of exports. Since mid-2009, Iraqi oil export earnings have rebounded to pre-conflict levels, and oil production has been relatively stable at around 2-2.5 million bopd. In 2010, Iraq was the worlds twelfth largest oil producer and possessed the worlds fourth largest proven petroleum reserves, containing over 100 billion barrels of proven and probable oil reserves. In 2010, Iraq produced approximately 2,408 thousand bopd, and the majority of its exports were to refineries in Asia. In 2010, Iraqs proven gas reserves were 112 tcf, the tenth largest in the world (Source: EIAIraq 2010). The federal Ministry of Oil centrally controls all oil and gas production and development throughout the country, with the exception of the Kurdistan Region of Iraq. In the Kurdistan Region of Iraq, the KRG has asserted control over oil production, development, and exploration; however, the federal Ministry of Oil has disputed the KRGs authority to conduct oil affairs (Source: EIAIraq 2010). The following table sets forth Iraqs oil and natural gas production and reserves for the year ended December 31, 2010.
For the year ended December 31, 2010

Production in Iraq

Total oil production (thousand bopd) ................................................................................................................ Crude oil production (thousand bopd) ............................................................................................................... Natural gas production (bcf) ..............................................................................................................................

2,408.5 2,411.6 46
As of December 31, 2010

Reserves in Iraq

Oil proved reserves (billion barrels) .................................................................................................................. Natural gas proved reserves (tcf) .......................................................................................................................
Source: U.S. Department of Energy, Energy Information Administration

115.0 112

Oil Production and Development The first major oil discovery in Iraq was in 1927. By the 1960s, only a limited number of international oil companies had been awarded with contracts and no significant development occurred. Furthermore, UN sanctions from 1990 to 2003 prevented direct foreign participation in Iraqs oil sector. In 2009, Iraq conducted its first petroleum licensing round for six oil field contracts and conducted two subsequent rounds in December 2009 and September 2010. A fourth round is scheduled to take place in March 2012 but has been repeatedly delayed (Source: Wood MackenzieIraq, December 2011). The first licenses in the Kurdistan Region of Iraq were issued in the early 2000s, and licensing has increased sharply since the passage of the Kurdistan Region Oil and Gas Law in 2007. Indeed, there are currently more operating licenses in the Kurdistan Region of Iraq than in the remainder of Iraq. The licenses were awarded through direct negotiations, not competitive biddings. The federal Ministry of Oil has disputed the constitutionality of the KRG awarding its own oil contracts without the consent of the federal government. Jurisdiction over oil reserves located in the Kurdistan Region of Iraq remains under dispute. Draft federal oil and gas legislation which would address, inter alia, the status of the licenses awarded by the KRG has been under consideration since 2007 but none of the various drafts has yet been enacted (Source: Wood MackenzieIraq, December 2011). Vast amounts of Iraqs oil reserves remain unexploited; approximately 80 oil and gas fields have been discovered and less than 30 have been developed. This is in part due to the countrys poor oil infrastructure following years of war and 92

sanctions. While undeveloped oil fields exist throughout the country, the Mesopotamian sedimentary basin in particular reportedly has significant oil development potential. Oil reserves have recently been discovered in northern Iraq and the Kurdistan Region of Iraq, rendering this region one of the most active oil exploration areas in the Middle East (Source: Wood MackenzieIraq, December 2011). It is estimated that Iraq holds oil reserves of approximately 115 billion barrels of oil. The majority of known oil and gas reserves are located along the eastern edge of the country. Nine fields are referred to as super giant fields, producing over 5 billion bbls, and 22 are known as giant fields, producing over 1 billion bbls. The super giant fields are concentrated in southeastern Iraq and account for 70% to 80% of the countrys proven oil reserves. Approximately 20% of the countrys oil reserves are in the north of Iraq, and control of these reserves has been a source of conflict between the ethnic Kurds and other ethnic groups in the area. The two most important fields in Iraq are the Kirkuk field in northern Iraq and the Rumaila field in southern Iraq. These two fields alone make up more than 50% of Iraqs oil production (Source: Wood Mackenzie Iraq, December 2011 and EIAIraq, 2010). Over the past four years, the federal Ministry of Oil has rapidly opened its petroleum sector to foreign participation, awarding oil field development licenses and contracts to several international oil companies. More than 90 billion barrels of proved and probable oil reserves are currently under contract. Consequently, the oil production capacity of Iraq has significantly increased and Iraq targets oil production of 12 million bbl per day by 2017. However, a lack of infrastructure, the uncertain political climate, and security risks may compromise oil development in the country as power struggles, violent attacks and conflict over oil reserves continue (Source: Wood MackenzieIraq, December 2011 and EIAIraq 2010). Natural Gas Production and Development Gas processing facilities began installation in Iraq in the 1970s, and produced approximately 700 mmcfd by the 1980s. Since the 1980s, output has been on the decline following decades of war. Currently, Iraq has over 100 tcf of gas reserves, and an estimated 260 tcf of undiscovered natural gas. Natural gas is predominately used for power generation, reinjection for oil recovery, as well as for some industrial uses such as fertilizer and cement production. Approximately 70% of natural gas reserves are found in the Basra province, located in the south of Iraq, and the unexplored Western Desert is reportedly rich in gas reserves. Around two-thirds of Iraqs natural gas resources are associated with oil fields. The two main gas processing plans are at Kirkuk and Rumalia (Source: EIAIraq, 2010 and Wood MackenzieIraq, December 2011). Natural gas production increased significantly in the mid-2000s, from 81 bcf in 2003 to 522 bcf in 2008, but efficient use of this resource has not yet been realized. Over 40% of the gas produced in 2008 was flared due to inadequate infrastructure, and Iraqs five natural gas processing plants, which have the capacity to produce over 773 bcf per year, are idle. To curb flaring, Iraq has developed projects to capture flared gas for domestic use. Iraq created the Basra Gas Company in November 2011, which is planning investments in gas processing facilities aimed at preventing flaring and increasing production. Additionally, the government awarded three major gas development projects in 2011 (Source: EIA Iraq, 2010 and Wood MackenzieIraq, December 2011). IraqCompany Overview We currently own a 60% interest in the Barda Rash production sharing contract and a 20% interest in the Ain Sifni production sharing contract. Both the Barda Rash and Ain Sifni fields are located in the Kurdistan Region of Iraq. The Barda Rash field was discovered in 2009 and we have implemented a three phase plan to develop the Barda Rash field. For a further description of Afrens assets in Iraq, see Our BusinessDescription of Our AssetsKurdistan Region of Iraq.

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LEGAL AND REGULATORY Like other participants in the industry, we are subject to various laws and regulations administered by local, national and other government entities, and similar agencies in the countries in which we operate. The oil and gas industry is subject to extensive laws in these jurisdictions that are subject to change. These laws have a significant impact on oil and gas exploration, development production and marketing activities, and could potentially increase the cost of doing business, and consequently, affect profitability. Some of the legislation and regulation affecting the oil and gas industry in the jurisdictions in which we operate carry significant penalties for failure to comply. While there can be no assurance that we will not incur fines or penalties, we believe that we are currently in substantial compliance with all material governmental laws and regulations affecting our business and maintain all material permits and licenses relating to our operations. Because the enactment of new laws affecting the oil and gas business is common and because existing laws are often amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. We do not expect that any of these laws would affect us in a materially different manner than any other similarly sized oil and gas company operating in the jurisdictions in which we conduct our business. From time to time, we receive notices and inquiries from regulatory authorities and others asserting that we are not in compliance with such laws and regulations. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. See Our BusinessLegal and Arbitration Proceedings. Oil and natural gas production is regulated under a wide range of statutes, rules orders and regulations in the jurisdiction in which we operate, including laws related to location of wells, drilling and casing of wells, well production limitations; spill prevention plans; surface use and restoration; platform, facility and equipment removal; the calculation and disbursement of royalties; the plugging and abandonment of wells; bonding; permits for drilling operations; and production, severance and ad valorem taxes. Oil and gas companies may encounter delays in drilling as a result of bureaucratic processes and requirements for obtaining relevant permits and other authorizations. Our operations are subject to regulations governing operation restrictions and conservation matters, including provisions for the unitization or pooling of oil and natural gas properties in straddling fields, the establishment of maximum rates of production from oil and natural gas wells, and prevention of flaring or venting of natural gas. The conservation laws have the effect of limiting the amount of oil and gas we can produce from our wells and limiting the number of wells or the locations at which we can drill. Below is a summary of certain key legal and regulatory regimes that we operate under in Nigeria and the Kurdistan Region of Iraq, where the majority of our assets are located. For a discussion of certain risks associated with the countries in which we operate, see Risk FactorsRisk factors relating to the countries in which we operate. Nigeria Nigerias OPEC Quota Nigeria is a member of OPEC and is subject to OPEC regulations and quotas for the control of production of oil, which may cause fluctuations in our production levels. Government Regulations By the provisions of the Nigerian Constitution and the Petroleum Act (PA), ownership of petroleum is vested in the Nigerian Government on behalf of the people of Nigeria. Thus, the exploration and production of natural gas and crude oil is regulated by the Nigerian Government. In addition, each state in which oil and gas business is undertaken has laws on environmental standards, land ownership and land use, which may restrict or prohibit transportation and storage of oil and natural gas in certain areas. The former Minister of Petroleum Resources in Nigeria from December 2008 to March 2010, Dr. Rilwanu Lukman, is one of our founders and a former member and Chairman of our Board of Directors. Upon his appointment as Minister of Petroleum Resources in December 2008, Dr. Lukman resigned from our Board of Directors and confirmed to us that his shares in the Company would be held in blind trust. See ManagementCorporate Governance Governance Issues. There are various laws and regulations that directly and indirectly regulate the Nigerian oil and gas industry: these laws and regulations vary from those applying to the operational aspects, such as the PA, to the fiscal aspects, such as the Petroleum Profits Tax Act (PPTA) and the Companies Income Tax Act (the CITA). Some legislation and regulations affecting the oil and gas industry carry significant penalties for failure to comply with the provisions thereof. While there can be no assurance that we will not incur fines or penalties for administrative infractions, we believe we are currently in material compliance with the applicable laws.

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The Nigerian Oil and Gas Industry Content Development Act 2010 (the Local Content Act) was enacted in April 2010 and provides a framework for increasing Nigerian participation in all sectors of the Nigerian oil and gas industry, including the upstream and support services of the Nigerian energy industry. The Local Content Act prescribes minimum thresholds for Nigerian participation in activities, generally provides for preferential treatment for Nigerian companies (i.e., companies with a minimum of 51% Nigerian equity holdings) in the award of oil blocks and licenses and provides for exclusivity to Nigerian indigenous service companies who demonstrate their capacity to operate in land and swamp terrain. The Local Content Act also requires that we retain a minimum 10% of our total revenue from our Nigerian operations in Nigeria. Non-compliance with the provisions of the Local Content Act in the award or execution of a project or contract can result in the cancellation of the project or a fine of up to 5% of the project sum. We do not expect this law to materially affect us as compared to any other similarly sized exploration and production company (E&P Company) operating in Nigeria. There are also pending bills, such as the Petroleum Industry Bill and the Gas Flaring Bill before the Nigerian National Assembly which are likely to affect oil and gas business in Nigeria. We are unable to predict the future cost or impact of complying with these regulations if such bills are passed into law. However, we do not expect that these laws would materially affect us as compared to any other similarly sized oil and gas company operating in Nigeria. Exploration and Production Regulations The PA is the primary legislation governing the development of petroleum in Nigeria. The Ministry of Petroleum Resources which is headed by a Minister acts for and on behalf of the Nigerian Government and has broad powers including the powers to grant oil prospecting licenses (OPLs) which give the holder an exclusive right to explore and prospect for petroleum in respect of an area, and oil mining leases (OMLs) for the development and disposal of crude oil. The Ministers consent is required for assignments of interests in OPLs and OMLs, and the Minister has the authority to issue regulations further to the PA. The Minister regulates the industry through the Department of Petroleum Resources (DPR) which is headed by a Director and forms part of the Ministry of Petroleum Resources. In the last few years, most of the concessions granted by the Nigerian Government have been in the form of production sharing contracts and marginal fields. We conduct the majority of our operations through production sharing contracts and in marginal fields, although we do hold a direct legal interest in OPL 310 and OML 115. Production sharing contracts are contracts/concessions whereby the NNPC alone holds the OPL/OML and enters into a contract with an E&P Company whereby the E&P Company takes the risk of exploration on behalf of the NNPC in exchange for a right to a portion of any production. The contract area of the production sharing contract is usually equal to an OPL/OML and the E&P Company has an exclusive right to work within that area. A production sharing contract usually has a term of 30 years with a 10 year exploration period and 20 year production period. Marginal fields are smaller concessions, which usually consist of a capped oil field within an OML that has not been developed by the OML holder because it falls below the materiality and economic thresholds of major oil and gas producers, i.e., fallow assets. The policy governing marginal fields arose from the indigenization policy of the Nigerian Government which sought to encourage Nigerian companies to participate in the exploration and production of oil and gas. The marginal field regime also sought to curb the rates of abandonment of depleting fields that, while not commercially attractive to major oil and gas producers, would be an asset to smaller indigenous companies. Further to this policy, the Nigerian Government auctioned some of these marginal fields to smaller players in the industry. Marginal field owners then develop the field for their own account paying taxes, royalties and dealing directly with the governmental authorities. Upon the grant of the concession, the marginal field owner enters into a farm-out agreement with the OML holder which may be an international oil company and/or the NNPC and, as part of the agreement, the marginal field owner is required to pay an overriding royalty to the original OML holder in recognition of the role of the OML holder in developing the concession. Further to the grant of a marginal field, indigenous companies are granted a 100% legal interest in the marginal field; however, due to the financial and technical constraints of most indigenous companies, as a result of being new and/or smaller entrants into the upstream business, the indigenous companies usually seek to partner with foreign E&P Companies to assist in the development of the marginal field. Under this scenario, the foreign E&P Company would farm-in to the marginal field, usually taking a 40% legal interest in the marginal field and assuming the role of technical advisor. As technical advisor, foreign E&P Companies usually have the responsibility of providing funding for the exploration and production activities, as well as training and transferring technical knowledge of upstream operations to the management and staff of the indigenous companies. Marginal fields are granted for an initial period of 60 months. If production is not attained within the 60 month period, the Nigerian Government withdraws the award of the marginal field and the farm-out agreement lapses. However, if production is attained within the 60 month period, the farm-out agreement is renewed for the remaining life of the field and the farm-out agreement remains valid irrespective of any expiry, withdrawal, surrender/relinquishment of the OML. The 95

Nigerian Government has in the past provided extensions to concessions and grants. For example, the Nigerian government extended the life of the marginal fields it granted in 2003, although none of the fields had attained production within 60 months of their award. In the event of bankruptcy or insolvency of the marginal field owner, the farm-out agreement will terminate and the marginal field will be returned to the marginal field pool of the OML holder. The Nigerian Government will then reallocate the marginal field to another indigenous company. In certain cases, we operate concessions whereby we hold a legal interest in the OPL or OML, as well as under the production sharing contract and marginal field structures and are, therefore, subject to regulations governing operations under these concession structures. We are also subject to regulations made pursuant to the PA, including the Petroleum (Drilling & Production) Regulations (PDPR) which regulate operational aspects of the drilling and production of crude oil. The PDPRs set out fees, rents and rates of royalties payable (depending on the location of the concession, royalty rates range from 0% in deep offshore areas to 20% onshore) by a licensee or lessee under the PA. In addition, licensees and lessees are obligated to obtain permits and licenses before engaging in most activities in furtherance of petroleum operations under the relevant OPL or OML and also have reporting obligations. The Crude Oil (Transportation and Shipment) Regulations which regulate the transportation and shipment of crude oil after production. In addition, we are subject to regulations relating to construction, maintenance and operation of oil pipelines. Gas Regulations Petroleum is defined in the PA to include natural gas hence the provisions of the PA which relate to exploration and production of crude oil generally also apply to the exploration and production of natural gas. Historically, however, the PA has only been applied to the exploration and production of crude oil. Prior to the unveiling of the Gas Master Plan in February 2008 which seeks to provide solutions to the issues of gas pricing, the domestic gas supply and the development of the gas infrastructure, the regulation of natural gas exploration and production in Nigeria had been limited and vague. Paragraph 35 of the First Schedule to the PA merely provides that the Minister of Petroleum may impose special provisions on licenses and lessees with regard to any natural gas discovered in a license or lease area, including (i) the right of the Nigerian Government to take such natural gas produced with crude oil free of cost at the flare or at an agreed cost and without payment of royalty; and (ii) the obligation of the licensee/lessee to obtain the approval of the Nigerian Government as to the price at which natural gas produced (and not taken by the Nigerian Government) is to be sold. Associated Gas Re-Injection Act The Associated Gas Re-Injection Act (AGRA) was enacted to curb gas flaring in Nigeria. The AGRA proscribes the flaring of gas produced in association with oil without the permission of the Minister of Petroleum. The Minister has not granted permission to flare gas produced in association with oil since 2006. Under the AGRA, the Minister of Petroleum may permit flaring of gas after January 1984 in the event the Minister of Petroleum is satisfied that utilization or re-injection of the produced gas is not appropriate or feasible in a particular field or fields. Such permission is, however, subject to such terms and conditions as may be imposed at the discretion of the Minister of Petroleum, including the payment of such fee as may be prescribed by the Minister of Petroleum. National Gas Supply and Pricing Regulations A part of the Gas Master Plan, the national Domestic Gas Supply and Pricing Regulations (NGSPR) were issued in March 2008 by the Minister of State for Energy (Gas). The NGSPR provides for the imposition of domestic gas supply obligations on oil & gas exploration and production companies and requires them to submit gas production and supply plans consistent with their domestic gas supply obligations. The NGSPR also provides for the role of a domestic gas aggregator to act as an intermediary between suppliers and purchasers of gas in the domestic market and to ensure the supply of gas to strategic sectors based on aggregated prices in line with the Gas Master Plan. Non-compliance with the domestic gas supply obligation may expose a company to fees for volumes of gas not supplied, in addition to prohibiting a company from exporting gas. Fiscal Regulations Petroleum Profit Tax Act The PPTA governs the taxation of upstream operations with the baseline applicable tax for crude oil operations set at 85% of chargeable profits; with royalties ranging between 0%-20% depending on water depth; a lower tax rate of 65.75% is payable by companies who have not yet amortized all pre-production capital expenditure for the first five years. In 96

practice, however, the Nigerian Government has generally not applied this statutorily prescribed rate to marginal field operations, but instead has applied concessionary rates of 50-55%. OPL 310 and OML 115 are subject to the tax rates prescribed in the PPTA. Deep Offshore & Inland Basin Production Sharing Contract Act The Deep Offshore & Inland Basin Production Sharing Contract Act (the DIBPSA) was enacted further to the PPTA and applies to production sharing contracts for concession areas situated deep offshore and in Nigerias inland basin. The law was enacted to provide fiscal incentives to encourage exploration in areas that were at the time underutilized. The main incentive is a lower tax rate of 50% (as opposed to the 85% set by the PPTA), lower royalty rates (as low as 0% for deep offshore areas) and the introduction of an Investment Tax Credit of 50% for production sharing contracts executed before July 1, 1998 or an Investment Tax Allowance of 50% for production sharing contracts executed after July 1, 1998. The DIBPSA is administered by the Federal Inland Revenue Service. In addition to taxation of petroleum profits, pursuant to the PPTA or DIBPS, there is also a levy of 3% imposed by the Niger Delta Development Commission Act chargeable on the total annual budget of any oil producing or gas processing company operating onshore and offshore of the Niger Delta area. We own interests in assets located offshore in the Niger Delta and will be subject to these provisions. The Nigerian Oil and Gas Industry Content Development Act 2010 (LCA) requires that 1% of every contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector of the Nigerian oil and gas industry shall be deducted at source and paid into the Nigerian Content Development Fund. Incentives The PPTA also creates a number of incentives to encourage utilization of natural gas, usually although not exclusively, found when exploring for crude oil. These incentives apply exclusively to crude oil producers engaged in the utilization of both associated and non-associated gas. In order to encourage gas utilization, the Nigerian Government introduced incentives under the PPTA that would allow companies involved in the utilization of gas to be taxed at the corporation tax rate of 30% under the CITA, in relation to the income from the gas utilization project (as opposed to the 85% and 50% rates under the PPTA and DIBPSA, respectively). No definition is provided for utilization of gas in the PPTA; however, the PPTA specifically provides that the incentives shall be available to companies which invest in natural gas liquids extraction facilities to supply gas in usable forms to downstream projects (such as aluminum smelter and methanol) and other gas utilization projects. Under the CITA, other incentives are available to gas utilization companies, including a tax free period of up to five years for gas utilization projects and attractive loan and capital allowance provisions amongst others. Other Tax Regimes The Okoro and Setu fields, Ofa field, Okwok field and Ebok field are subject to the Nigerian Marginal Fiscal and Tax Regime under which tax is charged at 50%-55% depending on the agreement between the marginal field owner and the Nigerian Government. Also, the fields are subject to the Marginal Fields Operations (Fiscal Regime) Regulations under which the royalty rates for marginal fields are between 2.5%-18.5% depending on the volume of production. OPL 907 and 917 are subject to the Production Sharing Contract Tax and Fiscal Regime further under which tax is applied at the rate of 50% and royalties rates are between 0%-12% depending on water depth. There is also a 2% Education Tax imposed on the assessable profits of every company registered in Nigeria and 5% VAT charged on all supply of goods and services except goods and services expressly exempted by the Act. The Petroleum Industry Bill currently before the National Assembly would, if signed into law, introduce changes to the fiscal landscape with regards to tax rates and allowances, royalty regime, and gas related incentives. See Risk Factors Risk factors relating to the countries in which we operateLicensing and other regulatory requirements in the countries in which we operate may be subject to amendment or reform which could make compliance more challenging. For a discussion on certain other tax considerations, see TaxationCertain Nigerian Tax Considerations.

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Environmental Regulations Our operations are subject to various environmental, health and safety regulations. These regulations govern the handling, generation, storage and management of hazardous substances, including how these substances are released or discharged into the air, water, surface and subsurface. These laws and regulations often require permits and approvals from various agencies before we can commence or modify our operations or facilities, and on occasion require the preparation of an environmental impact assessment or study (which can result in the imposition of various conditions and mitigation measures) prior to or in connection with obtaining such permits. In connection with the release of hydrocarbons or hazardous substances into the environment, we may be responsible for the cost of remediation under applicable laws. Failure to comply with applicable laws, permits or regulations can result in project or operational delays, civil or in some cases criminal fines and penalties and remedial obligations. Environmental Impact Assessment Act The Environmental Impact Assessment Act (EIAA) requires every company whose activity or project is likely to have significant effect on the environment to carry out an impact assessment program prior to the commencement of the project. The assessment is to be referred to the Federal Ministry of Environment, the regulatory body charged with the responsibility of administering the EIAA, for approval. In addition, the EIAA classifies oil and gas development and construction of off-shore pipelines in excess of 50 km in length among projects that will require environmental impact assessment program. Environmental Guidelines and Standards for the Petroleum Industry in Nigeria The Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (the Guidelines) were issued by the DPR, which is the main regulatory arm of the petroleum industry in Nigeria. The Guidelines mandate all license holders or operators in the petroleum industry to adopt a systematic and integrated environmental management plan. They control the quality and quantity of industrial effluents associated with oil drilling activities/operations to ensure that such discharges do not cause any hazard to human health and living organisms. The Guidelines require that a mandatory environmental permit be obtained from the DPR prior to the commencement of seismic and drilling operations in Nigeria. An application for an environmental permit must be accompanied by an EIA report. While there can be no assurance that we will not incur fines or penalties, we believe we are currently in material compliance with the Guidelines. Back-In Rights The PA makes a general provision for the Nigerian Government, to seek participation in any and every lease or license area in Nigeria subject to an award. Apart from this general provision providing for Nigerian Government participation, the Deep Water Block Allocations to Companies (Back-In Rights) Regulations 2003 issued pursuant to the PA provides for the exercise by the Nigerian Government of Back-In Rights. These regulations apply to deep offshore petroleum acreages awarded to indigenous companies further to the indigenization policy of the Nigerian Government which commenced in 1989. The indigenization policy was not expressed in any composite document or set out in much detail, but resulted in the discretionary award of a number of acreages to companies beneficially owned by Nigerian citizens. The BackIn Rights crystallize upon application for conversion from OPL to OML and entitle the Nigerian Government to acquire 5/6th (or 50% working under the assumption that all OPL holders assigned 40% of their interest to foreign technical partners) of the OPL holders interest. The regulations would only apply to OPL 310 within our portfolio of assets; although we do envisage that the application of the Back-In Rights would have an adverse effect on our operations. The regulations would not be applicable to any OPL or OML held by the NNPC (and as such would not be applicable to our production sharing contracts in relation to OPL 907 and OPL 917) and neither would they apply to an unincorporated joint venture OML (as they are jointly held by the IOC and NNPC), a shallow water OML (e.g., OML 115) or a marginal field. Apart from the regulations referred to above, we are also subject to contractual (as opposed to statutory) back-in rights on the Ofa, Okwok and Ebok Marginal Fields. For further discussion see Our BusinessDescription of Our Assets Nigeria. Enforcement of Security under Nigerian Law In Nigeria, debt instruments are typically secured through the use of guarantees, mortgages, fixed and floating charges and pledges of real, personal, tangible and intangible property belonging to the debtor. Generally, security may be enforced under Nigerian law through foreclosure, sale, appointment of a receiver and other actions for recovery. 98

Foreclosure Creditors in Nigeria tend not to use foreclosure remedies due to the length of time required to effect foreclosure (generally nine to twelve months) and the fact that mortgagees are precluded from claiming any shortfall between the value of the mortgaged asset and the outstanding debt. Sale Nigerian debt documentation typically contains a power in favor of the creditor to sell any security provided by the debtor to satisfy the amount owing under a loan in the event of default by the debtor. Unlike foreclosure, which is restricted to mortgages, a power of sale is exercisable in respect of mortgages, charges, pledges and other forms of security. In relation to legal mortgages of land, the power of sale is statutory (though in practice a power of sale is almost always expressly included in security documentation). Accordingly, security interests in land may be enforced by sale without recourse to court, provided that such enforcement is in good faith. The power of sale for other forms of security, such as equitable mortgages of land or charges of shares or other intangible property, is not statutorily implied and must be expressly provided for in the relevant security documentation for valid enforcement without recourse to court. To ensure that a transfer of legal title to property subject to a security interest can be perfected without recourse from the debtor, creditors in Nigeria are generally advised to have debtors sign the relevant documentation in relation to transferring the secured property on the same date as the relevant debt agreement and to appoint the creditor as the debtors lawful attorney. In addition, to perfect a sale of land under Nigerian law, the consent of the governor of the relevant state where the land is situated is required and the land sale documents must be duly stamped and registered. This process usually takes three to six months. Appointment of a Receiver Another common method used by Nigerian creditors to realize security is the appointment of a receiver. The right to appoint a receiver is statutory in connection with legal mortgages on land. In addition, the appointment of a receiver has a statutory basis for debenture holders (and trustees) in connection with the enforcement of fixed and floating charges against a company. Receivers under Nigerian law are statutorily entitled to take possession of security, sell security, collect debts and enforce claims vested in a relevant debtor. Though the power to appoint a receiver is statutory, Nigerian security documents often include express provisions for creditors or the trustee of creditors to appoint a receiver with wide powers to manage and sell a debtors business or assets. The process for appointing a receiver in Nigeria can generally be concluded within a relatively short period of time once a debtor is in default; however, in practice, it is difficult to estimate the time within which a receiver will realize the security. Where the power to appoint a receiver is expressly detailed in the security documentation, specific terms will govern the extent of the receivers powers. By way of statute, a receiver can, inter alia, take possession of security; sell security; collect debts; enforce claims vested in the debtor; compromise, settle and enter into arrangements in respect of claims by or against the debtor; grant or accept leases of land and licenses in respect of patents, designs, copyright and trademarks; and recover any installment unpaid on the companys issued shares.

Nigerian law further provides that a receiver is the agent of the person(s) on whose behalf it is appointed and confers to a receiver fiduciary duties to act in good faith with respect to the company under receivership. Action for Recovery Outstanding debts owed to a creditor by a debtor under Nigerian security documentation are recoverable by way of litigation against the debtor, except for when foreclosure is used. An action for recovery is the only available option for unsecured creditors and in circumstances where a debt is guaranteed and the creditor has already made a claim against the 99

guarantors. Where a judgment is obtained in favor of a creditor and a debtor fails to comply, the creditor may attach the debtors assets in enforcement proceedings. A court action for enforcement of a debt or guarantee can generally be concluded within a period of six to twelve months. Where a debtor or guarantor fails to comply with a judgment, a further three to six months are generally required for attachment of assets. Ministerial Consent With respect to oil and gas assets in Nigeria, the prior consent of the Minister of Petroleum is required for the assignment of a license or the lease of any right, power or interest therein. In practice, the consent of the Minister of Petroleum is required for the transfer of the legal title by way of security of an OPL or an OML. Accordingly, the consent of the Minister of Petroleum is required for the creation of a legal mortgage over an OPL or an OML. The process for obtaining ministerial consent can be complex and time consuming. Mortgages of OPLs and OMLs are registered with the DPR. The creation of a charge over an OPL or OML does not require the prior consent of the Minister of Petroleum. Charges do not have to be registered with the DPR. Although the creation of a charge over an OPL or OML does not require the consent of the Minister of Petroleum, the enforcement of such security will require the consent of the Minister of Petroleum as such enforcement will involve an assignment of the OPL or OML or the relevant interest therein. Governors Consent The consent of the state governor where land is situated is required for any assignment, transfer, sublease or mortgage of land in Nigeria. This consent requirement applies equally to the transfer of legal title to land by way of a sale or mortgage. Security interests which do not transfer legal interest in land, such as charges or equitable mortgages, do not ordinarily require the state governors consent to be perfected. Absent the relevant governors consent, a Nigerian mortgage will be treated as an equitable mortgage. As equitable mortgages and charges are not registrable, creditors who are the subject to such security are exposed to the risk that a mortgage could be registered in connection with the property in question, which would gain priority over their security interest. Stamping Under Nigerian law, stamp duty is chargeable on a wide range of instruments, including duty of between 0.375% to 1.5% of the amount secured for security documentation with a connection to Nigeria. The relevant instruments are required to be stamped within 30 days of execution or, if executed outside Nigeria, within 30 days of receipt of the instrument in Nigeria. The obligation to stamp an instrument is statutorily imposed on an obligee, although in practice, the burden for payment of the duty is usually transferred to the obligor. The payment of stamp duty is important for enforcing the security created by the security documents, as any instrument required to be stamped is precluded from being received in evidence by a Nigerian court without the required duty and applicable penalties first being paid. The late payment of stamp duty results in a penalty interest rate of 10% per annum from the due date up to the time when the amount of interest is equal to the unpaid duty. In Nigeria, significant stamp duties are imposed on certain instruments creating security over a companys assets and, in the case of such instruments creating registrable charges under the CAMA, significant registration fees are imposed in addition to the stamp duties. In order to minimize transaction costs, creditors in certain large financings in Nigeria customarily agree, at the request of the relevant obligors, to understamp or pay stamp duties in respect of a fraction of the indebtedness secured by such collateral. In practice, the creditors or their agents retain custody of corporate authorizations, forms and other relevant documents to enable such creditors or their agents to upstamp or pay the additional stamp duty and registration fees to ensure that the collateral securing the relevant indebtedness is perfected and/or enforceable for the full amount of indebtedness thereby secured, in the event of an enforcement of such collateral. Such stamp duties and/or registration fees are generally payable in respect of certain security interests governed by Nigerian law or located in or granted by a Nigerian entity. The Nigerian Security Documents pursuant to which the Collateral will be granted will be subject to such stamp duties and/or registration fees. In connection with the closing of the 2016 Notes, the Nigerian Security Documents were stamped and registered for only a fraction of the amount of indebtedness purported to be secured thereby. Further, any subsequent third party security interest over assets secured pursuant to the Nigerian Security Documents which is perfected prior to the payment by or on behalf of the holders of the Notes of the full amount of stamp duty and registration fees would rank ahead of the unstamped portion of the security created pursuant to the Nigerian Security Documents. In addition, any upstamping payment made within the three months preceding the insolvency or winding-up of a Nigerian entity could be deemed in certain circumstances to be a fraudulent preference under the provisions 100

of section 495(1) of the CAMA and void against the liquidator of such entity. See Risk FactorsRisk factors relating to the NotesCertain Collateral securing the Notes will neither be perfected nor enforceable for the full amount of the indebtedness thereby secured unless and until additional stamp duties and registration fees are paid in respect thereof by or on behalf of the holders of the Notes. Registration A Nigerian charge created by a company debtor to provide security to a creditor shall be void against a liquidator and any creditor of the company unless it is registered with the Corporate Affairs Commission (CAC) within 90 days of its creation. Registration with the CAC shares be undertaken after the security documents are stamped, with a fee of 1% of the amount secured. The registration of a charge with the CAC can generally be completed within two weeks from stamping of the security documents. Enforcement of Foreign Judgments For information regarding the enforcement in foreign judgments in Nigeria, see Service of Process and Enforcement of Civil LiabilitiesNigeria. Tax Implications Save for stamp duties and applicable CAC and land registry filing fees, the creation of security interests in Nigeria does not ordinarily give rise to any tax implications. With regard to the exercise of a power of sale, where there has been a sale of security by a creditor, so long as there is no surplus from the sale over and above the outstanding debt (including interest), there would not be any tax implications save for transaction taxes such as stamp duties, value added tax and registration fees. Kurdistan Region of Iraq Iraqs membership in OPEC Iraq is a member of OPEC but is not currently subject to production quotas. It was reported in October 2011 that Iraq will seek to rejoin the OPEC quota system by 2014. In the event that Iraq does become subject to OPEC quotas and other regulations, this could cause fluctuations in our future production levels. Federal and Regional Regulation of the Oil Sector The management and control of petroleum resources in the Kurdistan Region of Iraq is disputed between the federal government and the KRG. Both the KRG and the federal government claim exclusive jurisdiction over oil and gas resources in the Kurdistan Region of Iraq pursuant to the Iraqi Constitution. See Risk FactorsRisk factors relating to the countries in which we operate. Kurdistan Region Oil and Gas Law In August 2007 the Kurdistan Region National Assembly passed the Kurdistan Region Oil and Gas Law (KROGL) to constitute the statutory framework for oil and gas exploration and production in the Kurdistan Region of Iraq and the legal basis for the award of production sharing contracts by the KRG. The KROGL sets out the standard terms for production sharing contracts, which include exploration terms, development rights, royalties and recovery costs. Kurdistan Region production sharing contracts Kurdistan Region production sharing contracts typically reserve to the KRG the right to elect to participate in the production sharing contract, up to a certain percentage, through a public company (a company wholly owned by the KRG). The maximum government participation is usually 20% or 25%. Kurdistan Region production sharing contracts also typically include a right of the KRG to nominate a third party participant to participate in the production sharing contract; however, the existing contractor may object to the KRGs nominee. The KRG has, in relation to a number of production sharing contracts, allocated third party interests to the Kurdistan Exploration and Production Company or another public company. Production sharing contracts granted by the KRG typically require the payment of various bonuses to the government. These include one-off signature bonuses, capacity building payments and production bonuses. 101

Export of Petroleum from the Kurdistan Region of Iraq The federal government, especially the Ministry of Oil, considers the export of petroleum, and licensing the export of petroleum, to be the exclusive preserves of the State Oil Marketing Organization, a state owned company established by the Ministry of Oil. The federal government, through the state owned Northern Pipeline Company, controls and operates the Iraq section of the main northern export pipeline from Kirkuk to Ceyhan on the Turkish Mediterranean coast. The federal government further considers that all petroleum exported from the Kurdistan Region of Iraq should be exported through this pipeline, with the State Oil Marketing Organization handling the marketing and sale of the petroleum and the purchase price being paid by the relevant purchaser or customer directly to the federal government. The KRG should receive a 17% share of these sales as part of its allocation of the federal budget. In practice, in 2011, the federal government made a number of revenue payments to the KRG in respect of petroleum exported from the Kurdistan Region of Iraq through the Kirkuk to Ceyhan pipeline and marketed by the State Oil Marketing Organization. Pursuant to a deal reached with the KRG in January 2011, the federal government has agreed to reimburse the costs of contractors operating in the Kurdistan Region of Iraq but not the profits to which they are entitled pursuant to their production sharing contracts. The production sharing contracts granted by the KRG contain provisions which authorize the contractor to freely export its share of petroleum. Neither the KROGL nor the production sharing contracts contain references to the State Oil Marketing Organization. In practice, however, the federal government controlled pipeline is currently the only commercially viable export route from the Kurdistan Region of Iraq. The KRG is therefore reliant on the State Oil Marketing Organization exporting and marketing petroleum produced in the Kurdistan Region of Iraq, with revenues routed through the federal government. While it is established that the State Oil Marketing Organization is in practice responsible for the marketing and export of petroleum produced in the Kurdistan Region of Iraq, the KRG and the federal government have differing views of the ownership of such petroleum. The KRGs position is that, pursuant to the production sharing contracts, a percentage of the petroleum is owned by the contractors. In contrast, the federal government and the State Oil Marketing Organization assert that the petroleum is owned by the Iraqi people until title transfers to the purchaser. The federal government does not accept the structure of the production sharing contracts granted by the KRG and currently does not make payments to the KRG in respect of profit oil due to the contractors. See Risk FactorsRisk factors relating to the countries in which we operate. Local Sales Production sharing contracts granted by the KRG typically contain provisions allowing the KRG to require that the contractor sell the KRG any amount of crude oil that the KRG deems necessary to meet consumption requirements within the Kurdistan Region of Iraq. The production sharing contracts provide that such sales shall be at the international market price. The federal government does not condone such local sales, unless it is able to monitor them and ensure that the revenue derived from them is shared between the KRG and the federal government as described above. Gas Regulations Many of the provisions of the KROGL and the production sharing contracts apply to natural gas as well as to crude oil. Production sharing contract holders are permitted to freely use such associated natural gas in their petroleum operations or to sell such associated natural gas. Associated natural gas which is neither used in petroleum operations nor sold by the contractor shall, upon the KRGs request, be transferred free of charge to the KRG. If the KRG finds a market for the associated natural gas, it is required to give the contractor the option to participate in supplying the market. If a significant discovery of non-associated natural gas is made, the contractor is required to carry out gas marketing operations, activities to determine potential markets for the gas and commercially viable means of extracting the gas and transporting it to those markets. Kurdistan Region production sharing contracts typically prohibit flaring of natural gas subject to a few exceptions. Fiscal Regulations The taxation of international oil companies is governed by the tax law applied in the Kurdistan Region of Iraq, subject to various exemptions and benefits included in the production sharing contracts. The Iraqi Constitution provides that tax exemptions may only be granted by law. Pursuant to the Iraqi Income Tax Law, as amended and applied in the Kurdistan Region of Iraq, the rate of corporate income tax applicable to a company operating in the Kurdistan Region of Iraq is 15%, while production sharing contracts 102

granted by the KRG typically exempt contractor entities from all taxes other than corporate income tax and personal income tax, among other taxes. In practice, however, we are not aware that the federal government has attempted to charge tax in the Kurdistan Region of Iraq since 1991. Environmental Regulations Companies operating in the Kurdistan Region of Iraq petroleum sector are subject to general Iraqi health, safety and environmental law and regulations, as applied in the Kurdistan Region of Iraq, as well as sector specific requirements set out in the KROGL and individual production sharing contracts.

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OUR BUSINESS In this Offering Memorandum, the words we, us, and our refer to Afren together with our subsidiaries on a consolidated basis, except where otherwise specified or clear from the context. The proved, probable and possible reserves, contingent resources and prospective resource data presented in this section have been estimated at our request by each of NSAI and RPS in accordance with PRMS guidelines and definitions. Estimated proved, probable and possible reserves presented herein may differ from reserves that might be estimated according to definitions used by other companies in the industry or the SEC. See Presentation of Financial Information and Other Information. Unless otherwise indicated, all production figures are presented on a net basis. Where gross amounts are indicated, they are presented on a total basis i.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest, where applicable, and effective working interest in the relevant fields and license areas are separately disclosed. See Description of Our Assets. For a further discussion of the regulations governing the majority of our licenses see Legal and Regulatory NigeriaGovernment RegulationsExploration and Production Regulations. In addition, see Material Agreements Relating to Our Assets for a more detailed discussion of the terms of the agreements governing our interests. Any projections and other forward-looking statements in this section are not guarantees of future performance and actual results could differ materially from current expectations. Numerous factors could cause or contribute to such differences. See Risk Factors and Forward-Looking Statements. Overview We are a leading independent oil and gas exploration and production company focused on the exploration, development and production of oil and gas assets. We have a balanced and diverse portfolio with reserves, development opportunities and exploration prospects across twelve countries, with our main producing assets in Nigeria. As of December 31, 2011, we had 51.0 mmboe of independently certified proved (1P) oil and gas reserves and 71.0 mmboe of independently certified proved plus probable (2P) oil and gas reserves. Our daily production averaged approximately 16,100 boepd (including oil, gas and natural gas liquids) for the ten months ended October 31, 2011. Production at the Ebok field in Nigeria ramped up significantly during the last two months of 2011, resulting in a 2011 exit rate for all assets of approximately 53,200 boepd. The present value of our net revenues are calculated by NSAI to be $1,338.2 million on a 1P basis and $1,644.1 million on a 2P basis. For the twelve months ended October 31, 2011, our revenues and Adjusted EBITDAX totaled $424.6 million and $318.9 million, respectively. For a definition of Adjusted EBITDAX, see Summary Financial and Other Data and for a description of certain information related to NSAIs estimates and assumptions, see Presentation of Financial and Other InformationHydrocarbon Data. We were founded in December 2004 and within seven years established ourselves as a significant independent upstream company in Sub-Saharan Africas key offshore and onshore hydrocarbon basins and exploration fairways and recently diversified into the Kurdistan Region of Iraq. With the recent acquisition of two assets in the Kurdistan Region of Iraq together with our existing position in Nigeria, we are positioned in two of the worlds top twelve oil producing countries and top ten proved oil reserve holding countries. Our shares are listed on the premium segment of the main market of the London Stock Exchange and we are a constituent company of the FTSE 250 index. Our market capitalization as of February 20, 2012 was 1,434 million, based on a share price of 133.6 pence at close of business on February 20, 2012. Our portfolio of 29 assets consists of oil, natural gas and natural gas liquids production, near term development and high impact exploration opportunities. The Ebok and Okoro fields in Nigeria are our two primary producing assets and represent 98% of our 1P oil reserves. The Ebok field is our second greenfield development, representing 44.7 mmboe and 61.1 mmboe of our 1P and 2P reserves, respectively. The field commenced production in April 2011, just over three years from entry. At the end of December 2011, following the completion of Phase 1, (which targeted the Central Fault Block D2 and West Fault Block LD1E reservoirs) the field had cumulatively produced a total of 2.9 mmbbls, with an average production rate of 11,900 bopd for the period from the commencement of production through December 31, 2011. Phase 2 of development is underway, and we plan to drill four wells in the Central Fault Block D1 and West Fault Block LD-1F reservoirs. Okoro is our first full greenfield development and represents 5.3 mmboe and 7.8 mmboe of our 1P and 2P reserves, respectively. We completed the appraisal and development of the field within two years from entry and commenced production in June 2008. For the ten months ended October 31, 2011, the gross production at Okoro was approximately 4.7 mmbbls, with an average gross daily production rate of approximately 15,600 bopd. Cumulative production as at October 31, 2011 was 18.7 mmbbls. Our lower production rates at the Okoro field as compared with the same period in 2010 (16,900 bopd) reflect the natural decline of the field which was partly offset by the incremental production increase that resulted from the two infill wells that were successfully brought onstream during April 2011. 104

Our Strengths Proven track record of efficient production and reserve growth Our management and technical team have a proven execution capability demonstrated by the successful commercialization of our major assets. We achieved first oil at Okoro within two years and Ebok in just over three years from entry by leveraging our technical, operational and financial capabilities, coupled with our strong relationships with indigenous partners and local and national governments. Between 2010 and 2011 our production from our fields increased substantially following the successful completion of Ebok Phase 1, resulting in a 2011 exit production rate of approximately 53,200 boepd. Indeed, our gross production has increased despite our reduced working interest in the Okoro field following cost-recovery in mid-2010. In addition, over the past year we have continued to grow our reserve base, increasing 2P and 2C from 136 mmboe to 994 mmboe (of which 127 mmboe has been confirmed by NSAI and 867 mmboe has been confirmed by RPS). Established technical track record with significant operating experience and successful history of operational control Through the contractual arrangements related to our core development and production assets, we exercise significant control over operating and financial policies related to these assets. This level of control allows us to use our technical and operational expertise to manage overhead, production, drilling costs and capital expenditures and to control the timing of development activities. During 2010 and 2011, we successfully drilled and operated 27 production wells, and for the ten months ended October 31, 2011, approximately 96% of our total production came from wells over which we had operating control. In addition, by maintaining a significant level of control we are able not only to ensure continuity at our projects, but we are also able to exert downward pressure on costs. We believe our operational flexibility allows us to benefit from low breakeven oil prices. We expect to retain positive cash balances at oil prices as low as $39/bbl, assuming (i) continued development of all 2P assets at the Ebok and Okoro fields, (ii) the ongoing service and repayments of our finance obligations and (iii) the maintenance of current levels of administrative and general operating costs, while assuming a small reduction in operating costs could be negotiated in a lower oil price environment. Disciplined allocation of capital and cost management with access to low cost reserves and resources We believe that our finding and development costs are below the sector average which, together with our low cost structure, contributes to higher margins. This discipline was recently evidenced by the acquisitions of interests in the Kurdistan Region of Iraq in the Barda Rash block and the Ain Sifni block at an effective cost of $0.66 per 2C bbl (calculated based on management estimated 2P reserves). For the ten months ended October 31, 2011 we made capital expenditures of $610.2 million, the majority of which was used to fund our selective exploratory drilling program and support our commitment to strengthening our production profile. We funded the majority of our capital expenditures with cash flow from operations and existing cash resources. For 2012, we estimate our capital expenditures will be between $450 million and $500 million in connection with the appraisal and development of Barda Rash, Okwok and Okoro East, as well as the ongoing development of the Ebok field. We believe the timing of approximately 60% of our budgeted capital expenditures are discretionary, providing us with a significant degree of flexibility to respond and adapt to changes in both our business and in the global economy. In addition, our substantial capital expenditures to date and access to significant developed reserves minimize the need for sizeable capital expenditure in the short term. Strategically positioned as a leading independent oil and gas company with strong local relationships We are an independent oil and gas company with established operations across Sub-Saharan Africa. We have an established track record with significant operating experience in West Africa and around the Gulf of Guinea, particularly in Nigeria. We have recently extended our footprint beyond greater Africa through the acquisition of two assets in the Kurdistan Region of Iraq where we expect to employ many of the skills and experience that we have developed across our African operations. We have established a preferred position and, although technically an international company, are often viewed as a local operator, reflecting our indigenous culture and our commitment to training and employing indigenous staff. We jointly established First Hydrocarbon Nigeria with two leading Nigerian financial institutions and maintain a 45% ownership stake. First Hydrocarbon Nigeria is an indigenous company, which offers us exposure to potential future acquisitions in Nigeria. We also believe we have strong relationships with key local governments, six partnerships with indigenous companies including Oriental, Amni and Optimum and excellent relationships with international oil majors including Shell, Total, Eni and ExxonMobil.

105

Our established track record, indigenous culture and relationships provide us with a competitive advantage and access to opportunities to capitalize on the growing international dependence on, in particular, the West African hydrocarbon resource base. Currently, approximately 15% of oil and gas supplied to the U.S. originates from West Africa, and industry sources project this to increase to 30% over the next decade. In addition, our management team considers Sub-Saharan Africa, and, in particular Nigeria, to be a fiscally stable environment, providing opportunities to produce high margin barrels of oil and commercialize gas. The region also has an established oil exploration and production industry at an earlier stage of maturity than other major hydrocarbon centers with significant exploration prospectivity, including positive early indications of a secondary market emerging in the Gulf of Guinea. All of these factors combine to provide us with a strong platform to grow our upstream portfolio in Sub-Saharan Africa. Accomplished Board and management team with strong African representation complemented by regionally-based experienced personnel We benefit from the experience and expertise of our Board and our management team, who not only have extensive oil and gas experience, but who also have strong ties to the regions in which we operate and extensive experience working in Africa and emerging markets. The combined industry and regional expertise enables us to develop beneficial working relationships with indigenous companies, governments, local authorities and communities, supporting our growth across greater Africa and beyond. Our Chairman, Chief Executive Officer and Chief Operating Officer have over 65 years of combined oil and gas experience, including a long history of managing and financing oil and gas operations in Africa and beyond. Additionally, our senior management team based in London, Nigeria, Cte dIvoire and Houston have extensive industry experience, including with, among others, Shell, ExxonMobil, Chevron, Texaco, Devon Energy and Gulf Oil. Our management team has a strong reputation in the oil and gas industry, having expanded our market position and profitability through more than $988 million in acquisitions and an approximate 53,200 boepd increase in production since the end of 2004. This expansion has, in turn, increased our profile within the industry, enabling us to recruit and retain industry veterans and experienced personnel, including strong technical and engineering teams. In addition, in all operational locations, we benefit from full service offices staffed primarily by locally based employees. This on the ground presence provides us with direct insight into local issues, as well as allowing us to react to operational matters promptly and effectively. Our Strategy Our goal is to be recognized as a leading independent oil and gas exploration and production company with a reputation for safety and cost efficiency and to continue to increase our development portfolio across key hydrocarbon regions. We intend to achieve this goal by pursuing the following strategies. Leverage our strong development track record and continue to focus on operating efficiency We seek to be the operator on the majority of our projects and will continue to do so, such that we can develop drilling programs and optimization projects that add value through reserve and production growth and future operational synergies. Our development program is focused on lower-risk drilling opportunities with the potential to maintain and/or grow cash flow. In addition, we seek to deliver attractive financial margins by leveraging our technical track record, experienced workforce and scalable infrastructure. We also believe the concentration of our interests within certain project areas provides us with the opportunity to capture economies of scale. For example, we believe that there is scope to further reduce costs and leverage our resources and operating experience in Nigeria at the adjacent Ebok, Okwok and OML 115 fields and at the Okoro field, which is in close proximity. Our management team is also focused on continuous improvement of our operating measures and has significant experience in successfully converting early-stage resource opportunities into high margin reserves as evidenced by our development of the Ebok and Okoro fields. We will continue to exert downward pressure on our finding and development costs that are already below the sector average and which we anticipate, together with our low cost structure, will contribute to higher margins. Maintain financial flexibility, disciplined capital deployment and conservative financial profile We intend to maintain our financial flexibility and conservative financial profile, enabling us to pursue our currently planned development and exploration activities. To date we have relied on equity and a variety of forms of debt financing including notes, convertible bonds and reserves based lending and other credit facilities and, adjusted for the Offering, have no substantial near-term debt maturities. We intend to continue our strategy of only taking on debt where it benefits the company and anticipate that our financing needs with respect to producing assets may continue to be funded through debt 106

while exploration-type expenditures and acquisitions may be funded through equity or a combination thereof. For example, the Kurdistan Acquisitions were funded through a combination of debt, equity and cash on hand. We retain a strong liquidity position with $279.5 million in cash as of October 31, 2011, of which 89% was held in accounts in Paris or London. Our robust account provisions and payment mechanics, mandated by internationally recognized banks, ensure quick access to funds. We also regularly evaluate opportunities to farm-out our interests or review potential disposition of assets where we believe it makes strategic and economic sense. For example, we recently farmed out a 35% working interest in the Keta Block in Ghana to Eni. Further, we intend to continue actively managing our exposure to commodity price risk in the marketing of our oil and natural gas production through selectively entering into hedging arrangements. As of October 31, 2011, we had derivative contracts in place through the end of December 2013 for a total of approximately 4.8 mmbbl of Ebok and Okoro production, representing approximately 19% of expected Ebok and Okoro production over this period. For a further description of our hedging activities, see Description of Certain Financing ArrangementsHedging. Grow reserves and production base through partnerships, acquisitions and exploration It is our strategy to continue to grow our reserve and production portfolio as we have done previously through partnerships with indigenous companies and accretive acquisitions. Outside of Africa, our early mover strategy has enabled us to acquire assets in under developed areas overlooked by oil majors. Additionally, in balance with our established production and development platform, we have also assembled an exploration portfolio. Consistent with our exploration strategy, all of our exploration assets are located in basins where the presence of hydrocarbons are known to exist but are typically under-explored and hold potential for large discoveries. We intend to continue creating quality opportunities, pursuing a full cycle exploration and production business model of reinvesting a portion of internally generated revenues to deliver organic reserves development growth. We may also consider selective strategic and materially accretive acquisitions of companies and interests in fields with reserves or a strong probability of reserve discovery subject to exploration and appraisal drilling, in parallel with our partnership and exploration activities, on an opportunistic basis. Strengthen our strategic position in Nigeria and the Gulf of Guinea through further partnerships with indigenous companies and support of First Hydrocarbon Nigeria In addition to pure exploration, we are focused on positioning ourselves to benefit from opportunities afforded by the discovered but undeveloped oil and gas fields across Sub-Saharan Africa, particularly in Nigeria. These fields are often fallow assets in the portfolios of major oil companies, typically falling below such companies materiality and economic thresholds for development. However, to a smaller, more agile producer like us, these assets represent significant opportunities of scale where we can employ an efficient use of capital. In addition, over the past few years we have gained a reputation in the jurisdictions in which we operate for our technical, operational and financial capabilities, making us an ideal partner in the exploration and development of these assets. Increasing government promotion of local and indigenous participation in the development of natural resources places us in a favorable position in key areas of operation, creating unique opportunities for growth. Governments in the Gulf of Guinea are focusing more on the potential of their natural resources and requiring that these discovered but undeveloped fields are developed, encouraging greater local and indigenous participation in order to realize their full potential. Attractive acreage is increasingly being awarded to indigenous companies who, in turn, look to partner with independent oil companies that can bring both technical expertise and financial resources. We are wellpositioned to capitalize on these governmental policies and gain exposure to competitive resources with our proven record of technical, operational and financial capabilities, complemented by long-standing relationships and established roots in Africa. In addition, our indigenous partnerships, we are positioned to benefit through our 45% ownership of First Hydrocarbon Nigeria, a majority Nigerian-owned indigenous oil and gas company that fulfills the Nigerian Governments criteria for local operators who are eligible to apply for and acquire substantial oil and gas assets in the country. Recent Developments Recent Acquisitions We completed the acquisition of a 60% interest in the Barda Rash production sharing contract on September 7, 2011 and the acquisition of a 20% interest in the Ain Sifni production sharing contract on November 2, 2011. RPS has estimated gross contingent resources at the Barda Rash block and the Ain Sifni block to be 1,473 mmbls (2C). We are currently developing our exploration and production programs at both fields, with commencement of production anticipated at Barda Rash in the second half of 2012. The total acquisition cost was $588.4 million, of which $418.5 million related to the acquisition of the 60% interest in the Barda Rash production sharing contract and $169.9 million related to the acquisition of 107

the 20% interest in the Ain Sifni production sharing contract. The initial payments for the Kurdistan Acquisitions were financed through a corporate credit facility (the BNPP/VTB Facility) ($100.0 million) in combination with equity financing ($184.5 million) and cash on hand. We drew $100 million under the BNPP/VTB Facility in early November 2011 to fund the payments in connection with the Ain Sifni block in December 2011 and January 2012. A portion of the acquisition costs for the Kurdistan Acquisitions were deferred until 2012 with a final payment of $190.5 million due in early March 2012 in connection with the Barda Rash acquisition. We intend to fund the final payment on the Barda Rash acquisition in part through an additional draw-down of $100 million under the BNPP/VTB Facility and cash on hand. We expect to repay the BNPP/VTB Facility in full on the Issue Date using a portion of the proceeds from the offering of the Notes. See Use of Proceeds. On March 24, 2011, we acquired a 74% interest in the Tanga Block in Tanzania and on October 26, 2011 we acquired a 25% interest in the Block 2B in South Africa, which remains subject to final government approval. Ebok Production and 2011 Exit Rate In April 2011, we commenced production at the Ebok field, with production ramping up to an exit rate of approximately 40,000 bopd at the end of December 2011. The initial phases of development have been completed. Reservoir performance and well deliverability recorded at the field to date are in line with our expectations, with production progressing and regular crude oil offtake operations running smoothly. Farm-down Agreement at the Keta Block On October 25, 2011, we formally completed the farm-down of a 35% working interest and transfer of operatorship of the Keta Block to Eni, leaving us with a 35% working interest. Under the terms of the farm-down, we will receive a carry through the drilling of one exploration well, as well as back costs and carry through future seismic acquisition. Okoro East Exploration Well In December 2011, we successfully drilled an exploration well at the Okoro East field which has similar sub-surface characteristics to the main Okoro field and is estimated to have similar resource potential. We have completed logging operations, and testing operations are underway to determine the optimal development of the discovery. We initially expect to drill one development well from the existing unmanned wellhead platform at the Okoro field. See also Business NigeriaOkoro and Setu Fields (OML 112)Field Development Plan. First Hydrocarbon Nigeria Acquisition of OML 26 On December 1, 2011, First Hydrocarbon Nigeria, a Nigerian company in which we hold a 45% interest, completed the acquisition of a 45% interest in OML 26 through First Hydrocarbon Nigerias wholly-owned subsidiary, FHN 26. OML 26 is located onshore Nigeria and holds two producing assets, the Ogini and Isoko fields, and three discovered but undeveloped assets, the Aboh, Ozoro and Ovo fields. For a further description of OML 26, see Our BusinessFirst Hydrocarbon Nigeria. As a result of our shareholding interest, First Hydrocarbon Nigerias profit/loss is proportionately reflected in our income statement in the line item Share of gain/(loss) of an associate. Therefore, the future results of any production and development at OML 26 may impact our financial results. Our History We were incorporated in December 2004, listed on AIM in March 2005 and in December 2009 moved to the premium section of the main market of the London Stock Exchange where we are also a constituent company of the FTSE 250 index. Our rapid growth to date has primarily been achieved through a combination of accessing and developing discovered but undeveloped assets in partnerships with indigenous companies, and selective acquisitions where we believe we were strategically advantaged. In March 2006, we signed a production sharing and technical services agreement with Amni for the development of the Okoro and Setu fields offshore Nigeria, achieving first oil in June 2008 and successfully delivering our first greenfield development project. In March 2008, we signed a farm-in agreement with Oriental to appraise and develop the Ebok field located in the Gulf of Guinea, offshore Nigeria. Following a successful three well appraisal drilling campaign in November 2009, we began development of the Ebok field in December 2009, which came onstream in April 2011. We farmed-in to the nearby undeveloped Okwok field in August 2009 and the highly prospective surrounding OML 115 acreage in January 2010, further establishing our presence around the core Ebok development and extending our partnership with Oriental. In 2007 and 2008, we also acquired a package of assets from Devon Energy in Ghana and Cte 108

dIvoire, respectively, adding a combination of existing reserves and production, appraisal upside and high impact exploration potential. In 2009, we jointly established First Hydrocarbon Nigeria with two leading Nigerian financial institutions, First City Monument Bank Plc and Guaranty Trust Bank Plc. We currently own 45% of First Hydrocarbon Nigeria with the remaining 55% held by various Nigerian shareholders. On December 1, 2011, First Hydrocarbon Nigeria completed the acquisition of a 45% interest in OML 26 through its wholly-owned subsidiary, FHN 26. In October 2010, we announced the completion of the acquisition of Black Marlin. By enlarging our footprint into East Africa, the Black Marlin Acquisition greatly enhanced our existing high impact exploration inventory by adding multiple growth opportunities to complement and leverage our growing base of cash generative production in West Africa. In March 2011, we further expanded our geological exposure to the highly attractive Coastal High play in East Africa through the acquisition of an interest in the Tanga Block offshore Tanzania. We also acquired an interest in a block in South Africa. We recently extended our footprint beyond greater Africa through the acquisition of two assets in the Kurdistan Region of Iraq, an area that offers a full spectrum of oil and gas exploration and production opportunities. On September 7, 2011 we completed the acquisition of a 60% interest in the Barda Rash production sharing contract and on November 2, 2011 we completed the acquisition of a 20% interest in the Ain Sifni production sharing contract. We are currently developing our exploration and production program at both fields with production at Barda Rash expected in the second half of 2012. Summary of Reserves and Resources NSAI has prepared a report on certain of our reserves and resources as of December 31, 2011 and has reviewed and incorporated only field studies and data that were available up to that date in relation to the assets covered in the relevant NSAI Report. NSAI has not included OPL 907, OPL 917 and Ofa in their assessments. For a summary of certain assumptions used in the NSAI Report, see Presentation of Financial and Other InformationHydrocarbon Data. RPS has prepared reports on certain contingent and prospective resources data in relation to the Barda Rash block as of February 15, 2012 and the Ain Sifni block as of June 9, 2011. For a summary of certain assumptions used in the RPS Reports, see Presentation of Financial and Other InformationHydrocarbon Data. There are a number of uncertainties inherent in estimating quantities of proved, probable and possible reserves, including many factors beyond our control, such as commodity pricing. Therefore, the reserve information in the NSAI Report and in the RPS Reports represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of a number of variable factors and assumptions many of which are beyond our control, including the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revising the original estimate. Accordingly, due to the inherent uncertainties and the necessarily limited nature of reservoir data and the inherently imprecise nature of reserves estimates, the initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the assumptions upon which they were based. See Presentation of Financial and Other Information Hydrocarbon Data. Thus, you should not place undue reliance on the ability of the reserves reports prepared by NSAI and RPS to predict actual reserves or on comparisons of similar reports concerning companies established in other economic systems. In addition, except to the extent that we acquire additional properties containing proved, probable and possible reserves or conduct successful exploration and development activities, or both, our proved, probable and possible reserves will decline as reserves are produced. The following reserve information should be read along with the section entitled Risk FactorsRisks Related to the oil and gas industryThe level of our crude oil and gas reserves, their quality and production volumes may be lower than estimated or expected. Potential investors should note that neither the NSAI nor RPS Reports have calculated estimated proved, probable and possible reserves under the standards of reserves measurement applied by the SEC (the SEC basis) for any of the relevant periods reviewed in the Offering Memorandum, or otherwise. The SEC basis differs from PRMS. See Presentation of Financial and Other Information. Reserves NSAI has estimated the proved (1P), proved and probable (2P) and proved, probable, and possible (3P) reserves and future revenue related to our interest in the Okoro field located in OML 112 and in the Ebok field located in OML 67, Gulf of Guinea, offshore Nigeria and in the Lion and Panthre fields located in Block CI-11, offshore Cte dIvoire as of December 31, 2011. 109

Proved reserves (1P) is defined as those quantities of petroleum, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations; probable reserves (2P) is defined as those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves; and possible reserves (3P) is defined as are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves. See Presentation of Financial and Other InformationHydrocarbon Data. The following information (other than the columns titled Total) has been extracted without material adjustment from the NSAI Report as of December 31, 2011. The information in the following table does not give any effect to or reflect our commodity hedges. For a description of our current commodity hedging agreements, see Description of Certain Financing ArrangementsHedging Arrangements. For convenience, aggregate totals are also provided for our estimated 1P, 2P and 3P reserves at each of our interests in the Okoro field, the Ebok field and the Lion and Panthre fields.
Afren Effective Working Interest Reserves before Royalty Oil (mmbbl) Gas(3) (bcf) Total (mmboe) Net Entitlement Reserves(1) Oil (mmbbl) Gas(3) (bcf) Total (mmboe) Future Net Revenue (MM$)(2) Present Worth at 10% Total

Area/Field/Category(4)

Offshore Nigeria(5) Okoro Field Proved (1P) .............................................. Proved + Probable (2P) ............................ Proved + Probable + Possible (3P) ........... Ebok Field Proved (1P) .............................................. Proved + Probable (2P) ............................ Proved + Probable + Possible (3P) ........... Offshore Cte dIvoire Lion and Panthre fields Proved (1P) .............................................. Proved + Probable (2P) ............................ Proved + Probable + Possible (3P) ........... Total Proved (1P) .............................................. Proved + Probable (2P) ............................ Proved + Probable + Possible (3P) ...........
Source: Netherland, Sewell & Associates, Inc. (1) (2) (3)

5.3 7.8 10.5 44.7 61.1 78.0 0.2 0.5 0.7 50.2 69.4 89.2

4.4 9.5 16.1 4.4 9.5 16.1

5.3 7.8 10.5 44.7 61.1 78.0 1.0 2.1 3.5 51.0 71.0 92.0

4.3 6.3 8.6 38.8 52.9 67.4 0.1 0.3 0.5 43.2 59.5 76.5

2.9 6.1 10.1 2.9 6.1 10.1

4.3 6.3 8.6 38.8 52.9 67.4 0.6 1.4 2.2 43.7 60.6 78.2

154.8 231.3 324.7 1,400.0 1,766.0 2,155.8 17.0 18.4 51.3 1,571.8 2,015.7 2,531.8

142.7 203.6 271.5 1,184.7 1,424.0 1,639.7 10.8 16.5 36.9 1,338.2 1,644.1 1,948.1

Net reserves are after deductions for royalty burdens and government share in Cte dIvoire. The NSAI Report was prepared using oil and gas prices and cost parameters specified by Afren. Gas reserves for Offshore Nigeria are not included because there is currently no viable market for produced gas. There is no market for gathering and transporting stranded gas in Nigeria. There is currently a low level of gas flaring at Ebok and Okoro. We continually evaluate our gas management strategies. See Legal and RegulatoryNigeriaAssociated Gas Re-Injection Act. 1P, 2P and 3P reserves have been prepared in accordance with the definitions and guidelines set forth in 2007 by PRMS. Oil reserves for offshore Nigeria include crude oil only.

(4) (5)

Summary of Future Net Revenue NSAI has estimated the future net revenue of our interest in the Okoro field located in OML 112, offshore Nigeria; in the Lion and Panthre fields located in Block CI-11, offshore Cte dIvoire; and of our interest in the Ebok field located in OML 67, offshore Nigeria as of December 31, 2011. For further details on NSAIs estimates of our future revenue, see Summary of Reserves and Resources. Contingent Resources Contingent resources refers to those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. The low estimate scenario of contingent resources (1C) indicates the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 90%. The best estimate scenario of contingent resources (2C) indicates the probability that the 110

quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 50%. The high estimate scenario of contingent resources (3C) indicates the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 10%. See Presentation of Financial and Other InformationHydrocarbon Data. West Africa NSAI has estimated the contingent resources for the Kudu, Eland and Ibex fields located in Block CI-01, offshore Cte dIvoire; the Obo Discovery located in Block 1, NigeriaSo Tom & Prncipe Joint Development Zone (JDZ); and the Setu and Okwok fields, located offshore Nigeria as of December 31, 2011. The following table sets forth NSAIs estimate of our gross oil and gas contingent resources as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report. For convenience, aggregate totals are also provided for our gross oil and gas contingent resources. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed. See Our BusinessDescription of Our Assets.
Gross (100%) Volumes (mmbbl) OOIP(1) Contingent(2) Oil Resources Best High Low Best High Estimate Estimate Estimate Estimate Estimate (2C) (3C) (1C) (2C) (3C)

Area

Low Estimate (1C)

Offshore Cte dIvoire ........................................................... JDZ Block 1 ........................................................................... Offshore Nigeria .................................................................... Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc. (1) (2) OOIP refers to original oil in place.

59.2 80.8 163.2 303.2

81.1 123.4 216.0 420.5

104.8 173.8 271.4 550.0

13.5 24.4 36.3 74.2

19.8 42.5 53.3 115.6

27.9 67.0 72.9 167.8

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Gross (100%) Volumes (bcf) OGIP Contingent(1) Gas Resources Best High Low Best High Estimate Estimate Estimate Estimate Estimate (2C) (3C) (1C) (2C) (3C)

Area

Low Estimate (1C)

Offshore Cte dIvoire ........................................................... JDZ Block 1(2) ........................................................................ Offshore Nigeria(2) ................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc. (1) (2)

105.7 105.7

160.1 160.1

237.0 237.0

66.2 66.2

101.5 101.5

152.4 152.4

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Gas reserves are not included because there is currently no viable market for produced gas. Gross (100%) Volumes (mmboe) Contingent(1) Oil and Gas Resources Oil and Gas in Place Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate (1C) (2C) (3C) (1C) (2C) (3C)

Area

Offshore Cte dIvoire ........................................................... JDZ Block 1 ........................................................................... Offshore Nigeria .................................................................... Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc.

77.4 80.8 163.2 321.4

108.7 123.4 216.0 448.1

145.7 173.8 271.4 590.9

24.9 24.4 36.3 85.6

37.3 42.5 53.3 133.1

54.2 67.0 72.9 194.1

111

(1)

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.

Kurdistan Region of Iraq RPS has estimated the contingent resources for the Barda Rash block as of February 15, 2012 and the Ain Sifni block as of June 9, 2011. The following table sets forth RPSs estimate of our gross contingent resources as of February 15, 2012 in relation to the Barda Rash block and as of June 9, 2011 in relation to the Ain Sifni block. This information has been extracted without material adjustment from the RPS Reports. For convenience, aggregate totals are also provided for our gross contingent resources. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed. See Our BusinessDescription of Our Assets.
Gross (100%) Volumes (mmboe) Contingent(1) Oil and Gas Oil and Gas in Place Resources Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate (1C) (2C) (3C) (1C) (2C) (3C)

Area

Barda Rash ............................................................................. Ain Sifni ................................................................................ Total ......................................................................................

Source: RPS Energy (1)

6,916 256 7,172

14,015 391 14,406

21,897 543 22,440

533 17 550

1,431 42 1,473

2,845 76 2,921

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.

Prospective Resources West Africa NSAI has estimated the prospective resources for the La Noumbi Permit, onshore Congo-Brazzaville; Keta Block, offshore Ghana; JDZ Block 1, offshore Nigeria So Tom & Prncipe JDZ; the Ebok field, offshore Nigeria; OML 115, offshore Nigeria; OPL 310, offshore Nigeria; and CI-01 permit, offshore Cte dIvoire as of December 31, 2011. The resources are summarized below. This information has been extracted without material adjustment from the NSAI Report. For convenience, aggregate totals are also provided for our prospective resources. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed. See Our BusinessDescription of Our Assets. Oil
Gross (100%) Oil Volumes (mmbbl) Unrisked Prospective Oil Resources OOIP Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Onshore Congo ...................................................................... Offshore Cte dIvoire ........................................................... Offshore Ghana ...................................................................... JDZ Block 1 ........................................................................... Offshore Nigeria(1) ................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc. (1)

521.5 110.6 722.4 734.1 623.7 2,712.3

1,025.9 1,744.0 273.8 698.0 2,416.7 8,061.2 1,003.0 1,348.5 1,324.5 2,465.4 6,043.9 14,317.1

114.6 22.8 153.9 229.4 195.1 715.8

251.6 59.5 604.2 350.1 450.2 1,715.6

481.9 157.8 2,299.5 518.4 901.5 4,359.1

These prospective volumes include condensate associated with the OPL 310 prospective gas resources.

112

Gas
Gross (100%) Gas Volumes (bcf) Unrisked Prospective Gas Resources OGIP Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Offshore Cte dIvoire ........................................................... Offshore Nigeria .................................................................... Total ......................................................................................

Source: Netherland, Sewell & Associates, Inc.

382.3 307.7 690.0

866.6 805.2 1,671.8

1,623.6 2,177.9 3,801.5

285.8 221.8 507.6

661.1 584.3 1,245.4

1,237.0 1,584.2 2,821.2

Total Oil and Gas

Gross (100%) Oil and Gas Volumes (mmboe) Unrisked Prospective Oil and Gas Resources Oil and Gas In Place Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate

Area

Onshore Congo ...................................................................... Offshore Cte dIvoire ........................................................... Offshore Ghana ...................................................................... JDZ Block 1 ........................................................................... Offshore Nigeria .................................................................... Total ...................................................................................... East Africa

521.5 176.5 722.4 734.1 676.8 2,831.3

1,025.9 1,744.0 423.2 977.9 2,416.7 8,061.2 1,003.0 1,348.5 1,463.3 2,840.9 6,332.1 14,972.5

114.6 72.1 153.9 229.4 233.3 803.3

251.6 173.5 604.2 350.1 550.9 1,930.3

481.9 371.1 2,299.5 518.4 1,174.6 4,845.5

NSAI has estimated the prospective resources for Ethiopia, Kenya, Madagascar and Seychelles as of December 31, 2011. The resources are summarized below. This information has been extracted without material adjustment from the NSAI Report. For convenience, aggregate totals are also provided for our prospective resources. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed. See Our BusinessDescription of Our Assets. Oil
Gross (100%) Oil Volumes (mmbbl) Unrisked Prospective Oil OOIP Resources Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Ethiopia .................................................................................. Kenya ..................................................................................... Madagascar ............................................................................ Seychelles .............................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc.

35.8 2,298.9 48.9 1,082.4 3,466.0

85.3 285.7 5,321.5 14,082.7 212.8 1,618.6 3,465.2 12,784.2 9,084.8 28,771.2

6.8 457.9 9.0 199.8 673.5

17.0 1,125.1 41.4 672.4 1,855.9

57.4 3,121.8 330.8 2,596.4 6,106.4

113

Gas
Gross (100%) Gas Volumes (bcf) Unrisked Prospective Gas Resources OGIP Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Ethiopia .................................................................................. Total ......................................................................................

Source: Netherland, Sewell & Associates, Inc.

513.9 513.9

1,188.3 1,188.3

3,633.7 3,633.7

358.4 358.4

837.5 837.5

2,537.3 2,537.3

Total Oil and Gas

Gross (100%) Oil and Gas Volumes (mmboe) Unrisked Prospective Oil and Gas Resources Oil and Gas in Place Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate

Area

Ethiopia .................................................................................. Kenya ..................................................................................... Madagascar ............................................................................ Seychelles .............................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc.

124.4 2,298.9 48.9 1,082.4 3,554.6

290.3 912.2 5,321.5 14,082.7 212.8 1,618.6 34,65.2 12,784.2 9,289.7 29,397.7

68.6 457.9 9.0 199.8 735.3

161.4 1,125.1 41.4 672.4 2,000.3

494.9 3,121.8 330.8 2,596.4 6,543.9

Kurdistan Region of Iraq RPS has estimated prospective resources for the Ain Sifni block as of June 9, 2011. The resources are summarized below. This information has been extracted without material adjustment from the RPS Report as of June 9, 2011. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed. See Our Business Description of Our Assets.
Gross (100%) Oil Volumes (mmbbl) Unrisked Prospective Oil Resources OOIP Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Ain Sifni ................................................................................

Source: RPS Energy

5,060

7,493

10,365

408

917

1,584

Internal Controls Over Reserves Estimates Our policy regarding internal controls over the recording of reserves is structured to objectively and accurately estimate our oil and gas reserve quantities and values in compliance with SPE guidelines. Our technical department reports to the Group Technical Director who maintains oversight and compliance responsibility for the internal reserve estimate process and provides appropriate data to independent third party engineers for the annual estimation of our year-end reserves. The management of our technical department, consists of three directors with over 25 years each of industry experience and are members of SPE and AAPG. Qualifications of third party engineers The technical personnel responsible for preparing the reserve estimates at NSAI meet the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the SPEE. NSAI is an independent firm of petroleum engineers, geologists, geophysicists and petrophysicists; it does not own an interest in our properties and is not employed on a contingent fee basis. Joseph J. Spellman, Senior Vice President, is a licensed professional engineer with more than 30 years experience. Philip R. Hodgson, Vice President and Senior Technical Advisor, is a licensed geologist with more than 26 years of experience. RPS is an independent firm of petroleum engineers, geologists, geophysicists and 114

petrophysicists; it does not own an interest in our properties and is not employed on a contingent fee basis. RPSs Subsurface Director is a Chartered Engineer and Chartered Geologist with 32 years of experience and the geoscientist charged with the audit is a Principal Geologist and a member of AAPG with 31 years of experience. See Presentation of Financial and Other Information. Production and Drilling We are currently producing oil from the Okoro field located in OML 112, the Ebok field located in OML 67, offshore Nigeria and oil and gas from the Lion and Panthre fields in Block CI-11, offshore Cte dIvoire, as well as processing gas at the Lion Gas Plant in Cte dIvoire. We reported full year average net production in 2010 of approximately 14,300 boepd of oil, natural gas and natural gas liquids from the Okoro field and Ebok field in Nigeria, Block CI-11 and the Lion Gas Plant in Cte dIvoire. We achieved first oil in the Okoro field in June 2008 at a rate of 3,000 bopd, which rose to approximately 22,000 bopd by the end of 2008. At the Okoro field, crude oil exports continue to run smoothly via the nearby Ima Terminal. In December 2009, we began using the Ima Terminal, owned by our partner, Amni, to optimize our production margins at Okoro. By transporting oil from Okoro to the Ima Terminal, we increased our batch size and through economies of scale have achieved an improved pricing differential as compared to smaller cargos previously loaded directly from the FPSO. For the ten months ended October 31, 2011, gross production at Okoro was approximately 4.7 mmbbls (average gross daily production rate of approximately 15,600 bopd). Two infill wells were brought onstream during the first quarter of 2011 increasing gross production by approximately 1.0 mmbbls (average gross daily production rate of approximately 4,900 bopd for the ten months ended October 31, 2011). In addition, on January 17, 2012 we announced a new oil discovery on the Okoro East field. We achieved first oil in the Ebok field in April 2011. For the ten months ended October 31, 2011, gross production at Ebok was approximately 1.8 mmbbls (average gross daily production rate of approximately 9,800 bopd). In 2011, production at the Ebok field was impacted by several non-reservoir related periods of facilities down time. Prior to commencement of production, we experienced a longer than anticipated commissioning period for the MOPU. Production was then later impacted by a necessary suspension of production during simultaneous drilling and production operations, fine tuning of the process facilities and commissioning of the gas turbines and related systems to deliver water injection capability. However, reservoir performance and well deliverability recorded at the field to date are in line with our expectations, with production progressing and regular crude oil offtake operations running smoothly. Production at Ebok ramped up significantly during the last two months of 2011, with two liftings in December 2011 and a stabilized exit rate of approximately 40,000 boepd at the end of 2011. In Cte dIvoire, for the ten months ended October 31, 2011 gross production at Block CI-11 was approximately 3.8 bcf and approximately 0.2 mmbbls, equivalent to average gross daily production rates of approximately 12.5 mmcfd and 800 bopd, respectively. Over the same period natural gas liquids output at the Lion Gas Plant was equivalent to an average gross daily production rate of approximately 575 boepd. Production in Cte dIvoire during the ten months ended October 31, 2011 was below expectation due to the impact of political and social unrest delaying the import of necessary equipment and resources required to conduct routine maintenance of the compressor unit during the first quarter of 2011. In addition, a gas leak at CI-11 shut down gas production in mid-August 2011; however, following successful repairs, full production resumed in mid-October 2011. Following completion of necessary maintenance and repairs, gas production at Block CI-11 was restored to a gross rate of 22.0 mmcfd by the end of 2011. The Lion Gas Plant also received reduced third party inlet volumes from adjacent blocks operated by CNR during the ten months ended October 31, 2011 which we understand was due to offshore mechanical difficulties experienced by CNR. This, in turn, reduced tariff revenue from the use of our Block CI-11 pipeline infrastructure. At Block CI-11, a mapping and seismic re-interpretation exercise has been undertaken applying current understanding of regional Upper Cretaceous depositional systems. The final results of this study will assist in defining plans to access and produce incremental oil and gas reserves. Oil Production and Drilling We achieved first oil in the Okoro field in June 2008 at a rate of 3,000 bopd, which rose to approximately 22,000 bopd by the end of 2008. In 2009, gross production at the Okoro field averaged approximately 18,800 bopd. At the Okoro field, the gross production for the ten months ended October 31, 2011 was approximately 4.7 mmbbls (average gross daily production rate of approximately 15,600 bopd). Gross oil production at Block CI-11 for the ten months ended October 31,

115

2011 was approximately 1,128 bopd. We achieved first oil in the Ebok field in April 2011 and operated at a rate of approximately 40,000 bopd by the end of 2011. The following table sets forth the number of production wells drilled, together with the total oil production and total condensate/LPG production, for the fields operated by us for the periods presented.
Year ended December 31, Ten months ended October 31, 2011

2009

2010

Production wells .................................................................................................................... Total oil production (mmbbl) ................................................................................................ Total condensate/LPG production (mmboe) .......................................................................... The following table sets out the number of wells drilled from 2008 through 2011.
2008

16 6.7 0.4

28 4.3 0.3

38 4.4 0.2

Year ended December 31, 2009 2010

2011

Number of exploration wells drilled ....................................................................... Number of production wells drilled ........................................................................ Total wells ..............................................................................................................

2 7 9

4 0 4

3 11 14

2 16 18

For a description of certain offtake arrangements with respect to oil production, see Marketing and Major Customers and Material Agreements Relating to Our Assets. Gas Production In 2010, natural gas production at the Lion and Panthre fields in Block CI-11 was approximately 8.5 bcf (gross), equivalent to an average gross daily production rate of approximately 23.2 mmcfd. At the Lion and Panthre fields, production for the ten months ended October 31, 2011 was approximately 3.8 bcf (gross), equivalent to an average gross daily production rate of approximately 12.5 mmcfd. The Lion Gas Plant in Cte dIvoire was built to improve margins on gas sales by extracting and selling high value natural gas liquids from gas produced at Block CI-11. Gas production from adjacent Blocks CI-26 and CI-40, operated by CNR, was added to the process stream, providing third party tariff revenue from the use of the Block CI-11 pipeline infrastructure (which we jointly own with our partners), and additional gasoline and butane sales revenue at the Lion Gas Plant. In 2010, average NGL output at the plant averaged approximately 721 boepd. For the ten months ended October 31, 2011, 575 boepd of NGLs were stripped from the inlet gas stream at the Lion Gas Plant from a process stream of rich gas produced at Blocks CI-11, CI-26 and CI-40. Inlet volumes received at the Lion Gas Plant from adjacent blocks operated by CNR were significantly reduced during the first half of 2011 which we understand was due to offshore mechanical difficulties experienced by CNR. The total inlet capacity of the Lion Gas Plant is 75 mmcfd. The produced butane is sold into the local market at a price of $248 per metric ton with the gasoline spiked into the Block CI-11 crude stream and sold onto the open market. Description of Our Assets We have a diversified portfolio of 29 assets, consisting of oil, natural gas and natural gas liquids production, near term development and high impact exploration assets. In West Africa, we have assets across five countriesNigeria, Cte dIvoire, Ghana, Congo-Brazzaville and So Tom & Prncipe. In East and Southern Africa we have assets across six countriesKenya, Ethiopia, Seychelles, Madagascar, Tanzania and South Africa. We have further extended our focus beyond greater Africa into the Kurdistan Region of Iraq where we recently acquired two new assets. The following map and table sets forth the assets in our portfolio. For a discussion on the risks related to countries in which we operate, see Risk FactorsRisk factors relating to the countries in which we operate.

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The authorities in the regions in which we operate generally award licenses and contracts for a period of between approximately ten and thirty years depending on whether certain work programs have been completed and whether a commercial discovery has been declared. Typically, the first five to ten years of the license are categorized as an exploration period during which time certain agreed work programs are completed, including the acquisition of seismic data and the drilling of exploration wells. If at the end of the exploration period no commercial discovery has been declared, a license or contract is typically relinquished. However, if during the exploration period a commercial discovery is declared, the license or contract transitions into a production period for up to 20 years, which can typically be extended for a further five years, subject to standard government and regulatory approvals. For all of the assets listed below, including Okoro, Setu and Ofa where we are not the designated license holder, we remain vigilant about working with our partners to adhere to our agreed work programs with the respective authorities and currently do not anticipate any issues with extending the licenses and contracts as the various phases are completed. For further discussion see Risk FactorsRisk factors relating to our businessOur exploration and production operations are dependent on our compliance with obligations under licenses, contracts and field development plans.
Role Legal/Equity Interest(1) Effective Working Interest(1) Pre-cost Post-cost recovery recovery 100% 95% 95% 50%(3) 50% 50% Fiscal system Expiry/Status(2)

Nigeria Ebok (OML 67) ................................ Okoro (OML 112) ............................ Setu (OML 112) ...............................

Technical Services Provider Technical Services Provider Technical Services Provider

40% 0% 0%

Royalty Tax Concession Royalty Tax Concession Royalty Tax Concession

Initial term extended to March 14, 2015(2)(4) February 12, 2018 February 12, 2018

117

Okwok (OML 67)............................. OML 115 .......................................... OPL 310............................................ OPL 907(6)......................................... OPL 917(6)......................................... Ofa (OML 30)(6)................................

Technical Services Provider Technical Services Provider Technical Services Provider Operator(7) Operator(7) Technical Services Provider Operator Operator Operator Partner

28% 40% 40% 41%(5) 42%(5)

70% 100% 91% 48.69% 70%

56%(5) 50% 21%/70%(5) 41% 42% 15%-50%

Royalty Tax Concession Royalty Tax Concession Royalty Tax Concession PSC PSC Royalty Tax Concession PSC

Initial term extended to March 14, 2015(2)(3) May 20, 2019 February 10, 2019 February 20, 2018 February 20, 2018 Initial term extended to March 14, 2015(8) Typically 25 years from development approval Typically 25 years from development approval N/A February 18, 2016

Cte dIvoire CI-11 ................................................. CI-01 ................................................. Lion Gas Plant .................................. Ghana Keta Block ........................................

47.96%(9) 65%
(10)(11)

47.96% 65%(10)(11) 100% PSC 100% Royalty Tax Concession PSC PSC PSC PSC PSC PSC PSC PSC PSC Exploration Right PSC PSC

100% 35%
(12)

Congo-Brazzaville La Noumbi ........................................ JDZ Block 1(13) ......................................... Ethiopia Block 7 and 8 .................................... Kenya Block 10A......................................... Block L17/L18 ................................. Block 1.............................................. Madagascar Block 1101........................................ Seychelles Blocks A, B and C ............................ Tanzania Tanga Block ..................................... South Africa Block 2B ........................................... Kurdistan Region of Iraq Barda Rash........................................ Ain Sifni ........................................... (1) (2) Partner Partner Partner Partner Operator Operator Operator Operator Operator Partner Operator Partner 14% 4.41% 30% 20% 100% 50% 90% 75% 74% 25% 60% 20%

June 19, 2013 March 22, 2013 July 10, 2012 October 4, 2012 October 24, 2012 October 8, 2012 July 30, 2013 November 27, 2013 May 2013 April 13, 2014 November 2032 September 8, 2012(14)

For an explanation of our legal interest versus our effective workings interest in Nigeria, see Legal and RegulatoryNigeriaGovernment RegulationsExploration and Production Regulations. Marginal field licenses granted in Nigeria reference initial expiry date which are subject to renewal under the Nigerian Governments indigenous licensing program. As these licenses are granted exclusively to indigenous companies, we have partnered with them in the development of the fields. For further discussion on the treatment and extension of these licenses, see Legal and RegulatoryNigeriaGovernment RegulationsExploration and Production Regulations and See Risk FactorsRisk factors relating to our businessOur exploration and production operations are dependent on our compliance with obligations under licenses, contracts and field development plans. During post-recovery, Afren Resources and Oriental will share net revenues equally after payment of 30% profit oil to NNPC and Mobil. In the exploration period extension letter dated March 28, 2011, the Nigerian Government noted that the license would be granted for the life of the field once there was verifiable evidence of production. We commenced production at Ebok in April 2011. Our interest is 21% during the period of Optimums (our indigenous partner) cost recovery period, which we expect to be relatively short due to the limited costs incurred by Optimum. The NSAI Report does not include an analysis of our Nigerian appraisal assets in the Anambra Basin (OPL 907 and 917) or Ofa (OML 30). AGER, our 50% subsidiary through a joint venture between Afren Nigeria and GEC, is the operator. We, together with our partners, have decided not to proceed with this development due to the lack of commercial substance and our partner is in negotiations with DPR regarding prospectively obtaining a replacement field. For a more detailed discussion, see NigeriaOfa (OML 30). Per calendar year, the contractor group is entitled to recover its costs from no greater than 63% of the total production or such lesser percentage which would be necessary and sufficient to recover costs. From this 63%, we are entitled to our 47.96% percentage of cost recovery.

(3) (4) (5) (6) (7) (8) (9)

(10) The effective working interest does not include an additional 15% interest that accrues to us pursuant to a carry arrangement with SK Energy. Pursuant to this arrangement, we pay SK Energys portion of the drilling, developing and operating costs until we recover 200% of actual costs expended by us on SK Energys behalf. In addition, we have a carry arrangement with Petroci whereby we carry Petrocis 20% participating interest.

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(11) Per calendar year, the contractor group is entitled to recover its costs from no greater than 60% of the total production or such lesser percentage which would be necessary and sufficient to recover costs. From this 60%, we are entitled to our 65% percentage of cost recovery. (12) The effective working interest does not include an additional 10% interest as a result of a carry arrangement with GNPC. Pursuant to this arrangement, until production begins the partners, on a pro rata basis, pay GNPCs portion of the drilling, developing and operating costs which are subject to precost recovery. (13) DEER has a 9% working interest in the field. We have an indirect interest in DEER through 49% ownership. Dangote Oil and Gas Limited control the remaining 51%. Our 4.41% interest corresponds to our 49% ownership in DEER. (14) As the expiration date of our license approaches, we intend to apply to the KRG for an extension.

Nigeria Overview of Our Operations in Nigeria The following table sets forth certain information concerning our operations in Nigeria including our indigenous partner and the current work program at each field.
Nigeria Indigenous Partner Work Program

Ebok (OML 67) ............................................................... Okoro (OML 112)............................................................ Setu (OML 112) ............................................................... Okwok (OML 67) ............................................................ OML 115 ......................................................................... OPL 310........................................................................... OPL 907........................................................................... OPL 917........................................................................... Ofa (OML 30) ..................................................................

Oriental Amni Amni Oriental Oriental Optimum GEC GEC IEL

Production/ Field Development Production/ Field Development Appraisal Exploration/Appraisal Exploration/Appraisal Exploration/Appraisal Exploration/Appraisal Exploration/Appraisal Exploration/Appraisal

The following table sets forth NSAIs estimated net oil and gas reserves in the Okoro field and the Ebok field as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report as of December 31, 2011.
Effective Working Interest Reserves before Royalty Oil Gas(1) (mmbbl) (bcf)

Reserves(2) Offshore Nigeria(3) Ebok Field Proved (1P) ......................................................................................................................................... Proved + Probable (2P) ....................................................................................................................... Proved + Probable + Possible (3P) ..................................................................................................... Okoro Field Proved (1P) ......................................................................................................................................... Proved + Probable (2P) ....................................................................................................................... Proved + Probable + Possible (3P) .....................................................................................................
(1) (2) (3) Gas reserves are not included because there is currently no viable market for produced gas. 1P, 2P and 3P reserves have been prepared in accordance with the definitions and guidelines set forth in 2007 by PRMS. Oil reserves for offshore Nigeria include crude oil only.

44.7 61.1 78.0 5.3 7.8 10.5

In addition to the above reserves, NSAI estimates gross unrisked best estimate prospective gas resources at block OPL 310 of 220 mmboe, and estimates gross unrisked best estimate prospective oil volumes of 113.0 mmbbl and 192.5 mmbbl at the Ebok field and OML 115, respectively. The following table sets forth NSAIs estimated gross OOIP and contingent oil resources, estimated gross OGIP and contingent gas resources, estimated gross OOIP and unrisked prospective oil resources and estimated gross OGIP and unrisked prospective gas resources in offshore Nigeria as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local 119

partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed above.
Gross (100%) OOIP (mmbbl)/OGIP (bcf) Resources (mmbbl)/(bcf) Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate

Resources Contingent ResourcesOil ................................................... Contingent ResourcesGas(1) ............................................... Unrisked Prospective ResourcesOil ................................... Unrisked Prospective ResourcesGas (Offshore) ................
(1) (2)

163.2 623.7 307.7

216.0 1,324.5 805.2

271.4 2,465.4 2,177.9

36.3 195.1(2) 221.8

53.3 450.2(2) 584.3

72.9 901.5(2) 1,584.2

Gas resources are not included because there is currently no viable market for produced gas. These prospective volumes include condensate associated with the OPL 310 prospective gas resources.

NigeriaAdditional Assets The NSAI Report does not include an analysis of our Nigerian appraisal assets in the Anambra Basin (OPL 907 and 917) and Ofa (OML 30). Accordingly, no reserves or contingent resources have been presented in respect of these assets and all production data in respect of such assets is based on managements data. Ebok (OML 67) Overview of License The following table sets forth certain details of the Ebok (OML 67) license including our legal and effective working interest and our partner.
Our Effective Working Interest Our Legal Interest Pre-cost recovery Post-cost recovery

License detailsEbok (OML 67)

Area km2 ....................................................... Expiry ........................................................... License type .................................................. Main plays .................................................... Partner........................................................... 2012 work program....................................... Future work program .................................... Data available ...............................................
(1)

42 Initial term extended to March 14, 2015 Royalty Tax Concession Tertiary Agbada D series of reservoirs, Qua Iboe, Biafra and Isongo formations Oriental Production and Field development, exploration and appraisal drilling (including Phase 1 and Phase 2) Ongoing field development, exploration and appraisal drilling (including Phase 2 3D seismic data. Exploration and appraisal well data. Field studies

40%

100%

50%(1)

During post-recovery, Afren Resources and Oriental will share net revenues equally after payment of 30% profit oil to NNPC and Mobil.

Background The Ebok field is located in OML 67 located in the Gulf of Guinea, approximately 55 km offshore Nigeria in approximately 41 m of water. The Ebok field was awarded to Oriental by the Mobil/NNPC Joint Venture pursuant to a farmout agreement between Mobil, NNPC and Oriental dated May 25, 2007. The farm-out agreement has been structured such that the Ebok field benefits from the Nigerian marginal field fiscal and tax regime. For further discussion on Nigerias fiscal regime, see Legal and Regulatory. Pursuant to the farm-out agreement, Mobil and NNPC retain the right to back-in and participate in the development of additional reservoirs below a certain depth; however, we do not intend to, and are not required to, drill below such depth. For further discussion on our farm-out agreements, see Material Agreements Relating to Our Assets. We commenced production at the Ebok field in April 2011. We sell our Ebok crude oil production to Socar under an offtake agreement. See Customers. 120

On March 31, 2008, Afren Resources signed a farm-in agreement and a joint operating agreement with Oriental. Under the terms of these agreements, Afren Resources is responsible for funding all capital and operating costs for the development of the field, and will recover the costs from 100% of net field revenues. Following cost recovery, Afren Resources and Oriental will share net revenues equally after payment of 30% profit oil to NNPC and Mobil. Afren Resources and Oriental entered into a collaboration agreement pursuant to the provisions of the farm-in agreement to pursue other potential development assets in the region. Field Technical Background Ebok is located close to the Mobil/NNPC Joint Venture producing fields and is 55 km south-east of Mobils onshore QIT Terminal. The initial estimated stock tank oil initially in place at the field prior to the last quarter of 2008 appraisal drilling was 77-167 mmbbls with a mean of 118 mmbbls, of which 25 mmbbls was estimated by management as recoverable. The Ebok-1 discovery well was drilled by the Mobil/NNPC Joint Venture in 1968 resulting in a discovery of 271 feet of net oil pay in four sands between 2,600 feet and 3,600 feet. Although the zones were not production tested, 23API gravity oil was recovered from the Ebok-1 well. The Ebok-2 (oil) and Ebok-3 (drilled off structure) wells were subsequently drilled in 1970. Ebok-4 was spudded on November 24, 2008. The well reached a measured depth of 3,838 feet on December 17, 2008. The well encountered a total gross oil column of 284 feet in high-quality reservoir sands ranging in depth from 2,560 feet to 3,718 feet. Of these gross pay intervals, 274 feet is calculated as net oil pay. After an extensive logging and sampling program, drill stem testing delivered a rate of 1,450 bopd of 20 to 25 API crude oil. Well test analysis indicated that high skin conditions, which restrict oil flow into the well bore, were prevailing over the test interval and as such constrained the surface flow rates. Well test analysis and dynamic reservoir simulation modeling confirmed that flow rates of approximately 3,500 bopd per well in a production scenario will be achieved. This is also consistent with offset production data from analogous fields in the area. Ebok-5 was completed on November 17, 2009, and the well reached a measured depth of 3,743 feet. The well was drilled on the West Fault Block area of the Ebok field and encountered a total gross oil column of 377 feet (comprising 323 feet in the D1 and LD-1E reservoir sands, in addition to a further 54 feet of gross oil pay in the D2 and LD-1F reservoirs), well in excess of pre-drill expectations. Ebok-6 was completed on November 27, 2009 and reached a measured depth of 4,296 feet. The well targeted the Southern Lobe area of the Ebok field and encountered a significantly greater than expected total gross hydrocarbon column of 107 feet (comprising 82 feet in the D2 and 25 feet in the LD1A reservoirs). The D2 reservoir was encountered in line with expectations and revealed greater than expected oil pay and increased volumes proven in the LD1A reservoir. The Ebok-4, Ebok-5 and Ebok-6 well results have led to a substantial increase in reserves and resources initially estimated for the Ebok field. In August 2010 of the Phase 1 drilling campaign, the Ebok-8 water injection well was drilled and encountered an additional 100 feet of oil pay that was not anticipated prior to drilling. As at December 31, 2011, NSAI estimates 44.7 mmbbls of 1P and 61.1 mmbbls of 2P recoverable reserves at the Ebok field. The Ebok Deep exploration well was drilled to a total depth of 11,375 feet (10,085 feet true vertical depth). The well, which has been temporarily abandoned, has suggested high quality reservoir sands in the Biafra and Isongo formations for which further technical work is planned. The results of drilling and wireline logs will be followed up with further detailed technical work and will be incorporated into the subsurface model to assist in future exploration of the deeper horizons at Ebok, Okwok and OML 115 which are adjacent to each other.

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Field Development and Outlook We completed Phase 1 at the end of 2011 and Phase 2 is currently underway. In Phase 2 we are initially drilling four wells in the Central Fault Block D1 and West Fault Block LD-1F reservoirs. We also plan to drill an exploration well on the Ebok North Fault Block which is an untested fault block in the northern area of the field where we believe there are similarities to other oil-bearing reservoirs. Gross unrisked prospective resources in this area are estimated at 35 mmbbls. In addition, we expect future development phases to target the upside potential established in the Southern Lobe (Ebok-6) and any other commercial reserve additions from future exploration and appraisal drilling activity. Okoro and Setu (OML 112) Overview of License The following table sets forth certain details of the Okoro and Setu fields (OML 112) license including our legal and effective working interest and our partner.
Our Effective Working Interest Pre-cost Post-cost recovery(1) recovery

License detailsOkoro and Setu (OML 112)

Our Legal Interest

Area km2 .................................... Expiry ........................................ License type ............................... Main plays ................................. Partner........................................ 2012 work program.................... Future work program ................. Data available ............................

438 February 12, 2018 Royalty Tax Concession Tertiary Agbada reservoirs Amni Ongoing wellhead and FPSO preventative maintenance programs and infill drilling Ongoing wellhead and FPSO preventative maintenance programs 3D seismic data, exploration, appraisal and production well data plus oil and gas production data, downhole temperature and pressure data

0%

95%

50%

(1)

Cost-recovery at the Okoro field was initially reached in mid-2010. Subsequent costs associated with expenditures are subject to negotiated costrecovery arrangements. For example, the costs associated with the drilling of two infill wells increased our pre-cost recovery working interest to 75% until we achieved cost-recovery in January 2012 pursuant to an agreement reached in October 2010.

Background The Okoro and Setu fields, our first greenfield developments, are two oil and gas fields located within OML 112 in shallow water in the eastern part of the offshore Niger Delta. OML 112 was originally awarded to Amni in 1998 as part of the Nigerian Governments indigenous concession program. In March 2006, Afren plc and AERL entered into a production sharing and technical services agreement with Amni to appraise and develop the Okoro and Setu fields within a defined area in the eastern part of the OML 112 block. For a more detailed discussion of this agreement, see Material Agreements Relating to Our AssetsOkoro and Setu. We achieved first oil in the Okoro field on June 10, 2008. We sell our Okoro crude oil production to Shell Western Supply & Trading Limited under an agreed marketing arrangement. See Customers. We achieved cost-recovery at the field in mid-2010, after which our effective working interest became 50%. On October 1, 2010, we entered into a deed of amendment to the March 2006 technical services agreement specifying the treatment of certain cost and tax aspects of the drilling of infill wells at the Okoro field. Following cost-recovery in connection with these two infill wells drilled in 2011, we have reverted to the post-cost-recovery phase where out effective working interest is 50%. Field Technical Background The Okoro field was discovered in 1973 by Japan Petroleum with the drilling at the Okoro-1 well. The full potential of the field was not recognized until certain complex subsurface velocity anomalies were resolved. In late 2006, we, together 122

with Amni, appraised the Okoro field in the area of the velocity anomalies with the Okoro-3 and Okoro-3 Side Track (ST) wells. Okoro-3 encountered oil in the Upper Hydrocarbon Sands, and Okoro-3ST found both the Upper and Lower Hydrocarbon Sands to be oil-bearing. This well and the sidetrack confirmed the potential size and extent of the field. The intersected reservoir sands had excellent porosity in the 30-35% range and a relatively high level of permeability. The Okoro oil was found to be approximately 25 API gravity with low viscosity and a low gas to oil ratio (GOR). These successful results allowed Amni and us to move forward with a field development plan for the Okoro field, which was approved by the Nigerian Government in March 2007. The independent reserves audit completed by NSAI estimated proved net oil reserves of 5.3 mmbbls for the Okoro field and proved plus probable reserves of 7.8 mmbbls as at December 31, 2011. NSAI estimates gross best estimate contingent resources (2C) of 1.5 mmbbls, assuming three of the five zones are developed. Exploration and appraisal drilling at the Setu field was conducted by Amni with the Setu East-1 and Setu East-2 wells in 2002. Five oil-bearing zones were encountered in the Agbada formation and all were successfully tested at rates above 1,900 bopd. Approximately 90% of the oil in-place volumes in the Setu field are located in the 7402 sand reservoir which makes the tie-back of the relatively modest oil volumes easier to undertake. Field Development and Outlook The initial field development plan, approved by the Nigerian authorities, called for the drilling of five horizontal wells (Okoro-4 through Okoro-8) from a wellhead platform location with fluids to be transported via flexible pipelines to a FPSO site. Our reservoir simulation work at the time indicated that incremental oil volumes could be accessed if a further two horizontal production wells (Okoro-9 and Okoro-10) were added to the program, which were approved and drilled in late January 2008. Due to the unconsolidated nature of the reservoir, sand control screens were used in the well completions. Down hole gauges were also installed in all wells to allow careful monitoring of the reservoir pressures in an effort to optimize the deliverability of the individual wells. We achieved first oil in the Okoro field on June 10, 2008 when production commenced from the first two production wells (Okoro-4 and Okoro-5) at a rate in excess of 3,000 bopd of 27API gravity oil, in line with expectations. With the batch drilling of a further three wells (Okoro-6 through Okoro-8), production was increased to approximately 16,000 bopd, and then to 22,000 bopd with no water when the final two production wells (Okoro-9 through Okoro-10) were installed in December 2008. In late June 2009, we began to observe minor water production from two of the seven production wells. This is consistent with the dynamic reservoir model and in line with anticipated field performance. Continuing sub-surface and reservoir management work has identified two attractive infill drilling locations that could add incremental reserves and production, utilizing remaining well slots available at the Okoro wellhead platform. In 2011, we successfully completed the infill wells, bringing the Okoro-11 and Okoro-12 horizontal production wells onstream. As a result, gross output at the field increased to 21,000 bopd. Elective de-bottlenecking work at the FPSO was also completed to increase gross liquids handling capacity. The increased total fluid handling capacity is expected to allow for oil production to be maintained at higher levels for longer periods of time. As a result of this work and the necessary period of production suspension, gross output at the field over the first half of 2011 averaged 14,600 bopd. The exit rate production at the field was in the region of 18,000 to 19,000 bopd. Ongoing studies of the field and immediate surrounding area have identified additional future drilling targets. In particular, in December 2011 we successfully drilled an exploration well (Okoro-13) at the Okoro East field, Okoro-13, which has similar sub-surface characteristics to the main Okoro field and is estimated to have similar resource potential as suggested by a fault sealed 3-way dip closure in Tertiary reservoir sands at equivalent intervals to the main Okoro field. In addition, the Okoro East exploration well was targeting a deeper horst block structure, a play concept that had not been previously explored on the block. The prospect was mapped on good quality 3D seismic data. The well successfully encountered oil in both the Tertiary reservoir sands equivalent to those that have been developed and are in production at the Okoro main field and deeper previously unexplored reservoirs. The discovery of pay in the deeper zones has opened up further prospectivity at similar levels on the main Okoro field and elsewhere on the block. We have completed logging operations, and testing operations are underway to determine the optimal development of the discovery. We expect to drill one development well from the existing unmanned wellhead platform at the Okoro field. Work is also ongoing to determine the best option for economically producing the oil reserves at the Setu field.

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Okwok (OML 67) Overview of License The following table sets forth certain details of the Okwok license including our legal and effective working interest and our partners.
Our Legal Interest Our Effective Working Interest(1) Pre-cost Post-cost recovery recovery

License detailsOkwok

Area km2 ....................................... Expiry ........................................... License type .................................. Main plays .................................... Partners ......................................... 2012 work program....................... Future work program .................... Data available ...............................
(1)

40 Initial term extended to March 14, 2015 Royalty Tax Concession Tertiary Agbada D series of reservoirs, Qua Iboe, Biafra and Isongo formations Oriental, Addax Appraisal drilling to define commerciality and field development requirements Field development, exploration and appraisal drilling 3D seismic data and well data plus field studies

28%

70%

56%(1)

Our interest is 56% pre-hurdle point and 35% post-hurdle point. Hurdle point is the point following the cost recovery period when available petroleum lifted equals $1.2 billion in value.

Background The Okwok field is located in OML 67, 50 km offshore southeast Nigeria in 132 feet of water and, approximately 15 km east of the Ebok field development and adjacent to and surrounded by OML 115. In 2001, Mobil Producing Nigeria Limited contributed Okwok to the Nigerian Governments indigenous licensing program. Pursuant to this program, Oriental completed a farm-out agreement for Okwok with Mobil and the NNPC in May 2006. Addax Petroleum subsequently entered into a joint venture agreement with Oriental, acquiring a 40% interest in Okwok and assumed the role of technical advisor. On August 25, 2009, we announced that we had entered into a farm-out agreement with Addax for the development of the Okwok field, located in OML 67 offshore Nigeria, in consideration for our agreeing to drill one appraisal well in the farm-out area and paying all costs associated therewith. Under the terms of the farm-out agreement, we initially acted as interim technical advisor during the drilling of one exploration or appraisal well and upon completion of the exploration or appraisal well, and subject to other conditions including government approval, we acquired a 28% legal interest and a 70% effective working interest (before cost recovery), reverting to 56% (after cost recovery) pre-hurdle point and 35% (after cost recovery) post-hurdle point, subject to gross volumes lifted. The hurdle point is the point following the cost recovery period when available petroleum lifted equals $1.2 billion in value. We also exercised an option to purchase Addaxs residual interest in the project. All conditions precedent to receiving Addaxs remaining interest have been satisfied. In addition, pursuant to the farm-out agreement, NNPC and Mobil retain the right to back-in and participate in the development of additional reservoirs below a certain depth; however, we do not intend to, and are not required to, drill below such depth. In addition, the Okwok and OML 115 acquisitions represented important steps in our collaboration with Oriental to pursue assets in the region. This collaborative relationship focusing on a region where a large number of existing fields similar to Okwok and Ebok are good candidates for future development was agreed in March 2008 following the farm-in to develop the nearby Ebok field. Field Technical Background The field was discovered by the ExxonMobil NNPC Joint Venture in 1967 (Okwok-1), and two subsequent appraisal wells were drilled in 1968 (Okwok-2 and Okwok-3), but not production tested. The wells encountered oil in the LD1 and D2 series of reservoirs with over 100 feet of oil pay logged in the Okwok-2 well at the D2 level plus multiple 50 feet oil-bearing sections in the LD1 in Okwok-1 and Okwok-2.

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Oriental and Addax drilled a further three wells in 2006 which located over 100 feet of oil pay in the D2 of Okwok4ST1 and an approximate equivalent amount of oil pay in the LD1 series in Okwok-8. The Okwok-4ST1 well sampled 32 API quality crude, while Okwok-8 tested 27API quality crude oil at a rate of 1,200 bopd per day from the LD1 reservoir interval. Field Development and Outlook The Okwok-9 well was spudded on August 25, 2010 and reached a total measured depth of 8,083 feet. Following testing at Okwok and the completion of certain operations, the GSF High Island Vll rig was relocated to the Okoro field to undertake infill drilling. The Okwok-9 well was completed over a 35-foot interval of good quality D2 reservoir (average porosity 30%) and flowed 31 API crude oil at constrained rates intended to ensure integrity of the completion. The well was flowed for 48 hours to establish a connected reservoir volume with previously drilled wells and to quantify reservoir permeability and heterogeneity. Following this, the Okwok-9 well was shut-in for a 54 hour build-up which indicated that the build-up pressure was equal to the initial reservoir pressure, signaling no decline. Data obtained from the well is consistent with and supports our subsurface model for the field, indicating that well productivity under a development completion scenario from a horizontal well would be consistent with rates typically expected in the area. Following the completion of the Okwok-9 appraisal well, NSAI estimated 51.8 mmbbls of gross recoverable contingent resources. Work is ongoing to review potential development concepts that could be utilized to bring the Okwok field onstream. This includes developing the field as a satellite tie-back to the nearby Ebok field or as a separate stand alone development in the event that the reserves base proves sufficiently large. The proximity of the Ebok field offers significant synergies that provide scope for cost reduction and savings at both fields. Joint storage and export operations together with shared services are expected to result in reduced costs for the development of both fields. In order to assist us in evaluating our options, we completed an Ocean Bottom Cable 3D seismic survey over the whole Ebok/Okwok/OML 115 area on November 4, 2011. We are currently in the process of reviewing the high quality data in respect of the 348 km2 area which will also assist us in determining the optimal placement of the appraisal well that we plan to drill with Oriental during the second half of the year, contingent upon approval of our field development plan by the Nigerian Government. The most likely development scenario for Okwok consists of the installation of a separate dedicated production processing platform tied back to and sharing the existing 1.2 mmbbls capacity Ebok FSO located approximately 13 km to the west. For a further description of the Ebok FSO, see Material Agreements Relating to Our AssetsEbokMarketing Services and Sale and Purchase Agreement for Crude Oil. OML 115 Overview of License The following table sets forth certain details of the OML 115 license including our legal and effective working interest and our partner.
Our Legal Interest Our Effective Working Interest Pre-cost Post-cost recovery recovery

License detailsOML 115

Area km2 ....................................... Expiry ........................................... License type .................................. Main plays .................................... Partner........................................... 2012 work program....................... Future work program .................... Data available ............................... Background

228 May 20, 2019 Royalty Tax Concession Tertiary Agbada D series of reservoirs, Qua Iboe, Biafra and Isongo formations Oriental Exploration drilling and subsurface studies Ongoing exploration studies 3D seismic data. Exploration well data. Subsurface studies

40%

100%

50%

OML 115 is located in the translational structural setting of the prolific offshore eastern Niger Delta (south east Nigeria), surrounding the Ebok and Okwok development area and close to the giant Zafiro Complex. The southern portion of the Okwok structure (Okwok South) extends into OML 115 and significant additional prospectivity has been defined within 125

the channelized Qua Iboe system. OML 115 was originally awarded to Oriental in 1999 as part of the Nigerian Governments indigenous concession program. In January 2010, we announced a joint venture agreement with Oriental and EER to participate in the exploration, appraisal and development of OML 115. Under the terms of the initial joint venture agreement and joint operating agreement with EER, we act as technical advisor and acquired a 32.5% legal interest. Under the terms of the initial agreement, the effective working interest of between 77% and 100% reverts to between 81.25% and 65% (post-cost recovery associated with the initial exploration work program). It was agreed that following both our and EERs cost recovery, our effective economic interest will revert to between 32.5% and 40.625% of field revenues. We undertook to fund the drilling of one exploration well, after which we and EER will jointly fund costs pro-rata (81.25% and 18.75%, respectively). On July 15, 2010, we announced that terms had been agreed to acquire Energy Equity Resources remaining 7.5% license interest in OML 115, increasing our legal interest to 40%. Field Development and Outlook During the second half of 2012, we plan on drilling one exploration well targeting the Ufon prospect for an estimated 60 mmbbls. The Ufon prospect has also been interpreted to have oil prospectivity in the same D Series reservoirs that have been proven to be oil-bearing at the nearby Ebok and Okwok fields. NSAI has estimated gross unrisked best estimate prospective resources at OML 115 of 192.5 mmbbls. OPL 310 Overview of License The following table sets forth certain details of the OPL 310 license including our legal and effective working interest and our partner.
Our Legal Interest Our Effective Working Interest Pre-cost recovery Post-cost recovery

License detailsOPL 310

Area km2 ....................................... Expiry ........................................... License type .................................. Main plays ....................................

Partner........................................... 2012 work program.......................

Future work program .................... Data available ...............................

(1)

1,850 February 10, 2019 Royalty Tax Concession Cretaceous shelfal to deep water clastics in structural and stratigraphic traps over basement highs Optimum Continued technical and commercial studies, acquisition of 3D seismic data; potential exploration drilling Development or exploration wells 2D and 3D seismic and regional well data

40%

91%

21/70%(1)

Our interest is 21% during the period of Optimums (our indigenous partner) cost recovery period, which we expect to be relatively short due to the limited costs incurred by Optimum.

Background OPL 310 is an exploration block situated in offshore west Nigeria, adjacent to Chevrons highly prospective Aje oil and gas field and with access to the newly completed West African gas pipeline. OPL 310 represents a high impact shallow to deep water exploration opportunity in the under explored west Nigeria offshore. OPL 310 was awarded to the indigenous company Optimum in 1992. On September 8, 2008, Afren Investments entered into a participation agreement with Optimum. Afren Investments is technical advisor and holds a 40% legal interest. Following cost recovery, our effective working interest is 21% during the short period of Optimums cost recovery period and 70% following Optimums cost recovery in the block.

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Field Development and Outlook We have acquired an electro-magnetic survey on the block and integrated this data with the existing seismic data set. We also have plans to acquire additional seismic on the block. There are several prospects already identified in the Cenomanian, Turonian and Albian sandstone reservoirs, with trapping configurations typically 4-way dip closures (all round closures necessary to trap or retain hydrocarbons) over basement highs. As at December 31, 2011, NSAI estimated gross unrisked best estimate prospective resources for OPL 310 of 220 mmboe. We have launched a formal farm-down process to attract a partner to participate in OPL 310 and have begun engaging with interested parties. Anambra BasinOPL 907 and OPL 917 Background Exploration activity occurred with some success in the Anambra Basin between the 1950s and the 1980s. Six discoveries were made from a total of 30 exploration wells, drilled without the benefit of modern seismic data techniques. The discoveries made were predominantly gas and were not further developed due to the lack of a viable gas market. The Anambra basin is under-explored and is considered to have potential gas resources in excess of five tcf. Initiatives launched by the Nigerian Government in developing the countrys gas resources have now made the Anambra Basin an attractive commercial proposition. In February 2008, AGER entered into production sharing contracts for two licenses in the Anambra Basin, onshore southeast Nigeria, OPL 907 and OPL 917. AGER holds the interest in these licenses through a joint venture entered into with GEC. AGER holds a 41% interest in OPL 907 and a 42% legal interest in OPL 917, and acts as operator for both licenses. Overview of Licenses The following table sets forth certain details of the OPL 907 and the OPL 917 licenses including our legal and effective working interest and our partners.
AGERs Effective Working Interest AGERs Legal Interest(1) Pre-cost recovery Post-cost recovery

License detailsOPL 907

Area km2 ......................................... 1,462 Expiry ......................................... February 20, 2018 License type ................................ Production Sharing Contract Main plays .................................. Late Cretaceous deltaic to shallow marine clastics in fault related traps Partners ....................................... Buston Energy Resources Limited, Allene Exploration and Production ltd, Kaztec Engineering Limited, VP, De Atai, Bepta Oil & Gas Ltd 2012 work program..................... 2D seismic reprocessing Future work program .................. 1,600 km 2D seismic acquisition Data available ............................. Limited 2D seismic and well data
(1)

41%

48.69%

41%

AGER, our 50% subsidiary through a joint venture between Afren Nigeria and GEC, is the operator.

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AGERs Effective Working Interest AGERs Legal Interest(1) Pre-cost recovery Post-cost recovery

License detailsOPL 917

2,285 February 20, 2018 Production Sharing Contract Late Cretaceous deltaic to shallow marine clastics in fault related traps Partners ........................................... Petrolog Oil & Gas Ltd, VP, De Atai, Goland Petroleum Development Company Limited 2012 work program..................... 2D seismic reprocessing Future work program .................. 1,600 km 2D seismic acquisition; 2 exploration wells Data available ............................. Limited 2D seismic and well data
(1)

Area km2 ..................................... Expiry ......................................... License type ................................ Main plays ..................................

42%

70%

42%

AGER, our 50% subsidiary through a joint venture between Afren Nigeria and GEC, is the operator.

OPL 907 and OPL 917 OPL 907 Background The OPL 907 license covers an area of 1,462 km2 and has been only lightly explored to date with no notable exploration success. The other joint venture partners are indigenous Nigerian companies: Buston Energy Resources Ltd (25%), Allenne Exploration & Production Ltd (14%), Kaztec Engineering Limited (5%), VP Energy Ltd (3%), De Atai Oil Services International Ltd (2%) and Bepta Oil & Gas Ltd (10%). OPL 917 Background The OPL 917 license covers 2,285 km2 and contains the Igbariam discovery. The Igbariam-1 well was drilled by Shell/BP in 1971, with gas and condensate discovered in Cretaceous sandstones. A total of over 200 feet of net hydrocarbon pay was encountered but the well was not tested. Estimated in place volumes for the Igbariam discovery stand at 300 bcf and 80 mmbbls condensate, within the Turonian-Maastrichtian deltaic to shallow marine Nkporo formation. The other joint venture partners are indigenous Nigerian companies: Petrolog Oil & Gas Ltd 18%), VP Energy Ltd (17%), De Atai Oil Services International Ltd (10%) and Goland Petroleum Development Company Limited (13%). OPL 907 and OPL 917 Field Development and Outlook We believe that OPL 907 and OPL 917 are capable of yielding up to ten drillable prospects of similar size to Igbariam with a probability of success ranging between 30 to 40%. The main hydrocarbon plays consist of late Cretaceous deltaic to shallow marine clastics in fault related traps. We are currently reprocessing all available 2D seismic data on the blocks to help better define the next phase of seismic acquisition. In parallel, we are finalizing an environmental impact assessment program ahead of the planned seismic acquisition program across both blocks. We are currently reviewing our strategic options in relation to the acreage. Ofa (OML 30) Overview of License The following table sets forth certain details of the Ofa (OML 30) license including our legal and effective working interest and our partner.

128

License detailsOfa (OML 30)

Our Legal Interest

Our Effective Working Interest Pre-cost Post-cost recovery recovery

Area km2 ....................................... Expiry ........................................... License type .................................. Main plays .................................... Partner........................................... Background

52 Initial term extended to March 14, 2015 Royalty Tax Concession Tertiary Agbada reservoirs IEL

32.5%

The Ofa field is located in OML 30 onshore in the northern Niger Delta. In December 2006, we entered into a farmin agreement with IEL for the appraisal and development of the Ofa field. Under the terms of this agreement, we are responsible for paying all costs for the development of the field, and will recover the costs from 90% of net field revenues. IEL holds the license in the Ofa field pursuant to a farm-out agreement with a joint venture consortium consisting of NNPC, Shell, Elf and Agip. In addition, the Nigerian Government retains the right to back-in and participate in the development of additional reservoirs below a certain depth; however, we do not intend to, and are not required to, drill below such depth. We, together with our partners, have decided not to proceed with the development of the Ofa field due to the lack of commercial substance. Our partner and Shell (who is acting as the joint venture operator on behalf of the joint venture consortium) is currently in negotiations with the DPR regarding prospectively obtaining a replacement field. NigeriaOffshore Nigeria and So Tom & Prncipe (JDZ Block 1) Overview of Our Operation in Offshore Nigeria and So Tom & Prncipe The following table sets forth certain information concerning our operations in offshore Nigeria and So Tom & Prncipe including our indigenous partner and the type of work program.
Nigeria Local Partner Work Program

JDZ Block 1 .................................................................................................................

(1)

Total(1)

Exploration

On July 15, 2010, Total and Chevron announced an agreement pursuant to which Total will acquire Chevrons 45.9% interest in JDZ Block 1.

JDZ Block 1 ResourcesJDZ Block 1 The following table sets forth NSAIs estimated gross OOIP and contingent oil resources, estimated gross OGIP and contingent gas resources and estimated gross OOIP and unrisked prospective oil resources in JDZ Block 1 as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed above.
Gross (100%) Low Estimate OOIP (mmbbl) Best Estimate High Estimate Low Estimate Resources (mmbbl) Best High Estimate Estimate

Resources Contingent Resources Oil .......................................................... Contingent Resources Gas(1) .......................................................... Unrisked Prospective Resources Oil ..........................................................
Source: Netherland, Sewell & Associates, Inc. (1)

80.8 734.1

123.4 1,003.0

173.8 1,348.5

24.4 229.4

42.5 350.1

67.0 518.4

Gas resources are not included because there is currently no viable market for produced gas.

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Overview of License The following table sets forth certain details of the JDZ Block 1 license including our legal and effective working interest and our partners.
Our Effective Working Interest Pre-cost Post-cost recovery recovery

License detailsJDZ Block 1

Our(1) Interest

Area km2 ......................................... Expiry ............................................. License type .................................... Main plays ...................................... Partners ........................................... 2012 work program......................... Future work program ...................... Data available .................................
(1) (2)

704 March 22, 2013 Production Sharing Contract Oligo Miocene deepwater clastics in toe thrust related traps Total(2), Addax, Sasol Oil (Proprietary) Limited One appraisal well and one exploration well Exploration or development wells 3D seismic data and well data

4.41%

4.41%

4.41%

DEER has a 9% working interest in the field. We have an indirect interest in DEER through 49% ownership. Dangote Oil and Gas Limited control the remaining 51%. Our 4.41% interest corresponds to our 49% ownership in DEER. On July 15, 2010, Total and Chevron announced an agreement pursuant to which Total will acquire Chevrons 45.9% interest in JDZ Block 1.

Background The So Tom & Prncipe JDZ covers approximately 34,500 km2 and was established in February 2001 upon the ratification of a formal bilateral treaty resolving overlapping maritime boundary claims of the two host nations, Nigeria and the island nation So Tom & Prncipe, in the Gulf of Guinea. This treaty allocated 60% of the resources in the JDZ to Nigeria and 40% to So Tom & Prncipe. The treaty expires in 2046, with a provision for review in 2036. The affairs of the JDZ are administered by the Joint Development Authority which was officially inaugurated in January 2002, and reports to a joint ministerial council. JDZ Block 1 was awarded to a consortium of Chevron (51% and operator), Esso Exploration and Production Nigeria So Tom One Limited (40%) and DEER (9%) in April 2004. The consortium members paid a signature bonus of $123 million for the right to develop JDZ Block 1 under a long-term production sharing agreement, which became effective on March 22, 2005. The Obo discovery is located in JDZ Block 1, in 1,720 m of water. The Obo-1 well was drilled by Chevron in 2006. Currently, the consortium consists of Chevron (45.9%), Addax (40%), DEER (9%) and Sasol Oil (Proprietary) Limited (5.1%). On July 15, 2010, Total announced its agreement with Chevron to acquire Chevrons 45.9% interest in JDZ Block 1. Total is now the operator of the nearby Akpo field, presenting development synergies with JDZ Block 1. Field Development and Outlook The JDZ Block 1 participants have entered the third exploration period. One commitment well is required during this phase. Total has reprocessed existing seismic data and is preparing to drill the Obo-2 appraisal well in the first half of 2012, followed by the Enitimi-1 exploration well. Cte dIvoire Overview of Operations in Cte dIvoire The following table sets forth certain details of our operations in Cte dIvoire, including our effective working interest, indigenous partner and the type of work program.
Cte dIvoire Local Partner Work Program

Block CI-11 (Lion and Panthre fields) ....................................................................... Block CI-01 (Kudu, Eland and Ibex fields) ................................................................. Lion Gas Plant .............................................................................................................

Petroci Petroci N/A

Production Appraisal Production

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Reservesoffshore Cte dIvoire The following table sets forth NSAIs estimated net oil and gas reserves of our interest in the Lion and Panthre fields located in Block CI-11 offshore Cte dIvoire as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report.
Net Working Interest Reserves(1) Oil (mmbbl) Gas (bcf)

Country/Category

Lion and Panthre Fields Proved (1P) ......................................................................................................................... Proved + Probable (2P) ....................................................................................................... Proved + Probable + Possible (3P) .....................................................................................
Source: Netherland, Sewell & Associates, Inc. (1) Net reserves on a working interest basis before deductions for royalty burdens.

0.2 0.5 0.7

4.4 9.5 16.1

Resourcesoffshore Cte dIvoire The following table sets forth NSAIs estimated gross OOIP and contingent oil resources, estimated gross OGIP and contingent gas resources, estimated gross OOIP and unrisked prospective oil resources and estimated gross OGIP and unrisked prospective gas resources in offshore Cte dIvoire as at December 31, 2011. This information has been extracted without material adjustment from the NSAI Report. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed above.
Gross (100%) OOIP (mmbbl)/OGIP (bcf) Resources (mmbbl)/(bcf) Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate

Resources Kudu, Eland and Ibex Fields Contingent Resources Oil ...................................................... Contingent Resources Gas ..................................................... Kudu and Ibex Fields Unrisked Prospective ResourcesOil ... Unrisked Prospective ResourcesGas ..
Source: Netherland, Sewell & Associates, Inc.

59.2 105.7 110.6 382.3

81.1 160.1 237.8 866.6

104.8 237.0 698.0 1,623.6

13.5 66.2 22.8 285.8

19.8 101.5 59.5 661.1

27.9 152.4 157.8 1,237.0

Block CI-11 (Lion and Panthre fields) Overview of License The following table sets forth certain details of the Block CI-11 (Lion and Panthre fields) license including our legal and effective working interest and our partners.
Our Effective Working Interest Pre-cost Post-cost recovery recovery

License detailsBlock CI-11

Our Legal Interest

Area km2 ....................................... Expiry ........................................... License type .................................. Main plays .................................... Partners .........................................

77 Typically 25 years from development approval Production Sharing Contract Albian, Senonian Maastrictian channel sands Petroci, CIPEM, SK Energy

47.96%

47.96%(1)

47.96%

131

2012 work program....................... Future work program .................... Data available ...............................
(1)

Sub-surface evaluation and wireline workovers Infill drilling and workovers 2D and 3D seismic data plus well and field study data

Per calendar year, the contractor group is entitled to recover its costs from no greater than 63% of the total production or such lesser percentage which would be necessary and sufficient to recover costs. From this 63%, we are entitled to our 47.96% percentage of cost recovery.

Background The Lion and Panthre fields, contained within Block CI-11, are located approximately 13 km offshore Cte dIvoire in water depths ranging from 60 m to 95 m. The Lion and Panthre fields have been developed via a mobile offshore production platform and four tethered caissons (geotechnical retaining structures). The oil and gas is piped to Abidjan, where the oil is sold on the open market and the gas is processed by the Lion Gas Plant and sold under two long term contracts to domestic end users, where it is used for power generation. Our partners in the block and the affiliated pipeline are Petroci, CIPEM and SK Energy Co Ltd (formerly SK Corporation). Field Technical Background The Lion field is predominantly oil and the Panthre field predominantly gas bearing. The Lion field was discovered by Phillips in the 1980s with the drilling of the B1-7X and B1-8X wells. The B17X well proved the existence of the Lion sand reservoir with oil shows on the overall structural high. The B1-8X well flowed oil and gas at commercial rates from Senonian slope-canyon reservoirs. Commercial delineation of the Lion field started in 1994 with the drilling of the Lion A-1 well. The Senonian accumulations were appraised in 1996 with the drilling of the Lion A-3 well. In 1996, a new oil reservoir in the Foxtrot section was found by the Lion A-4ST and a new oil reservoir in the Cenomanian was found by the Lion B-4ST. First production was established in 1995. The Panthre gas field was originally discovered and delineated by Phillips in 1982, with the drilling of the B1-5X, B1-9X and B1-10X wells. The field was not developed at that time due to gas market constraints. Delineation of the field for commercial development began with the drilling of the Panthre C-1 well by UMC in 1993. UMC subsequently drilled the C-2, D-1 and D1A wells. The Panthre field commenced production in November 1995. Operations Update and Outlook As of December 31, 2010, Block CI-11 produced a total of 0.4 mmbbls of oil and 8.5 bcf of gas. Gross oil and gas production at Block CI-11 for the year ended December 31, 2010 was approximately 1,100 bopd and approximately 23.2 mmcfd, equivalent to approximately 5,088 boepd. Gross production at Block CI-11 for the ten months ended October 31, 2011 was approximately 0.2 mmbbls and approximately 3.8 bcf, equivalent to average gross daily production rates of approximately 800 bopd and 12.5 mmcfd. Production levels were below expectation for the ten months ended October 31, 2011 due to the impact of political and social unrest delaying the import of necessary equipment and resources required to conduct routine maintenance of the compressor unit during the first quarter of 2011. Upon our assumption of operating control in September 2008, we undertook and completed an extensive facilities maintenance program. Marine growth removal on the central platform and surrounding caisson structures was successfully carried out and work on the wellheads is ongoing prior to commencing planned wireline workovers in a number of the wells. Subsurface evaluation work is also ongoing, focusing in particular on applying the latest understanding of the Cretaceous depositional model, with the aim of identifying infill drilling opportunities at Block CI-11 to target any remaining opportunities. Due to the lack of gas demand when the field was originally developed, there are high GOR zones within the structure that are yet to be completed and produced while two closures in the Foxtrot Sands are yet to be tested. In 2010, we completed a wireline workover program to remove wellbore wax build-up and obtain down hole pressure data. A detailed reservoir simulation model has also been constructed and history matched. The model iterations and updates used the newly acquired data which helped evaluate the impact of potential new infill wells and/or pressure maintenance on field productivity. Any rig based workover opportunities will also be coordinated with this program to prospectively prove up additional reserves and increase production rates.

132

Block CI-01 (Kudu, Eland and Ibex fields) Overview of License The following table sets forth certain details of the Block CI-01 (Kudu, Eland and Ibex fields) license including our legal and effective working interest and our partners.
Our Effective Working Interest Pre-cost Post-cost recovery recovery

License detailsBlock CI-01 (Kudu, Eland and Ibex fields)

Our Legal Interest

Area km2 ....................................... Expiry ........................................... License type .................................. Main plays .................................... Partners ......................................... 2012 work program....................... Future work program .................... Data available ...............................
(1)

1,208 Typically 25 years from development approval Production Sharing Contract Late Cretaceous shelfal to deep water clastics in structural and stratigraphic traps Petroci, SK Energy Continued technical and commercial studies, potential 3D seismic data acquisition Development or exploration/appraisal wells 3D and 2D seismic and well data

65%

65%(1)(2)

65%(1)

The effective working interest does not include an additional 15% interest that accrues to us pursuant to a carry arrangement with SK Energy. Pursuant to this arrangement, we pay SK Energys portion of the drilling, developing and operating costs until we recover 200% of actual costs expended by us on SK Energys behalf. In addition, we have a carry arrangement with Petroci whereby we carry Petrocis 20% participating interest. Per calendar year, the contractor group is entitled to recover its costs from no greater than 60% of the total production or such lesser percentage which would be necessary and sufficient to recover costs. From this 60%, we are entitled to our 65% of cost recovery.

(2)

Background Block CI-01, covering the previously discovered Kudu, Eland and Ibex fields, was licensed to UMIC in 1994 and is located offshore in the easternmost part of Cte dIvoire. The block extends from near the shoreline to 1,900 m water depth and is about 52 km from Abidjan. Our other partners in the block are Petroci and SK Energy Co Ltd (formerly SK Corporation). Field Technical Background Five separate significant hydrocarbon accumulations, Kudu, Eland, Ibex, Impala and Assinie were previously discovered by Esso and Agip in the late 1970s through the mid-1980s. The Kudu field was discovered by Agip in 1984 with the drilling of the E1-1X well, which tested 23.6 mmcfd and 738 bcpd from the Cenomanian sand. Subsequent delineation drilling by UMC in 1997 led to the Kudu-1 appraisal well that tested 26.3 mmcfd and 728 bcpd from a separate reservoir compartment in the Cenomanian. Kudu is a combination structural and stratigraphic trap, with faulting along the northern limit and erosion of the reservoir to the east and west. Esso discovered the Eland field in 1978 with the drilling of the IVCO-19 well, which tested 12.4 mmcfd and 520 bcpd from the Cenomanian. Esso followed up this discovery in 1981 with the drilling of the IVCO-23 well which tested 13.0 mmcfd and 430 bcpd, also from the Cenomanian. The Eland discovery is a combination of a structural and stratigraphic trap. The Cenomanian reservoir is within an erosional remnant above an Albian tilted faulted structure. The reservoir is truncated on all sides and covered by Turonian and younger shales. Both RFT and DST pressure data indicate likely communication exists between the two wells. The Ibex discovery is located in the eastern part of the block in approximately 270 feet of water. It is south-east of the Kudu and Eland fields. The discovery well was drilled by Esso in 1985 near the eastern truncation edge of a sand rich Maastrichtian canyon system that is draped over a portion of an anticline. It found oil and gas pay in four sands at depths between 5,714 feet and 6,974 feet. A drill stem test in the oil zone flowed rates of up to 2,992 bopd, 43.4 API gravity oil and 19.8 mmcfd gas. 133

Field Development and Outlook Out of the 16 wells drilled to date on the block, 10 have found hydrocarbons (representing a 63% technical success rate) with five fields defined (Kudu, Eland, Ibex, Impala and Assinie). The last well drilled on the block was in 1998 by Ocean Energy. Consequently, the block has not benefited from the latest sub surface understanding of the Cretaceous depositional systems which have led to discoveries adjacent to Block CI-01 across the border in Ghana. Significant additional exploration prospectivity is being defined as a result of ongoing work, incorporating the latest regional understanding of the Cretaceous in this area. Work is also currently underway on reviewing the existing fields on the block where potential exists for the discoveries to be materially larger than first mapped as a result of this latest sub-surface understanding. In particular, we completed full technical evaluation of the Kudu field, following previous work undertaken at the Ibex field where a sequence stratigraphic approach is now also being deployed to better define the channel bodies. Development planning for the existing discoveries is ongoing, with the original development concept now being reviewed in light of the substantial upwards revision to Ibex volumes following an independent assessment by NSAI and follow on upside potential at the other discoveries. Gross contingent resources for CI-01 have been estimated at 19.8 mmbbls and 101.5 bcf, equivalent to 37.3 mmboe, with additional best estimate prospective upside of 59.5 mmbbls and 661.1 bcf, equivalent to 173.5 mmboe. We are in the process of obtaining an exclusive exploitation authorization for CI-01. In the near term, we intend to acquire new 3D seismic in order to obtain an expanded contiguous data set in order to ultimately define optimal appraisal drilling locations for the existing discoveries on the acreage. Lion Gas Plant Background The Lion Gas Plant was constructed by Ocean Energy in 1998 to improve margins on gas sales by extracting and selling high value natural gas liquids from gas produced at Block CI-11. Gas production from adjacent Blocks CI-26 and CI40, both of which are operated by Canadian Natural Resources Limited, were added to the process stream, providing third party tariff revenue from the use of the Block CI-11 pipeline infrastructure, and additional gasoline and butane sales revenue at the Lion Gas Plant. The Lion Gas Plant has a total inlet capacity of 75 mmcfd and strips out gasoline and butane from the rich gas stream it receives, delivering dry gas to the power sector. Butane is sold into the local market, while the gasoline is sold on the international market. The Lion Gas Plant has enjoyed tax exempt status since 1998; therefore, cash generated offers a high margin per barrel of product extracted. Operations Update and Outlook Natural gas liquids output for the full year 2010 stripped from the inlet gas stream at the Lion Gas Plant was 721 boepd. The average gross daily production rate for the ten months ended October 31, 2011 was 575 boepd. Output during the first half of 2011 was impacted due to the impact of political and social unrest delaying the import of necessary equipment and resources required to conduct routine maintenance. In addition, a gas leak at CI-11 shut down gas production in mid-August 2011. However, following successful repairs and necessary maintenance, full production resumed in midOctober 2011. The Lion Gas Plant also received reduced third party inlet volumes from adjacent blocks operated by CNR over the period which we understand was due to offshore mechanical difficulties experienced by CNR. With a total inlet capacity of 75 mmcfd, the produced butane is sold into the local market at a price of $248/boe with the gasoline spiked into the Block CI-11 crude stream and sold onto the open market. We are continuing to evaluate the feasibility of extracting propane at the plant which could be used to supply customers in the industrial sector. Ghana Overview of Operations in Ghana We have one interest in Ghana. The following table sets forth certain details of our operations in Ghana, including the operator and type of work program.
Ghana Operator Work Program

Keta Block ..............................................................................................................................

Afren

Exploration

134

Resourcesoffshore Ghana NSAI has estimated the prospective resources for the Keta Block, offshore Ghana as of December 31, 2011. The following table sets forth NSAIs estimated gross OOIP and unrisked prospective oil resources for offshore Ghana as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report.
Gross (100%) Low Estimate OOIP (mmbbl) Best Estimate High Estimate Low Estimate Resources (mmbbl) Best High Estimate Estimate

Resources

Unrisked Prospective ResourcesOil ........... Keta Block Overview of License

722.4

2,416.7

8,061.2

153.9

604.2

2,299.5

The following table sets forth certain details of the Keta Block license including our legal and effective working interest and our partners.
Our Effective Working Interest Pre-cost Post-cost recovery(1) recovery(1)

License detailsKeta Block

Our Legal Interest(1)

Area km2 ..................................... Expiry ......................................... License type ................................ Main plays .................................. Partners ....................................... 2012 work program.....................

Future work program .................. Data available .............................

(1)

4,400 February 18, 2016 Royalty Tax Concession Cretaceous deepwater clastics in combined structural/stratigraphic traps Eni, Mitsui, GNPC(2) Drilling of the Nunya-1 exploration well, continued subsurface work; further 3D seismic acquisition Additional exploration wells 2D and 3D seismic and well data

35%

35%

35%

In March 2011, we announced the farm-down of a 35% legal interest in the Keta block and transfer of operatorship to Eni. Under the terms of the farm-down, we will receive a 100% carry up to $80 million through the drilling of one exploration well, as well as reimbursement of prior costs and carry through future seismic acquisition. The effective working interest does not include an additional 10% interest as a result of a carry arrangement with GNPC. Pursuant to this arrangement, until production begins the partners, on a pro rata basis, pay GNPCs portion of the drilling, developing and operating costs which are subject to precost recovery.

(2)

Background The Keta Block is a high impact, deep water exploration asset in offshore eastern Ghana along the highly prospective but under-explored West African Transform Margin. Covering an area of 4,400 km2, the block is located offshore Eastern Ghana, at the heart of the Volta River Basin in water depths ranging from 1,000 m to 2,800 m. Multiple play types offer diverse hydrocarbon potential, with the primary targets being Cretaceous deep water clastics in combined structural/stratigraphic traps that offer giant field potential. The play concept is similar to plays that proved successful in the recent Jubilee and Odum discoveries. The Odum discovery is reported to have been made in Campanian sands which is extremely promising for the Keta Block. Several Upper Cretaceous closures have been identified on the block, ranging in size from 100 mmbbls to 600 mmbbls. Stratigraphic upside possibilities offer gross potential in excess of two billion bbls. In June 2008, we completed the acquisition of an initial 88% effective working interest and the right to operate in the area from Devon Energy. Through our subsidiary Afren Energy Ghana Limited (formerly Devon Energy Ghana Limited), we assigned a 2% effective working interest to Gulf on June 18, 2008. However, in February 2010, we reacquired this 2% from Gulf. On October 24, 2008, Afren Energy Ghana Limited entered into a farm-out agreement with Mitsui Ghana, a subsidiary of Mitsui & Co, reducing its effective working interest in the Keta Block to 68%. The previous petroleum agreement expired on December 31, 2009. A new petroleum agreement with substantially the same terms received parliamentary approval and was executed on February 19, 2010 and will expire on February 18, 2016. GNPCs carried 135

interest is currently 10%. In March 2011, we announced the farm-down of a 35% legal interest in the Keta block and transfer of operatorship to Eni. The transfer of interest has subsequently been approved by the Government of Ghana. Under the terms of the farm-down, we will receive a 100% carry up to $80 million through the drilling of one exploration well, as well as reimbursement of prior costs and carry through future seismic acquisition. Field Development and Outlook In 2009, we drilled the Cuda-1 and Cuda-1ST1 wells. The well and sidetrack encountered an unexpectedly severe high pressure zone in the top of the upper Cretaceous, which ultimately required the well to be plugged and abandoned. This was prior to the well penetrating the primary Cretaceous objectives, which remain of high potential but untested. Following the completion of drilling operations at the Cuda-1 exploration well in December 2008, a decision was made to enter the second phase of the Keta Block license, which requires the drilling of one commitment well within a two year period. The Nunya-1 well spudded on February 1, 2012. We also commenced drilling of the Nunya-1X exploration well on February 8, 2012. Congo-Brazzaville Overview of Our Operations in Congo-Brazzaville We have one asset in Congo-Brazzaville. The following table sets forth certain details of our operations in Congo-Brazzaville, including the operator and type of work program.
Congo-Brazzaville Operator Work Program

La Noumbi Permit ..................................................................................................... Resourcesonshore Congo-Brazzaville

Maurel et Prom

Exploration

NSAI has estimated the prospective resources for the La Noumbi Permit, onshore Congo-Brazzaville as of December 31, 2011. The following table sets forth NSAIs estimated gross OOIP and unrisked prospective oil resources for onshore Congo-Brazzaville as of December 31, 2011. This information has been extracted without material adjustment from the NSAI Report of December 31, 2011. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Our legal interest and effective working interest in the relevant fields and license areas are separately disclosed above.
Gross (100%) Low Estimate OOIP (mmbbl) Best Estimate High Estimate Low Estimate Resources (mmbbl) Best High Estimate Estimate

Resources

Unrisked Prospective ResourcesOil ...........

521.5

1,025.9

1,744.0

114.6

251.6

481.9

136

La Noumbi Permit Overview of License The following table sets forth certain details of the La Noumbi Permit license including our legal and effective working interest and our partners.
Our Effective Working Interest Our Legal Interest Pre-cost recovery Post-cost recovery

License detailsLa Noumbi Permit

Area km2 ............................................................ 2,830 Expiry ........................................................... June 19, 2013 License type .................................................. Production Sharing Contract Main plays .................................................... Pre-salt Toca and Djeno in faulted structural traps Partners ......................................................... Maurel et Prom (Op.), Eni S.p.A. 2012 work program....................................... Ongoing technical studies and drilling of 2 exploration wells Future work program .................................... Post-well studies Data available ............................................... 2D seismic and well data Background

14%

14%

14%

The La Noumbi Permit covers approximately 2,830 km2 of under explored acreage onshore Congo-Brazzaville and lies directly to the south of the Gabon border and on trend with the prolific MBoundi field. In November 2006, we completed the acquisition of the entire issued share capital of Heritage Congo Limited, which held a 14% interest in the La Noumbi Permit. The co-venture partners are Maurel et Prom, holding a 49% stake and acting as the operator, and Eni S.p.A. (through the acquisition of Burren Energy in early 2008) holding the remaining 37% interest. Field Development and Outlook In early 2007, we acquired 2D seismic data resulting in a total of 940 km of new, good-quality seismic data. This data has been combined with reprocessed older 2D seismic data acquired in the 1980s and an attractive prospect inventory has been developed. The Doungou-1 exploration well was spudded on August 13, 2007 and reached a total depth of 2,602 m on September 26, 2007. This was the first exploration well drilled by the current joint venture. The well encountered good oil shows at several levels, but the reservoir quality in the primary Vandji formation target was poor due to low permeability; thus, the partners decided to plug and abandon the well. Another exploration well was spudded in December 2009 and completed in March 2010. The well reached a final depth of 2,550 m in the Lower Cretaceous Djeno formation. Between 1,775 m and 1,875 m a siltstone area displayed hydrocarbon indicators. Measurements taken upon completion of drilling indicate this interval was mainly composed of gas and did not suggest a viable commercial development due to its distance from potential markets. The partners decided to plug and abandon the well. However, the well data will be used to further our regional understanding and help us redefine the prospectivity of the block. Thus, the partners have opted to proceed into the next designated exploration phase on the La Noumbi Permit and plan to drill two exploration wells with targets between 800 and 1,000m in 2012. Kurdistan Region of Iraq Overview of Our Operations in the Kurdistan Region of Iraq The following table sets forth certain information concerning our operations in the Kurdistan Region of Iraq including our partners and the current work program at each field.

137

Kurdistan Region of Iraq

Partner

Work Program

Barda Rash .............................................................................................................................. Ain Sifni ................................................................................................................................. ResourcesKurdistan Region of Iraq

KRG, Komet Development Hunt Oil Exploration

RPS has estimated our gross contingent resources for the Barda Rash block as of February 15, 2012 and for the Ain Sifni block as of June 9, 2011. The resources are summarized below. This information has been extracted without material adjustment from the RPS Reports as of February 15, 2012 and June 9, 2011, as applicable. For convenience, aggregate totals are also provided for our gross contingent resources. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise.
Gross (100%) Volumes (mmboe) Contingent(1) Oil and Gas Resources Oil and Gas in Place Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate (1C) (2C) (3C) (1C) (2C) (3C)

Area

Barda Rash ............................................................................. Ain Sifni ................................................................................ Total ......................................................................................

Source: RPS Energy (1)

6,916 256 7,172

14,015 391 14,406

21,897 543 22,440

533 17 550

1,431 42 1,473

2,845 76 2,921

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.

RPS has estimated prospective resources for the Ain Sifni block as of June 9, 2011. The resources are summarized below. This information has been extracted without material adjustment from the RPS Report as of June 9, 2011. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise.
Gross (100%) Oil Volumes (mmbbl) Unrisked Prospective Oil Resources OOIP Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Ain Sifni ................................................................................

Source: RPS Energy

5,060

7,493

10,365

408

917

1,584

Barda Rash Overview of License The following table sets forth certain details of the Barda Rash license including our equity interest and our partner.
License detailsBarda Rash Our Equity Interest

Area km2 ..................................................................... Expiry ......................................................................... License type ................................................................ Main plays .................................................................. Partners ....................................................................... 2012 work program..................................................... Future work program .................................................. Data available ............................................................. Background

265 November 2032 Production Sharing Contract Cretaceous, Jurassic and Triassic carbonates KRG/Komet Development Well workovers, 3D seismic data 2D seismic data; well data

60%

The Barda Rash block is located 55 km north west of Erbil. The KRG and Komet entered into a production sharing contract for the Barda Rash block in the Kurdistan Region of Iraq on June 20, 2008. We entered into an agreement to acquire the field on July 27, 2011 and completed the acquisition on September 7, 2011. We also serve as the operator of this field. 138

Field Technical Background In 2009, the BR-1 discovery well successfully encountered oil in Cretaceous to Jurassic reservoirs. Well tests were carried out on the Jurassic Mus and Adaiyah formations, each of which yielded rates of approximately 3,200 bopd. A subsequent extended test of the BR-1 well resulted in the production of 440,000 barrels of 30 to 32 API oil over a three month period. Two further wells were drilled at the field in 2010, the BR-2 and BR-3 wells, both encountering oil full to base in all reservoirs. No oil water contact has yet been established. Once production commences, we expect that oil will be trucked from onsite storage to local refineries and/or sold to the KRG. However, once the Ceyhan export pipeline is complete (which is anticipated in 2014) we expect that production will be trucked to nearby pipeline export points located approximately 55 km from the field location. For a more detailed discussion on the risks associated with exporting crude oil from the Kurdistan Region of Iraq, see Risk FactorsRisk factors relating to the countries in which we operate Underdeveloped infrastructure in the countries in which we operate could have an adverse effect on our business, financial condition and results of operations. Field Development and Outlook We plan to undertake a phased development of the field with production start-up scheduled for the second half of 2012. Our current focus is on developing 506 mmbbls of recoverable light oil that is initially expected to deliver gross production of 35,000 bopd. This work will consist of re-entering the three existing wells, BR-1, BR-2 and BR-3, completing them as production wells and commissioning a modular early production system. Thereafter, we expect to commence the drilling and completion of multiple new development wells with the intention of increasing production. Ongoing development beyond the light oil phase will then focus on the development and production of 964 mmbbls of recoverable heavier oil resource. Ain Sifni Overview of License The following table sets forth certain details of the Ain Sifni license including our equity interest and our partner.
License detailsAin Sifni Our Equity Interest

Area km2 ..................................................................... Expiry ......................................................................... License type ................................................................ Main plays .................................................................. Partner......................................................................... 2012 work program..................................................... Future work program .................................................. Data available ............................................................. Background

672 September 8, 2012 Production Sharing Contract Jebel Simrit, Betnar and Maqlub Hunt Oil Appraisal/Exploration drilling; 3D seismic data Appraisal/Exploration drilling 2D and 3D seismic data ; well data

20%

The Ain Sifni block is located approximately 70 km north west of Erbil, and holds the Jebel Simrit, Betnar and Maqlub structures. The KRG, Hunt Oil and Impulse entered into a production sharing contract for the Ain Sifni block in the Kurdistan Region of Iraq on September 8, 2007. We entered into an agreement to acquire the field on July 27, 2011 and completed the acquisition on November 2, 2011. Hunt Oil serves as the operator of this field. Field Technical Background In 2010, Hunt Oil drilled the Simrit structure, with the JS-1 well and logged continuous oil pay in Cretaceous and Jurassic reservoirs. Triassic reservoir targets were not penetrated by the well and no oil water contact was established. The Jebel Simrit structure has independently certified gross 2C 391 mmbbls stock tank oil initially in place and recoverable resources of 42 mmbbls. In October 2011, Hunt Oil spudded the Jebel Simrit-2 exploration well which is seeking to prove and test Cretaceous, Jurassic and Triassic reservoirs at the western extent of the Jebel Simrit anticline structure. Exploration potential has been independently estimated by RPS at 7,493 mmbbls stock tank oil initially in place and 917 mmbbls recoverable on a gross un-risked basis. This is primarily attributed to as yet un-drilled parts of the Jebel Simrit structure plus the Maqlub and Betnaar structures, located in the southern part of the area covered by the production sharing contract. According to available data, the eastern extension of the Maqlub structure extends into the Barda Rash block.

139

Field Development and Outlook We are currently in the process of drilling the Simrit-2 well to set the south side of the Simrit structure. The completion of this drilling will be followed by the drilling of the East Simrit well (Simrit-3) in the second quarter of 2012. In the fourth quarter of 2012, we plan to drill the Maqlub well and we anticipate further exploration and appraisal drilling in 2013. East and Southern Africa Overview of Our Operations in East and Southern Africa The following table sets forth certain information concerning our operations in East and Southern Africa including our partners and the current work program at each field.
Partner Work Program

Ethiopia Block 7 and 8 ...............................................................................

Africa Oil Corp./New Age (Africa Global Energy) Limited Africa Oil Kenya B.V./Tullow Kenya B.V. Lion Petroleum Corporation Candax Energy Inc. Avana Petroleum Ltd. Thombo Petroleum Limited Petrodel

Appraisal/Exploration

Kenya Block 10A .................................................................................... Block L17/L18 ............................................................................. Block 1 ......................................................................................... Madagascar Block 1101 ................................................................................... Seychelles Blocks A, B and C ....................................................................... South Africa Block 2B ...................................................................................... Tanzania Tanga Block ................................................................................. ResourcesEast Africa

Appraisal/Exploration Exploration Appraisal/Exploration Appraisal/Exploration Appraisal/Exploration Appraisal/Exploration Exploration

NSAI has estimated the prospective resources for Ethiopia, Kenya, Madagascar and Seychelles as of December 31, 2011. The resources are summarized below. This information has been extracted without material adjustment from the NSAI Report as of December 31, 2011. For convenience, aggregate totals are also provided for our prospective resources. Gross amounts are presented on a total basisi.e., the actual interest of the relevant license holder in the relevant fields and license areas without deduction for the economic interest of our local partners, tax or royalty interests or otherwise. Oil
Gross (100%) Oil Volumes (mmbbl) Unrisked Prospective Oil Resources OOIP Best High Low Best High Estimate Estimate Estimate Estimate Estimate

Area

Low Estimate

Ethiopia .................................................................................. Kenya ..................................................................................... Madagascar ............................................................................ Seychelles .............................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc.

35.8 2,298.9 48.9 1,082.4 3,466.0

85.3 285.7 5,321.5 14,082.7 212.8 1,618.6 3,465.2 12,784.2 9,084.8 28,771.2

6.8 457.9 9.0 199.8 673.5

17.0 1,125.1 41.4 672.4 1,855.9

57.4 3,121.8 330.8 2,596.4 6,106.4

Gas
Gross (100%) Gas Volumes (bcf)

140

Area

Low Estimate

OGIP Best Estimate

High Estimate

Unrisked Prospective Gas Resources Low Best High Estimate Estimate Estimate

Ethiopia .................................................................................. Kenya ..................................................................................... Madagascar ............................................................................ Seychelles .............................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc.

513.9 513.9

1,188.3 1,188.3

3,633.7 3,633.7

358.4 358.4

837.5 837.5

2,537.3 2,537.3

Total Oil and Gas

Gross (100%) Oil and Gas Volumes (mmboe) Unrisked Prospective Oil and Gas Resources Oil and Gas in Place Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate

Area

Ethiopia .................................................................................. Kenya ..................................................................................... Madagascar ............................................................................ Seychelles .............................................................................. Total ......................................................................................
Source: Netherland, Sewell & Associates, Inc.

124.4 2,298.9 48.9 1,082.4 3,554.6

290.3 912.2 5,321.5 14,082.7 212.8 1,618.6 34,65.2 12,784.2 9,289.7 29,397.7

68.6 457.9 9.0 199.8 735.3

161.4 1,125.1 41.4 672.4 2,000.3

494.9 3,121.8 330.8 2,596.4 6,543.9

Ethiopia Blocks 7 and 8 Overview of License The following table sets forth certain details of the Blocks 7 and 8 license including our equity interest and our partner.
License detailsBlocks 7 and 8 Our Equity Interest

Area km2 ..................................................................... Expiry ......................................................................... License type ................................................................ Main plays .................................................................. Partners ....................................................................... 2012 work program..................................................... Future work program .................................................. Data available ............................................................. Background

23,162 July 10, 2012 Production Sharing Contract Gas in Triassic sandstones and oil in Jurassic carbonates in structural traps Africa Oil Corp., New Age (African Global Energy) Limited Exploration/appraisal well Ongoing exploration studies 2D seismic and well data

30%

Blocks 7 and 8 are located on the edge of the PaleozoicMesozoic Ogaden Basin in southern Ethiopia. The operator of the blocks is Africa Oil Corp. which holds a 55% interest. New Age (African Global Energy) Limited holds the remaining 15% interest. We acquired a 30% interest in Blocks 7 and 8 on October 7, 2010 as part of the Black Marlin Acquisition. In the second half of 2011, we relinquished our interest in Blocks 2 and 6 to focus our efforts on Blocks 7 and 8 which hold the El-Kuran oil discovery. The production sharing contract for Blocks 7 and 8 has an effective date of July 11, 2007 and has an initial exploration period of four years, followed by two additional exploration periods, each lasting a further two years before entering a production phase lasting up to 25 years. A letter from the Ministry of Energy and Mines, dated March 1, 2010, approves the one year extension of the production sharing contract initial exploration period to July 10, 2012.

141

The Ethiopian Government retains a 10% back-in right in respect of Blocks 7 and 8 into successful exploration, and contractors are allowed to recover all their costs out of 60% of the production. Oil royalty rates range from 7.5% for the first 20,000 bopd to 15% for production above 100,000 bopd, and gas royalty rates range from 7% for the first 50 mmcfd to 12.5% for production above 200 mmccfd. The Ethiopian governments share of profit oil ranges from 37.5% for the first 20,000 bopd to 72.5% for production above 100,000 bopd, and its share of profit gas ranges from 35.5% for the first 50 mmcfd to 62.5% for production above 200 mmcfd. Field Technical Background During 2010, we completed a 2D seismic acquisition program across the onshore Blocks 7 and 8 which complements 500 km of existing 2D seismic data acquired by Black Marlin in 2009. In addition, we have obtained 15,000 km of airborne gravity and magnetic data and 551 km of 2D seismic data. As part of our exploration phase program, we are also required to drill one exploration well. Field Development and Outlook Work is ongoing to further interpret the prospectivity of Blocks 7 and 8 ahead of expected exploration drilling in the third quarter of 2012. Kenya Block 10A Overview of License The following table sets forth certain details of the Block 10A license including our equity interest and our partner.
License detailsBlock 10A Our Equity Interest

Area km2 ................................................. Expiry ..................................................... License type ............................................ Main plays .............................................. Partners ................................................... 2012 work program................................. Future work program .............................. Data available ......................................... Background

14,747 October 4, 2012 Production Sharing Contract Mesozoic Rift Play Africa Oil Kenya B.V., Tullow Kenya B.V. Exploration well Ongoing exploration studies 2D seismic and well data

20%

Block 10A is located in the northern region of the Anza Basin in northern Kenya, which in turn is part of the Central-African Mesozoic rift system that also includes the Muglad graben in Sudan and the Lamu graben in Kenya. Block 10A is north-west from the adjacent Block 9 where the blocks operator, the Chinese National Oil Company has recently drilled the Bogal-1 well. We acquired a 20% interest in Block 10A on October 7, 2010 as part of the Black Marlin Acquisition. Tullow B.V. is the operator of Block 10A and holds a 50% interest, with Africa Oil Kenya B.V. holding the remaining 30% interest. Under the terms of the farm-in agreement, we are required to contribute to the past costs of the license and to the acquisition of 750 km of 2D seismic data. The production sharing contract for Block 10A has an effective date of January 2, 2008. The production sharing contract has an initial exploration period of four years, followed by two additional exploration periods each lasting a further eighteen months before entering a production phase lasting up to 25 years. The Kenyan Government retains a 13% back-in right into successful exploration and contractors are permitted to recover their costs at a rate of 20% per annum from 60% of the production. The Kenyan Governments share of profit oil ranges from 55% for the first 10,000 bopd to 77.5% for rates above 140,000 bopd and its share of profit gas is to be determined on an oil-equivalent basis; and oil profits are subject to an additional profits tax if the price of oil exceeds $50/bbl, as outlined in the production sharing contract. Field Technical Background We recently acquired 750 km of 2D seismic data over the block to supplement the existing 2D coverage of 2,631 km. This work satisfies the seismic obligations for the current exploration period, which also carries a one exploration well commitment.

142

Field Development and Outlook We expect to commence drilling one exploration well on the Paipai prospect in mid-2012. Blocks L17/L18 Overview of License The following table sets forth certain details of the Blocks L17/L18 license including our equity interest and our partner.
Our Equity Interest

License detailsBlocks L17/L18

Area km2 .................. Expiry ...................... License type ............. Main plays ............... Partner...................... 2012 work program.. Future work program ............................. Data available .......... Background

4,905 October 24, 2012 Production Sharing Contract Kenya/Tanzania Cretaceous to Tertiary coastal and deepwater play systems 2D seismic acquisition, exploration well Ongoing exploration studies 2D seismic

100%

Block L17/L18 area is located in the Lamu coastal basin, in southern offshore Kenya, and was originally part of Block L10 awarded to Dana Petroleum and Pancontinental in 2000. The individual blocks L17 and L18 cover an area of approximately 1,275 km2 and 3,630 km2, respectively, and are situated in water depths varying from a few meters along the shoreline up to approximately 500 m. We acquired a 100% interest in Blocks L17 and L18 on October 7, 2010 as part of the Black Marlin Acquisition. We are the operator of the blocks. The production sharing contract for L17/L18 had an initial effective date of January 24, 2008. The Kenyan Government granted an initial extension of the first exploration period to October 24, 2010. Following completion of the initial work commitments under this first exploration period, we have continued activities into the next exploration period which expires on October 24, 2012. The production sharing contract provides for one further exploration period lasting three years before entering a production phase lasting up to 25 years. The Kenyan Government retains a 15% back-in right into successful exploration and contractors are permitted to recover their costs at a rate of 20% per annum from 55% of the production. The Kenyan Governments share of profit oil ranges from 50% for the first 10,000 bopd to 75% for rates above 100,000 bopd and its share of profit gas ranges from 50% for the first 60 mmcfd to 75% on production above 600 mmcfd; and oil profits are subject to an additional profit tax if the price of oil exceeds $50/bbl, , as outlined in the production sharing contract. Field Technical Background During 2010, a program of 400 km of short offset shallow marine 2D seismic data was acquired in the Shimoni area of Block L18 and in the Mombassa area of Block L17. Following the review of this data, we have identified a number of prospects and leads elsewhere on the acreage that represent attractive exploration targets. Field Development and Outlook We have acquired a deep water survey of 1,200 km 2D seismic data in early 2012. We have planned to acquire further 2D seismic data in mid-2012 in the southern part of the license and plan to drill one exploration well targeting the coastal play in the second half of 2012, contingent upon rig availability.

143

Block 1 Overview of License The following table sets forth certain details of the Block 1 license including our equity interest and our partner.
License detailsBlock 1 Our Equity Interest

Area km2 .......................... Expiry .............................. License type ..................... Main plays ....................... Partner.............................. 2012 work program.......... Future work program ....... Data available .................. Background

31,850 October 8, 2012 Production Sharing Contract Mesozoic Passive Margin and Karoo Rift play systems Lion Petroleum Corporation Exploration and appraisal Exploration well 2D Seismic data, gravity/magnetic data

50%

Block 1 is located on the western margin of the Mandera-Lugh basin. We are the operator, with Lion Petroleum Corporation owning the remaining 50% interest. We acquired a 50% interest in Block 1 on October 7, 2010 as part of the Black Marlin Acquisition. In January 2009, we entered into a farm-in agreement with the operator of Block 1. Under the terms of the farm-in agreement, we acquired a 50% equity stake in exchange for a contribution to the costs of a seismic program and the acquisition and processing of other data. We also have the option under the agreement to acquire a further 30% equity interest in Block 1 at our election in exchange for a contribution to the costs of either an exploration well or a seismic program in the second exploration phase. The production sharing contract for Block 1 was signed on November 19, 2007 and became effective in February 2008. The production sharing contract has an initial exploration period of three years, followed by two additional exploration periods each lasting a further two years before entering a production phase lasting up to 25 years. In 2011, the Kenya Government granted a 12-month extension to the license to allow for the acquisition of additional 2D seismic data. The Kenyan Government retains an 18% back-in right into successful exploration and contractors are permitted to recover their costs at a rate of 20% per annum from 55% of the production. The Kenyan Governments share of profit oil ranges from 55% for the first 20,000 bopd to 78% for rates above 100,000 bopd and oil profits are subject to an additional profits tax if the price of oil exceeds $50/bbl, as outlined in the production sharing contract. Field Technical Background We have identified and mapped several major structures based off existing 850 km of 2D seismic data. In addition, during the first half of 2011 we acquired airborne gravity and magnetic data, the results of which were being used to target the ongoing acquisition of a further 1,800 km 2D seismic data. Field Development and Outlook We do not plan to undertake exploration drilling during 2012. Madagascar Block 1101 Overview of License The following table sets forth certain details of the Block 1101 license including our equity interest and our partner.
License detailsBlock 1101 Our Equity Interest

Area km2 ...................... Expiry .......................... License type ................. Main plays ...................

14,900 July 30, 2013 Production Sharing Contract Karoo Rift Play System 144

90%

Partner.......................... 2012 work program...... Future work program ... Data available .............. Background

Candax Energy Inc. Airborne gravity/magnetic survey, 2D seismic acquisition Exploration well 2D Seismic data

Block 1101 is located on the eastern flank of the Ambilobe basin in northern Madagascar and lies adjacent to ExxonMobils Ampasindava Block and Sterling Energys Ambilobe Block. We acquired a 40% interest in Block 1101 on October 7, 2010 as part of the Black Marlin Acquisition and increased our interest to 90% in July 2011 through a reassignment of a 50% interest from our partner, Candax Energy Inc. Candax Energy Inc. retains a 10% interest in the block. The production sharing contract for Block 1101 has an effective date of July 30, 2007. The production sharing contract has an initial exploration period of two years followed by two additional exploration periods each lasting a further two years before entering a production phase lasting up to 25 years. We have received approval from the Madagascar state oil and gas energy (OMNIS) to combine the first two exploration phases on the block and extend the license to July 30, 2013. The Government of Madagascar has no back-in rights into successful exploration and contractors are allowed to recover their entire costs from 60% of the production. Oil royalty rates range from 8% for the first 20,000 bopd to 20% for rates above 130,000 bopd and gas royalty rates range from 6% for the first 424 mmcfd to 10% on production over 847 mmcfd. The governments share of profit oil ranges from 20% for the first 10,000 bopd to 70% for production above 130,000 bopd; its share of profit gas ranges from 5% for the first 424 mmcfd to 45% for production above 1,695 mmcfd. Field Technical Background As part of the work commitments, we have carried out interpretation work on the existing 200 km of seismic data acquired in 2008, in addition to undertaking field mapping, geochemical surveys and analysis. A working hydrocarbon system is further supported by surface oil sweeps. We have recently agreed with OMNIS to an expanded work program that combines the first two exploration phases on the block and requires us to drill one exploration well to a minimum depth of 1,600 m. Field Development and Outlook The partners have agreed to acquire an additional 150 km of new 2D seismic and a large airborne gravity and magnetics survey. We expect to review such data prior to commencing exploration drilling in 2013. Seychelles Blocks A, B and C Overview of License The following table sets forth certain details of the Blocks A, B and C license including our equity interest and our partner.
License detailsBlocks A, B and C Our Equity Interest

Area km2 ...................... Expiry .......................... License type ................. Main plays ................... Partner.......................... 2012 work program...... Future work program ... Data available .............. Background

14,964 November 27, 2013 Production Sharing Contract Cretaceous Deepwater Play system and Karoo Rift Play system Avana Petroleum Ltd. Seismic processing, ongoing studies Exploration well 2D Seismic and well data

75%

Blocks A, B and C are located in the Seychelles. Blocks A and B are located in mainly shallow water in the northern half of the Seychelles plateau while Block C is in shallow water to the south. We acquired Blocks A, B and C on October 7, 2010 as part of the Black Marlin Acquisition. We are the operator of the block and our partner Avana Petroleum Ltd. holds the remaining 25% interest in the blocks. 145

The production sharing contract for Blocks A, B and C has an effective date of November 28, 2008. The production sharing contract has an initial exploration period of two years, followed by two additional exploration periods (the first lasting two years and the second lasting three years) before entering a production phase lasting up to 25 years. The Government of Seychelles has no back-in rights into successful exploration and contractors are allowed to recover 100% of their costs from 100% of the production. Oil and gas royalty rates are both flat at 5%; revenues incur an additional petroleum profit tax that ranges from 30% to 45% depending on previous production revenues. Field Technical Background In 2007, the partners fulfilled early work obligations with the acquisition of 3,637 km long offset seismic data and a further 1,271 km of 2D seismic data in 2009. The new data revealed the presence of several large scale structures in all three blocks, in addition to new basins that could also contain significant Jurassic and Cretaceous sedimentary sections. At the end of 2011, we acquired a further 3,500 km of seismic data over Blocks A, B and C which we are in the process of reviewing. Field Development and Outlook In 2012, we intend to conduct exploration drilling over the block. Tanzania Tanga Block Overview of License The following table sets forth certain details of the Tanga Block license including our equity interest and our partner.
Our Equity Interest

License detailsTanga Block

Area km2 .................. Expiry ...................... License type ............. Main plays ............... Partner...................... 2012 work program.. Future work program ............................. Data available .......... Background

7,063 May 2013 Production Sharing Contract Kenya/Tanzania Cretaceous to Tertiary coastal and deepwater systems Petrodel 2D seismic processing, 3D seismic acquisition, exploration well Exploration well 2D seismic data

74%

The Tanga Block is located offshore Tanzania and lies across a deep basin with a very thick sedimentary section that has the potential of hosting several source rock intervals and multiple reservoir/seal pairings. We acquired the 74% interest in Tanga Block on March 24, 2011 from Petrodel who retained a 26% interest. We are the operator of the block. Field Technical Background Shortly following the acquisition of the Block, we undertook and completed a 751 km shallow water 2D seismic program to complement the existing data which included 200 km of legacy 2D seismic data and 1,200 km of good quality new 2D seismic data. Early review of the data provides excellent definition of several large scale prospects and leads, together with new zones of additional potential. At the end of 2011, we acquired over 900 km of deepwater 2D seismic data which is currently being processed. Field Development and Outlook We plan to drill the Orpheus prospect during the course of 2012.

146

South Africa Block 2B Overview of License The following table sets forth certain details of the Block 2B license including our equity interest and our partner.
License detailsBlock 2B Our Equity Interest

Area km2 ...................... Expiry .......................... License type ................. Main plays ................... Partner.......................... 2012 work program...... Future work program ... Data available ..............
(1)

5,448 April 13, 2014 Exploration Right South Atlantic Lower Cretaceous Rift Play system Thombo Petroleum Limited Geological and Geophysical studies 3D seismic acquisition, exploration well 2D seismic and well data

25%(1)

Increases to 50% upon completion of seismic acquisition program.

Background Block 2B is located in the offshore shallow water of the Orange River Basin, lying between the Ibhubesi gas field and the Namaqualand coast, with water depths ranging from shore line to 250 m. We acquired a 25% interest in Block 2B on October 26, 2011 from Thombo Petroleum Limited. Thombo Petroleum Limited retained a 75% interest and is the operator of the block. Field Technical Background Oil was discovered by the Aj-1 well in Lower Cretaceous lacustrine sands of the Orange River Basin in the present day shallow water. Through the application of modern methods, the extent of this system has been mapped on 2D-seismic data. Field Development and Outlook The existing 2D seismic data is currently being reprocessed alongside ongoing seismic inversion and regional biostratigraphy studies. In addition, we plan on acquiring 600 km2 of new 3D seismic data in 2013 to prepare for potential exploration drilling. Marketing and Major Customers International Customers We sell our Ebok crude oil production to Socar under an offtake agreement which, subject to certain termination rights, expires on September 3, 2013. Ebok crude oil production is exported and sold via the FSO. The FSO has a storage capacity of 1.2 mmbbls and is spread moored (a method of securing the FSO) near our MOPU. The FSO processes the total well fluids, producing stabilized crude for storage with subsequent regular offtake by tanker. The average price realization since production start up has been $103.8/bbl. In connection with the offtake agreement, we entered into a $50 million facilities agreement with Socar. For a further description of the offtake agreement see Material Agreements Relating to Our AssetsEbokEbok Crude Oil Purchase Contract. For a further description of the Socar Facility see Description of Certain Financing ArrangementsSocar Facility. We sell our Okoro crude oil production to Shell Western Supply & Trading Limited under an agreed marketing arrangement that expires on May 31, 2012. The agreement can be terminated by either party upon three months notice. We are currently reviewing our options in respect of offtake arrangements. Okoro crude oil production is exported and sold via the nearby Ima Terminal, where the increased storage capacity (in excess of 1 mmbbl) provides a benefit through the sale of increased parcel sizes and improved shipping and sales economics. For a further description of the offtake agreement see Material Agreements Relating to Our AssetsOkoroMarketing Services and Sale and Purchase Agreement for Crude Oil. Our Block CI-11 crude oil is also sold to Shell Western Supply & Trading Limited under an evergreen term contract which renews automatically each year (effective from April 9, 2009) with termination rights subject to a three months notice. The average price realization from both Okoro and CI-11 crude oil has been on average at a premium to Brent. 147

Oil is sold to our international customers free on board and is typically transported by our international customers by carrier or other shipping vessel to destinations for refinement and further production. Local Customers Gas production from Block CI-11 and from adjacent blocks CI-26 and CI-40 is processed at the Lion Gas Plant and then sold to local power plants and the SIR refinery. Block CI-11 gas is sold under two long term contracts to the local SIR refinery and the state power producer, SOGEPE. The average price realization for Block CI-11 gas during 2010 was $5.7/mmcf. Natural gas liquids are extracted from the gas streams of Blocks CI-11, CI-26 and CI-40 and are bottled at the Lion Gas Plant. Butane production is sold into the local market at a fixed price of $21.09/boe, while produced gasoline is spiked into the Lion crude stream and jointly sold with Block CI-11 crude oil, at a price tied to the prevailing Brent prices. Gas and natural gas liquids are transported to the Lion Gas Plant via a pipeline co-owned with our partners Petroci, CIPEM and SK Energy. Competition The oil and natural gas industry is highly competitive, and we compete with a substantial number of other companies that have greater resources than we do. Many of these companies explore for, produce and market oil and natural gas, carry on refining operations and market the resulting products on a worldwide basis. Our competitors include major oil and gas companies and independent oil and gas companies. The major international oil companies in the region include Addax, Agip, Chevron, Eni, ExxonMobil, Sasol Oil (Proprietary) Limited, Shell, Statoil, Total and Tullow. The oil and gas business is highly competitive in the search for and acquisition of reserves, in the procurement of rigs and other production equipment, in the production and marketing of oil and gas and in the recruitment and employment of qualified personnel. The primary areas in which we encounter substantial competition are in locating and acquiring desirable acreage for our drilling and development operations, locating and acquiring attractive producing oil and natural gas properties, and obtaining equipment for drilling operations. In addition, we compete with oil and gas companies in the bidding for exploration and production licenses that are made available by governments or are for sale by third parties. Competition for such assets is likely to come from companies already present in the region in which the exploration and production licenses are located as well as new entrants. There is also competition between producers of oil and natural gas and other industries producing alternative energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments of the jurisdictions in which we operate. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such legislation and regulations may, however, substantially increase the costs of exploring for, developing, producing or marketing natural gas and oil and may prevent or delay the commencement or continuation of a given operation. The effect of these risks cannot be accurately predicted. For further discussion on specific regulations applicable to our business in Nigeria and Iraq, see Legal and Regulatory. Partners The majority of our assets are developed through partnerships or joint ventures with indigenous companies. Pursuant to government initiatives to develop the local oil and gas industry in the regions in which we operate, licenses or agreements to exploit oil and gas are initially awarded to indigenous companies who then seek to partner with larger companies with advanced technical competencies and financial resources. Some of our current notable indigenous partners in Nigeria include Amni, Oriental and Optimum. Amni, our indigenous partner at the Okoro and Setu fields, was founded in 1993 and secured its first OPL in 1993. Amni also has operations at OML 112 and 117 through a partnership with Total and operations at the Ima Field. The principal shareholders of Amni are Chief Tunde Afolabi, Colonel Sani Bello (Rtd.) and Professor E.C. Edozien. Colonel Sani Bello has served as a State Governor and an Ambassador for Nigeria and Professor Edozien has served as an Economic Advisor to the Government. Oriental, our indigenous partner at Ebok (OML 67), Okwok (OML 67) and OML 115, was founded in 1990. Oriental is owned by Alhaji Indimi and the Indimi family who are Nigerian businessmen. Optimum, our indigenous partner at OPL 310, was founded in 1992. Our current partners at the CI-01 and CI-11 blocks in Cte dIvoire are Petroci, CIPEM and SK Energy. Petroci was founded in 1975 and is the state oil company of Cte dIvoire. CIPEM was incorporated in Cte dIvoire and acquired its 148

interest in CI-11 from the IFC in 2010. SK Energy was incorporated in Korea and is owned by SK Innovation Co Ltd whose ultimate parent is SK Holdings. Our current partners in the Kurdistan Region of Iraq are KRG (Kurdistan Regional Government), Komet and Hunt Oil. Komet, our partner at the Barda Rash block, was founded in April 2007 in the British Virgin Islands. The principal shareholder of Komet is Ascom Oil Company. Hunt Oil is our partner at the Ain Sifni block. Hunt Oil is incorporated in the Cayman Islands and its sole shareholder is Hunt Oil Middle East Holdings Limited. The ultimate parent company of Hunt Oil is Hunt Oil Consolidated. Generally, our selection process for partnerships varies. While we conduct thorough business and financial diligence on all of our prospective indigenous partners, the determining factor, for both ourselves and the indigenous companies, is whether we can be successful business partners. Given the demands of the industry and the relatively longterm nature of the relationships, we try to ensure that we select partners with whom we believe we will be able to cultivate a fruitful partnership or joint venture. In many instances, members of our Board or senior management have long-standing relationships with the board or management of the prospective indigenous partners, which provides a useful indication of the potential for the future partnership or joint venture. As noted above, one of the central goals of each partnership or joint venture is the transfer of technical knowledge and the development of indigenous competencies in the oil and gas industry. In furtherance of this goal, we often place our employees on secondment with our indigenous partners or their employees join our teams for certain periods of time. In addition, our teams work in close proximity both on site in greater Africa and beyond and in our technical offices in Houston, Texas on all aspects of operation. In some instances, we have also assisted our indigenous partners with the development of their corporate infrastructure to support their growth and increase their potential for future exploration and development opportunities. During the life-cycle of the partnership or joint venture, we often have a very active role in the technical, financial and administrative management of operations. We remain actively involved with nearly every aspect of operations and provide draft compliance reports and other required government submissions. We work closely with our indigenous partners or joint venture partners to ensure that we remain in compliance with the ongoing obligations under the licenses or agreements pursuant to which we operate. For a discussion of certain risks associated with our reliance on indigenous partners or joint venture partners, see Risk FactorsRisk factors relating to our businessWe conduct the majority of our operations through partnerships with indigenous companies or through joint ventures which may increase the risk of delays, additional costs or the suspension or termination of the licenses or the agreements pursuant to which we operate. Seasonality Seasonal weather conditions and lease stipulations can limit our drilling and producing activities and other oil and natural gas operations in certain areas. These seasonal anomalies can increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay our operations. See Risk FactorsRisk factors relating to the oil and gas industry. First Hydrocarbon Nigeria In 2009, we jointly established First Hydrocarbon Nigeria with two leading Nigerian financial institutions, First City Monument Bank Plc and Guaranty Trust Bank Plc. We currently own 45% of First Hydrocarbon Nigeria with the remaining 55% held by various Nigerian shareholders. First Hydrocarbon Nigeria is a majority Nigerian owned indigenous oil and gas company that fulfills the Nigerian Governments criteria for local operators who are eligible to apply for and acquire substantial oil and gas assets in the country. On December 1, 2011, First Hydrocarbon Nigeria completed the acquisition of a 45% interest in OML 26 through its wholly-owned subsidiary, FHN 26, from Shell Petroleum Development Company of Nigeria Ltd, Total E&P Nigeria Ltd and Nigeria Agip Oil Company. In the re-development of the block, First Hydrocarbon Nigeria has partnered with the Nigerian Petroleum Development Company (NPDC), the oil and gas exploration and production subsidiary of the NNPC. OML 26 is located onshore Nigeria and holds two producing assets, the Ogini and Isoko fields, and three discovered but undeveloped assets, the Aboh, Ozoro and Ovo fields. The successful recommissioning of a gas compressor unit at the Ogini field and the opening of an additional two production strings have had a positive impact on field production levels. Oil production is estimated to increase to up to 50,000 bopd following a three phase field redevelopment plan, with the scope of the second and third phase dependent on the outcome of the first phase. These development phases currently assume the drilling of 21 production wells with existing well locations being expanded to accommodate multi-well clusters. The initial phase will focus on certain accelerated development opportunities, including low-cost work-overs and side-tracking of 149

existing production wells, along with the expansion of existing production handling and export facilities to cater to the increase in oil and water production and installation of appropriate gas disposal. We expect that the partners will then seek to mobilize a land rig to the field location and commence the drilling of an initial six horizontal production wells. First Hydrocarbon Nigeria will serve as operator of the field, and we will provide technical and operational management services to First Hydrocarbon Nigeria under industry standard terms. As a result of our shareholding interest, First Hydrocarbon Nigerias profit/loss is proportionately reflected in our income statement in the line item Share of gain/(loss) of an associate. Therefore, the future results of any production and development at OML 26 may impact our financial results. Environmental, Health and Safety and Social Responsibility Like other participants in the industry, we are subject to various environmental and health and safety laws and regulations administered by local, national and other government entities, and similar agencies in the countries and regions in which we operate. We believe that we are currently in substantial compliance with all material governmental laws and regulations affecting our business and maintain all material permits and licenses relating to our operations. From time to time, we receive notices and inquiries from regulatory authorities and others asserting that we are not in compliance with such laws and regulations. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. See Legal and Arbitration Proceedings. Many of our facilities are subject to environmental permits and other regulatory requirements, violations of which are subject to civil and criminal sanction. In some cases, third parties may also have the right to sue to enforce compliance. We are committed to performing responsibly and positively towards the people, the physical environments and the host societies that our business may affect. We aim to protect people in terms of safety and health, protect the environment and fulfill social commitments and have established an Environment, Health & Safety and Social (EHSS) management system which specifies mandatory processes and requirements and gives guidance on how the EHSS management requirements should be met. The monitoring of operations and feedback on results help to ensure that our EHSS policies and procedures are implemented effectively and assists in making changes necessary to improve EHSS performance. Following the April 2010 explosion and sinking of the Deepwater Horizon, a deepwater drilling rig in the Gulf of Mexico, we undertook a voluntary review and evaluation of our equipment and our environmental and safety procedures. As a result of this review, certain improvements were made, including replacing personnel who did not meet our safety standards. For a more detailed discussion on the risks associated with the recent drilling rig explosion and oil spill in the Gulf of Mexico, see Risk FactorsRisk factors relating to our businessThe drilling rig explosion and oil spill in the Gulf of Mexico could increase our cost of doing business. Environmental We are subject to various environmental laws and regulations in each of the jurisdictions we operate. We have undertaken environmental impact assessments for each of our producing assets, monitor our environmental performance on a monthly basis and we believe we have appropriate oil spill contingency plans and response capabilities in place. We are currently in compliance with the environmental rules and regulations in the countries and regions in which we operate, except where the failure to comply would not, individually or in the aggregate, have a material adverse effect on our condition (financial, legal or otherwise), or on our and our subsidiaries prospects, earnings, solvency, liquidity position, funding position, business or operations, taken as a whole. In addition to compliance with such legal and regulatory requirements, we have established certain environmental policies in order for our business to be carried out in such a way as to protect the environment. Such policies include, but are not limited to, the following: identifying and assessing potential environmental issues, assessing associated risks and establishing operational controls that aim to eliminate acute impact and to eliminate or limit emissions to permitted emission quality thresholds; identifying significant environmental issues where improvement targets need to be set and to seek and monitor such improvements; establishing and applying environmental operational standards and processes including environmental impact assessments and environmental management plans; setting environmental related targets and measuring, appraising and reporting performance against such targets; 150

analyzing deviations from emission thresholds to identify control failures and implement the necessary corrective action; seeking ways to minimize energy use in operations; reducing waste generation as far as practical and disposing of waste in a responsible manner without creating legacy issues and liabilities; and carrying out periodic audits and assessments of environmental controls as part of a continuous improvement process.

For further discussion on specific environmental regulations applicable to our business in Nigeria, see Legal and RegulatoryNigeriaEnvironmental Regulations. Health and Safety We are committed to complying with health and safety regulations and in protecting the health, safety welfare and security of our employees and all personnel affected by and involved in our activities. Various policies have been established in this respect such as the application of health and safety standards across our operations and the performance of audits and assessments of health and safety risks as part of the continuous improvement process. We actively manage security risks in all our operations to ensure the safety of all personnel working in our operations. Security measures are implemented at all facilities and are subject to regular audit and review. Security of assets and information is also given careful consideration in the assessment of security risks. For further discussion on specific health and safety regulations applicable to our business in Nigeria, see Legal and RegulatoryNigeriaEnvironmental Regulations. Social Responsibility We have a primary and continuing commitment to behaving ethically and improving the quality of life of our workforce and host communities as well as respecting the traditional rights and cultural heritage of our host communities. In order to achieve such a commitment, we carry out the following social policies among others: screening, via a social impact assessment, the social risks and issues over all phases of the operation; establishing a plan to manage social risks and issues over the lifetime of an operation; building and maintaining relationships with host communities, key individuals and organizations in order to engage in consultation, communication and ensure mutual expectations are realistic and achievable; and investigating and managing grievances that may be raised by host communities.

In furtherance of our goals to build and maintain relationships with our host communities, we have participated in various community development projects to improve access to education, financial literacy, microfinance and infrastructure, among other things. For instance, in the Okoro Setu community, we have sponsored 148 primary and secondary scholarship awards and 129 tertiary scholarship awards, vocational and industrial training programs, and potable water projects. In the Eastern Obolo community, we have sponsored 28 tertiary, postgraduate and specialized studies scholarships. In the Effiat community, we have provided financial and literacy training to approximately 500 women and have granted approximately 200 microfinance loans. In addition, pursuant to the agreements entered into in connection with the Kurdistan Acquisitions, we have made and will continue to make various capacity building payments, including to local universities and museums, in the Kurdistan Region of Iraq. See Material Agreements related to our AssetsBarda RashProduction Sharing Contract and Material Agreements related to our AssetsAin SifniTPI Capacity Bonus Building Agreement. Insurance We maintain the types and amounts of insurance coverage that we believe are consistent with customary industry practices in the jurisdictions in which we operate and consider our insurance coverage to be adequate for our business. Our oil and gas properties and liabilities are insured, where necessary, by resident insurers under individual insurance policies for each relevant venture (reinsured to the International insurance markets with lead reinsurers with a 151

minimum of an AM Best, A minus rating (or equivalent)). Coverage under the terms of these policies includes property damage, operators extra expense (well control, seepage, pollution and redrill), third party liabilities to or arising from our assets and in Cte dIvoire for our co-venturers or operating companies, including legal and contractual liabilities from our activities. Coverage, limits and deductibles in force are in line with international oil industry insurance standards. In certain of the previous years in which we made claims under our insurance policies, we paid a one-time additional fixed amount to supplement the following years policy (i.e., a one-off loss load). In addition, we believe that our policies comply with local insurance regulations. We intend to procure or ensure the procurement of construction all risks insurance coverage in respect of our development projects. Such coverage is generally for works executed anywhere in the world in performance of contracts wherein we are at risk relating to the loss of, or damage to, all property to be installed and liabilities to third parties arising therefrom. Our philosophy is to arrange such other insurance from time to time in respect of our other operations as required and in accordance with industry practice. We do not currently have business interruption or key man insurance in place, but we do have operators extra expense, cargo, directors and officers, employer liability, public indemnity and travel insurance that we believe to be appropriate for our business. We have not had any material claims under our insurance policies that would either make them void or increase their premiums. We cannot assure you, however, that our insurance coverage will adequately protect us from all risks that may arise or in amounts sufficient to prevent any material loss. See Risk FactorsRisk factors relating to our businessWe do not insure against certain risks and our insurance coverage may not be adequate for covering losses arising from potential operational hazards and unforeseen interruptions. Employees For 2008, 2009 and 2010, we had an average of 132, 159 and 228 full-time employees, respectively. Our employees are diversified geographically with approximately 24% located in the United Kingdom and approximately 62% located in Africa, of which approximately 27% are located in Nigeria and 31% are located in Cte dIvoire. The remaining 14% of our employees are located in the USA. In 2010, approximately 77% of our employees performed professional activities, including technical and operations activities, and 23% performed administrative activities. As of October 31, 2011 approximately 70% of our employees performed professional activities, including technical and operations activities, and 30% performed administrative activities. We believe that we have satisfactory working relationships with our employees and have not experienced any significant labor disputes or work stoppages. The majority of our employees are not covered by collective bargaining agreements or are members of labor unions. Pensions and Employee Benefits In the UK, we operate a defined contribution scheme and we contribute 10% of base salary subject to the participant contributing at least 5% of their salary. These commitments are fully covered by external funds or pension liability provisions recorded in our financial statements. All of our external funding complies with local minimum funding regulations. In Nigeria, we operate a funded contributory pension scheme. We fund the scheme fully by contributing 15% of the employees basic salary, housing and transportation allowance in accordance with the provision of the Nigerian Pension Reform Act 2004. These funds are being managed by government-approved Pension Fund Administrators. In the United States, we offer employees a 401k plan in which we will match an employees contributions up to 5% of the employees salary. In addition, we contribute an additional 5% profit sharing element (as defined in the 401k plan) at the end of the year. In Cte dIvoire, we offer a retirement plan for eligible full time employees. Under the plan, we match an employees contribution up to 6% of employees gross salary. Intellectual Property Each of the trademarks, service marks and trade names that we use in conjunction with the operation of our business is registered and/or pending registration, as appropriate for the needs of our relevant business, including the Afren name and logo. 152

Bribery Laws We have consolidated anti-bribery policies in light of the guidance provided by the UK authorities following the introduction of the UK Anti-Bribery Act. We have implemented company-wide training on the policies. Legal and Arbitration Proceedings We become involved from time to time in various claims and lawsuits arising in the ordinary course of our business. We are not currently, nor have we been during the past twelve months, involved in any governmental, legal or arbitration proceedings which, either individually or in the aggregate, have had, or are expected to have, a material adverse effect on our financial position or results of operations. Material Agreements Relating to Our Assets The key terms of certain material contracts relating to our assets entered into in the ordinary course of business are described below. The following summaries of selected provisions are qualified in their entirety by reference to the full text of the actual agreements and should not be considered to be a full statement of the terms and provisions of such agreements. The terms summarized below reflect the current terms of such agreements on the date of this Offering Memorandum unless otherwise indicated. Capitalized terms used below have the meaning ascribed to them in the relevant agreement unless defined below. Ebok Farm-Out Agreement The Mobil/NNPC Joint Venture holds participating interests in several oil mining leases, including OML 67, in which the Ebok field is situated. The Mobil/NNPC Joint Venture entered into a Farm-Out Agreement with Oriental on May 25, 2007 under which Oriental was granted a 100% effective working interest in an area within OML 67 for the purpose of conducting petroleum operations for an initial period of 60 months in consideration for Oriental making monthly payments to the Mobil/NNPC Joint Venture of 30% of the profit oil and profit gas arising from the farm-out area and certain other payments and complying with a number of obligations in relation to OML 67. Subject to obtaining approval from the DPR and Oriental complying with its obligations under the Farm-Out Agreement, the Farm-Out Agreement continues for so long as the Mobil/NNPC Joint Venture continue to have the right to conduct petroleum operations within the relevant area of OML 67. Farm-In Agreement Oriental entered into a farm-in agreement with Afren Resources on March 31, 2008. This agreement sets out the terms upon which Afren Resources accepts the assignment and transfer of a 40% participatory interest in the rights and obligations of Oriental in respect of the Farm-Out Agreement (including those referred to above), the farm-out area and the joint operating agreement (described below). In consideration for such participating interest Afren Resources paid $11.5 million to Oriental and $1 million to Sovereign Oil & Gas Company II, LLC (Sovereign) following satisfaction of certain conditions precedent, and paid $11.5 million to Oriental and $1 million to Sovereign following the approval of a development plan submitted to the Nigerian Government. Oriental had the right to require such payment to be satisfied in whole or in part by the issue of shares in Afren Resources at a number of shares to be agreed between the parties. The conditions precedent were satisfied in respect of the agreement on August 22, 2008 and Afren Resources paid the initial payments referred to above within 15 business days of that date. The field development program was approved by the DPR on October 5, 2009 and payment was made within 15 business days. Under the agreement, Afren Resources also agreed to bear and pay all capital costs and all operating costs (until Afren Resources has recovered all capital costs) as well as 40% of the payment obligations of Oriental and the provision of abandonment security under the Farm-Out Agreement referred to above. Afren plc has provided a parent company guarantee in favor of Oriental and the Mobil/NNPC Joint Venture to guarantee Afren Resources obligations in respect of the farm-in. Joint Operating Agreement Oriental and Afren Resources entered into a joint operating agreement on March 31, 2008 to set out the parties obligations with respect to the conduct of petroleum operations in the farm-out area, with Oriental as operator and Afren Resources as technical advisor. Afren Resources is liable to fund all costs to drill of one exploration well and (unless Afren Resources decides to relinquish its rights in the interest at that time) one exploration, appraisal or development well and other work program costs. Available crude oil from the farm-out area (after deducting royalty amounts due to the Nigerian Government, overriding royalty amounts due to the Mobil/NNPC Joint Venture and Sovereign and amounts due for taxes) 153

will be allocated 100% to Afren Resources until Afren Resources has recovered its capital and operating costs. Thereafter, available crude oil will be shared between Afren Resources and Oriental equally. The joint operating agreement is effective for so long as both the parties retain an interest in the Farm-Out Agreement referred to above and farm-out area. Contract C 1527 (Rig Contract) Afren Resources (on behalf of itself and its co-venturers) entered into Contract Number C 1527 for the provision of jack-up drilling unit GSF Adriatic IX and drilling rig services with GlobalSantaFe International Drilling Corporation in association with Global Offshore Drilling Limited (collectively with GlobalSantaFe International Drilling Corporation, the contractor) on August 7, 2009. The contractor is to provide the drilling unit together with certain other equipment, material, supplies, services and personnel necessary to carry out drilling operations. Afren Resources is to pay the contractor varying defined rates during the different operating terms of drilling operations which range from $94,000 per day to $97,000 per day. Certain other rates are also applicable for various situations such as force majeure, repair and re-drilling with such rates calculated as a percentage (either 80% or 100%) of the applicable term rate. In addition, the contractor is entitled to certain lump sums in relation to mobilization and other fees and is entitled to mark up reimbursable items on a sliding scale linked to cost, ranging from 10% to 5%. The contract continues in force until the date that drilling operations are deemed to be complete under the contract, initially for a period of 250 days beginning on the date of acceptance of the drilling unit by Afren Resources or unless earlier terminated. Afren Resources may extend the term for another 175, 250 or 425 days. Afren Resources may terminate at any time without reason on 10 days notice in which case liquidated damages for early termination will apply. Jack-up Drilling Unit Afren Resources entered into Contract Number C-1680 for the provision of a jack-up drilling unit GSF High Island VII and drilling rig services with Sedco Forex International, Inc. in association with Transocean Support Services Nigeria Limited (together with Sedco Forex International, the Contractor) on March 11, 2010. While this unit has the potential of being used throughout Afren Resources Nigerian portfolio, it will initially be used at the Ebok field and then at the Okwok field at a later stage. The Contractor is to provide the drilling unit together with certain other equipment, material, supplies, services and personnel necessary to carry out drilling operations. Afren Resources is required to pay the contractor an operating rate of $84,000 per day during the first part of the operating period and $91,875 for the last 90 days of the operating period, subject to conditions and reductions in certain situations such as force majeure, repair and re-drilling with such rates calculated as a percentage (either 80%, 90% or 100%) of the applicable term rate. In addition, the Contractor is entitled to certain lump sums in relation to mobilization and other fees and is entitled to mark up reimbursable items on a sliding scale linked to cost, ranging from 15% to 5%. The contract continues in force until the date that drilling operations are deemed to be complete under the contract, subject to a firm term of no less than 181 calendar days and no more than 210 calendar days, beginning on the date of acceptance of the drilling unit by Afren Resources or unless earlier terminated. Afren Resources shall not commence any work that extends this term for more than 30 days without the Contractors approval. Afren Resources may terminate at any time without reason on 10 days notice in which case liquidated damages for early termination will apply. Afren Resources may also terminate the contract at any time if the Contractor is in breach of any material obligations under the agreement, if the Contractor becomes insolvent or bankrupt, if a force majeure event prevails for a continuous uninterrupted period of 30 days, if the Contractor is unable to perform its obligations or if the drilling unit is damaged or unsafe or lost. In these circumstances, the Contractor shall be entitled to payment from Afren Resources up to the date of termination. Afren Resources may terminate the contract immediately with no compensation to the Contractor if the drilling unit fails to arrive at the mobilization point by the requisite date. The indemnities under the agreement may be enforced by the Contractor against Afren Resources for the benefit of the Contractor and extend to any and all liabilities (including death of personnel and loss or damage to physical property and down-hole equipment) in connection with or in consequence of the claim. The indemnity covers claims caused by negligence of any degree, tort, breach of contract and breach of duty. Afren Resources is required to indemnify the Contractor against claims relating to loss of or damage to physical property, down-hole equipment and the Well (as defined in the agreement) or loss of products from the Well. The indemnities also extend to all claims relating to pollution, containment or waste matter from the Contractor group equipment in relation to Well damage. If the Well has to be plugged and abandoned due to the Contractors negligence, Afren Resources may require the Contractor to drill a new Well in replacement. If either party becomes aware of any incident likely to give rise to a claim, it shall notify the other party as soon as practicable. Under the agreement the Contractor shall not assent to liens over the operations, property or equipment of Afren Resources and the Contractor shall indemnify Afren Resources against any claims in respect of liens, charges or other encumbrances in connection with this agreement (and shall procure discharge of such liens where it materially affects the Contractors obligations). In any case, if either party becomes aware of any potential claim, it shall notify the other party as soon as possible. This agreement is not enforceable by any third party. The reliance on any term of the contract by a third party must be notified in writing to each party to the contract. 154

Floating Production Storage and Offloading Unit A services contract for the provision of a floating production storage and offloading unit was entered into between Afren Resources and Mercator Offshore (Nigeria) Pte Ltd (the Contractor) on or about January 13, 2010. This unit will initially be used at the Ebok field and, depending on the outcome of drilling, at the Okwok field at a later stage. The Contractor is responsible for the provision, operation and maintenance of the FSO which, according to the FSO specifications, should be capable of receiving, processing, storing and exporting processed stabilized crude oil to an offloading tanker and gas to a gas lift/gas injection pipeline. The Contractor shall provide such personnel as are required to properly execute the contract and shall take all responsibility for the health and safety risks in connection with the FSO. Afren Resources shall secure at its expense any and all authorizations and permits required for the FSO and all ancillary materials. The term of the contract is seven years from the issuance of the provisional acceptance certificate with an option for Afren Resources to extend the term for a period of one year. If such extension option has been exercised, Afren Resources is entitled to further extend the period for one year, provided that it provides at least six months prior written notice. Rates are applied daily for the FSO hire in the amount of $70,608 per day and the operation and maintenance services in the amount of $36,109 per day, subject to review. Under the agreement, if Afren Resources fails to pay the Contractor with 60 days of receipt of an invoice, the Contractor may present a demand to the issuer of the standby letter of credit for payment of the outstanding sum. Within 20 days from such payment, Afren Resources shall replenish the standby letter of credit up to the amount of $6,000,000. An affiliate of Mercator has been appointed as the guarantor for the Contractor under this agreement. Afren Resources has also provided a standby letter of credit until August 31, 2012 from BNP Paribas to guarantee timely payment which shall be extended if the contract extends beyond that date. Afren Resources may terminate the contract on not less than three months written notice to the Contractor provided that if termination occurs before the end of the primary term of the contract, an early termination payment is payable by Afren Resources. An early termination payment is not incurred in the case of termination as a result of certain conditions including force majeure events or material breach of the Contractors material obligations. The Contractor is also entitled to terminate the contract under certain circumstances, including failure to provide the letter of credit and material breach of Afren Resources material obligations. Prior written consent is required for either party to assign their obligations under this agreement. The Contractor shall indemnify Afren Resources from any claim resulting from pollution damage in respect of leaks from the facilities or property of the Contractor. Each party agrees to indemnify the other against loss of or damage to property, personal injury and loss of or damage to any wells, formation and/or reservoir arising from its negligence, breach of duty, breach of contract, warranty or indemnity. Under the agreement, Afren Resources has the option to purchase the FSO provided that six months written notice is given to the Contractor. In the event of early termination, the Contractor shall sell the FSO to Afren Resources in exchange for the early termination payment. If Afren Resources purchases the FSO while the Contract continues, the contract will terminate on the purchase of the FSO. The Contractor may grant security over the FSO property and assign its rights under the contract for the benefit of its financiers. Each party may assign its obligations with the prior written consent of the other party which shall not be unreasonably withheld or delayed. Ebok Crude Oil Purchase Contract Afren Resources entered into a crude oil purchase contract with Socar on March 4, 2011 for the purchase, lift and market of crude oil produced at Ebok. The term of the contract is for the later of 18 months or the cumulative lifting of 18.5 mmbbl of crude oil. The contract is divided into two phases: (i) the marketing phase and (ii) the profit share phase. During the marketing phase, Socar is required to pay a fixed fee price as determined by the calculation set forth in the agreement. Towards the end of the marketing phase, the contract is subject to review for a determination as to whether any terms in the existing agreement need to be amended and at which time we expect to agree the key terms of the profit share phase with Socar. The marketing phase is approaching its end, and we are currently reviewing the contract with Socar. We have also entered into a $50 million credit facility agreement with Socar. See Description of Certain Financing ArrangementSocar Facility. Okoro and Setu Production Sharing and Technical Services Agreement A production sharing and technical services agreement was entered into between Amni, Afren plc and AERL on March 24, 2006 (as amended) with respect to the Okoro and Setu fields. Afren plcs rights and obligations were novated to Afren Okoro pursuant to a novation deed dated March 1, 2007. Under the agreement, AERL is appointed as the contractor and technical operator. Afren Okoro is obligated to lend to AERL and Amni the initial field development costs. Afren Okoro is entitled to recover such costs (plus interest of 8% per annum on 50% of its capital (representing the amount of initial field development costs apportioned to Amni)) from 90% of the sales proceeds of crude oil (net of royalties and taxes). The remaining 10% is split evenly between AERL and Amni. Following cost recovery, proceeds are to be shared equally 155

between Amni and AERL (unless a separate OML has been issued in respect of the Okoro and Setu fields). Until such amount is repaid, Amni and AERL have granted a bank account charge, an asset charge and a share option agreement (in respect of shares in Amni) as security for the repayment of the amounts loaned by Afren Okoro. To the extent the development does not result in sales proceeds being generated, Afren Okoro is not entitled to recoup any amounts from Amni or AERL. The agreement remains in effect until terminated in accordance with its terms. On October 1, 2010, we entered into a deed of amendment to the March 2006 technical services agreement that seeks to clarify the treatment of some key cost and tax components in relation to the proposed drilling of infill wells at the Okoro field. Specifically, the allocation of amounts paid into the joint bank account were amended, in addition to the order of priority for payments to be made from the account. The amendment also details, among other related terms, the terms and costs associated with the drilling of the infill wells at the Okoro field. Marketing Services and Sale and Purchase Agreement for Crude Oil AERL and Shell Western Supply and Trading Limited (the Buyer) entered into an agreement for the purchase of Okoro Crude Oil on April 14, 2010. AERL extended this agreement until May 31, 2012. However, either party can terminate the agreement at any time upon three months notice. Termination of the agreement must be provided in writing, by either party to the other, not less than three months before such termination becomes effective. Under the agreement, AERL shall sell 100% of its entitlement to Okoro Crude Oil to the Buyer, which shall be of normal export quality. AERL shall provide one safe berth for loading the crude oil at the FSO which must at all times conform to standards not less than those set out in the International Chamber of Shipping/Oil Companies International Marine Forum (ICS/OCIMF) ship-toship transfer guide for Tandem Moorings. The price for the crude oil shall be determined as set out in the agreement to which a premium of $1.41 per barrel shall be applied. If the Okoro terminal is used for export, the price will be determined under a different formula and a premium of $0.19 per barrel shall be applied. There are two different payment options under the agreement which involve the Buyer paying in full, without discount, within 30 calendar days after the bill of lading date or not later than five days after the bill of lading date. Any loss or damage to the oil during loading shall be for the account of the Buyer. The quality and quantity of oil shall be determined in accordance with the usual practice at the terminal. The Buyer shall procure that its vessel shall comply with the requirements of the International Ship and Port Facility Security Code. AERLs liability under the agreement for any costs, losses or expenses incurred by the vessel shall be limited to the payment of demurrage. Either party may terminate the contract should the other party fail to perform its obligations and such failure is not remedied within 15 days following receipt of written notice of such failure to perform. Contract for the Provision of Floating Production Storage and Offloading Unit A contract for the provision of floating production storage and offloading unit was entered into between AERL (on behalf of itself and its co-venturers) and Bumi Armada Berhad on April 3, 2007. This contract was then novated and split pursuant to a novation agreement dated February 8, 2008 between AERL, Bumi Armada Berhad (as guarantor of the contractor), Armada Floating Solutions Limited (as contractor) and Bumi Armada (Singapore) PTE. Limited into (i) the Bareboat Charter Contract (entered into between AERL and Armada Floating Solutions Limited); and (ii) the Operation and Maintenance Contract (entered into between AERL and Bumi Armada (Singapore) PTE. Limited. Bumi Armada (Singapore) PTE. Limited is responsible for the operation and maintenance of the FPSO and Armada Floating Solutions Limited is to provide the FPSO. The term for both contracts is five years from the issuance of the provisional acceptance certificate on the first flow of oil into the FPSO with an option for AERL to extend the term for an additional one to five years. The provisional acceptance certificate was issued on July 1, 2009. Rates are applied daily for the FPSO hire at $42,426 per day and the operation and maintenance services at $26,000 per day, subject to review. The technical fee in the Operation and Maintenance Contract is $1.88 million per annum. Under the Bareboat Contract, AERL has an exclusive option to purchase the FPSO at its sole discretion. AERL may terminate the Bareboat Contract and the Operation and Maintenance Contract on 180 days notice provided that if termination occurs before the end of the primary term of the contracts, an early termination payment is payable by AERL. An early termination payment is not incurred in the case of termination as a result of certain conditions including force majeure events or the actual or constructive loss of the FPSO. The contracts also provide each party with the right to terminate upon a default by the other party. Events of default are linked between the two contracts. Parent company guarantees have been provided by Armada Floating Solutions Limited and Bumi Armada (Singapore) PTE and Afren plc. Limited from Bumi Armada Berhad and by AERL from Afren plc and are to be valid until the expiry of 180 days after the demobilization of the FPSO, or in the case of a total loss of requisition of the FPSO, the date of termination of the contracts. In addition, AERL is obliged to provide Armada Floating Solutions Limited and Bumi Armada (Singapore) PTE. Limited with a bank guarantee or letter of credit for a sum not exceeding $6 million.

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Okwok Addax Farm-Out Agreement On July 7, 2009, Afren Exploration and Addax entered into a farm-out agreement whereby Addax agreed to assign 70% of its rights, entitlements and obligations under a joint venture agreement dated September 14, 2005 between Oriental and Addax, a technical services agreement dated November 16, 2005 between Oriental and Addax, a joint operating agreement dated May 9, 2006 between Oriental and Addax, a deed of assignment dated June 6, 2006, a crude oil sales and agency agreement dated November 16, 2005 and a conveyance of overriding royalty interest dated September 14, 2005 between Oriental, Addax and Sovereign, in consideration for Afren Exploration agreeing to drill one appraisal well in the farm-out area and paying all costs associated therewith. Afren Exploration was also granted an option, exercisable within six months after the drilling of the well is complete (and, if Afren Exploration elects, the production testing of one or more of the crude oil-bearing sections of that well), to purchase Addaxs residual interest in the project. In consideration for such option, Afren Exploration is to pay $55 million together with an amount equal to the sum of all expenditure and liabilities incurred by Addax in respect of its residual interest on or after such completion of the drilling of the first well (and production testing if applicable). Upon completing the first well, Afren Exploration exercised its option to purchase Addaxs residual interest and all conditions precedent to receiving such interest have been satisfied. Joint Operating Agreement On August 19, 2009, Oriental, Addax and Afren Exploration entered into a joint operating agreement to determine how the Okwok oil field is to be managed. Under the agreement, Oriental is appointed as operator and Afren Exploration is appointed as its interim technical advisor during the drilling of one exploration or appraisal well. The parties can elect to take part in proposed site projects. Oriental may propose and conduct site projects where neither of the other parties is willing to approve a work program containing a firm well or a development plan within a fixed period of time. If parties elect not to participate in such a project, they have an option to reinstate such rights and participate within a specified timeframe and subject to certain conditions and payments. No exclusive operations shall conflict with projects in which all three parties have agreed to participate. Each party shall have the right to own, take in kind and separately dispose of its share of total production in such quantities and in accordance with such procedures as set out in an offtake agreement. OPL 310 Participation Agreement and Production and Revenue Sharing Agreement A participation agreement was entered into by Optimum and Afren Investments on September 8, 2008 and was amended by a Production and Revenue Sharing Agreement on December 19, 2008. Optimum, as holder of 100% of the participating interest in OPL 310, agreed to assign 40% of such interest to Afren Investments. Under the agreement, Afren Investments agreed to pay $10 million to the Government of Nigeria as initial payment for revalidation of the OPL 310 license being allocated to Optimum and to take on certain liabilities and obligations in relation to operations pursuant to the OPL 310 license. These include the obligation to make a payment to Optimum of (i) $3 million following governmental approval being given to Optimums proposed assignment to Afren Investments, (ii) $10 million after the issue of the oil mining lease with respect to the area the subject of the OPL 310 license in the joint names of Optimum and Afren Investments, (iii) $4 million after the date on which production of petroleum commences pursuant to the first development plan with respect to the area the subject of the OPL 310 license which receives all necessary governmental consents (Production Date), and (iv) subject to an independent third party having certified there is at least 100 mmboe of recoverable reserves in the area of the subject of the OPL 310 license, $8 million after the date on which the cumulative production of petroleum from such area reaches 50 mmboe. If the first well drilled after September 8, 2008 results in the discovery of petroleum and an independent third party certifies that the discovery will produce at least 10,000 boe per day, then Afren Investments is to pay Optimum $5 million, with the amount to be paid pursuant to (ii) above reduced to $9 million and the amount to be paid pursuant to (iii) above reduced to zero. Afren Investments must also pay the Government of Nigeria $10 million after the issue of the oil mining lease in the joint names of Optimum and Afren Investments and the same amount again once the Production Date is achieved. Afren Investments is required to pay all capital and operating expenditures from September 8, 2008 until the Production Date. After the Production Date and until Afren Investments recovers certain costs incurred as a result of carrying Optimums capital and operating expenditure obligations until the Production Date, Afren Investments will bear all capital expenditures. After Afren Investments has recovered its costs, Optimum and Afren Investments will bear 70% and 30% of capital expenditure, respectively. After the Production Date, operating expenditures will be apportioned between the parties in proportion to each partys share of net available production. Optimum is to pay the royalty and concession rental on behalf of the parties and liability for such payments will be shared in proportion to each partys share of net available production. Until Afren Investments recovers certain costs, it is entitled to 91% of net available production. Optimum then has an entitlement to 79% of net available production until it recovers certain costs, then the 157

parties are to share in net available production with Optimum being entitled to 30% and Afren Investments being entitled to 70%. The agreement is effective from September 8, 2008 and continues for a term of the OPL 310 license or such replacement license, including any extension thereof, unless otherwise terminated. The DPR transmitted the ministerial approval for the assignment of 40% interest to Afren Investments on May 26, 2009. Anambra BasinOPL 907 and OPL 917 Master Loan and Production Sharing Agreement AGER, Afren plc, GEC and AERL entered into a master loan and production sharing agreement on December 22, 2005 to set out the basis on which Afren plc, GEC and AERL are to lend monies to AGER. The agreement provides that for each of OPL 907 and OPL 917, the lending parties are to enter into a loan memorandum with AGER in respect of the purpose of the loan, the interest rate, the default interest rate and repayment obligations. AGER, Afren plc, GEC and AERL entered into a loan memorandum for each of OPL 907 and OPL 917 on February 1, 2006. Under the loan memorandum in respect of OPL 907, Afren plc agreed to loan to AGER amounts not exceeding 47.3% of the work commitment for OPL 907 (or such further amounts as Afren plc may in its absolute discretion make available to AGER) at an interest rate of 10% accruing daily. Afren plc is entitled to 60% of allocated profit oil and AGER is entitled to 40% of allocated profit oil. Under the loan memorandum in respect of OPL 917, Afren plc agrees to loan to AGER an amount equal to 70% of the $13 million work commitment for OPL 917 at an interest rate of 10% accruing daily. Afren plc is entitled to 60% of allocated profit oil and AGER is entitled to 40% of allocated profit oil. Production Sharing Contract AGER entered into a production sharing contract on February 20, 2008 with a term of 30 years in relation to OPL 907 with NNPC, Buston Energy Resources Limited, Allenne Exploration and Production Limited, Kaztec Engineering Limited, VP Energy Limited, De Atai Oil Services International Limited and Bepta Oil & Gas Ltd. The current parties to the agreement and their respective participating interests are: AGER (41%), Buston Energy Resources Limited (25%), Allenne Exploration and Production Limited (14%), Kaztek Engineering Limited (5%), Bepta Oil & Gas Ltd (10%), VP Energy Limited (3%) and De Atai Oil Services International Limited (2%). AGER entered into a production sharing contract on February 20, 2008 with a term of 25 years in relation to OPL 917 with NNPC, VP Energy Limited, Petrolog Oil & Gas Ltd, De Atai Oil Services International Limited, and Goland Petroleum Development Company Limited. The current parties to the agreement and their respective participating interests are: AGER (42%), Petrolog Oil & Gas Ltd (18%), VP Energy Limited (17%), De Atai Oil Services International Limited (10%) and Goland Petroleum Development Company Limited (13%). Under the production sharing contracts the parties other than NNPC were appointed as contractor for OPL 907 and OPL 917, respectively, and such parties are required to ensure minimum work programs (including minimum financial commitments) are complied with and pay NNPC a production bonus once certain levels of production have been attained. Subject to the contractor fulfilling its obligations, each of the production sharing contracts are for a term of 30 years, being a 10 year exploration period and a 20 year oil mining lease period. Upon the discovery of a commercial quantity of hydrocarbons NNPC may apply for a conversion of the oil prospecting license into an oil mining lease and on expiry of the 20 year mining period, NNPC is to seek the maximum allowed renewal period of the oil mining lease. Block CI-11 Petroleum Production Sharing Contract A petroleum production sharing contract was entered into by The Republic of Cte dIvoire, UMIC Cte dIvoire Corporation and Petroci on June 27, 1992 (the Block CI-11 Petroleum Production Sharing Contract). Under the contract, Petroci and UMIC Cte dIvoire Corporation were appointed as contractor in respect of carrying out crude oil and natural gas operations in Block CI-11. The term of the contract is expressed to be until the expiry, surrender or withdrawal of the last existing exclusive exploitation license granted to the contractor. The contractor was granted an exclusive exploration authorization for an initial period of 18 months from January 4, 1993. Such right is extendable at the contractors request provided it fulfills its exploration work commitments under the contract for renewals of further exploration periods to an aggregate further term of 5.5 to 6.5 years. The contract requires the contractor to surrender parts of the initial area of Block CI-11 in stages except to the extent any appraisal or exploitation perimeters have been granted. If the contractor conducts an appraisal and considers the field to be commercial it may apply to the Government of the Republic of Cte dIvoire for an exclusive exploitation authorization, which shall be for a period of 25 years from the date of issue and may be extended for a further 10 years. The grant of an exclusive exploitation authorization obligates the contractor to undertake all petroleum 158

operations necessary for the exploitation at its sole costs and risk. Exploration decrees for the Lion and Panthre fields were granted for 25 years on September 12, 1994. The contractor is entitled to no greater than 63% of production of crude oil and natural gas, or such lesser percentage which would be sufficient to recover costs. Any other crude oil or natural gas produced is to be shared between The Republic of Cte dIvoire and the contractor on a tiered basis linked to daily total production of crude oil or natural gas (as applicable). The contractor is also required to pay bonuses to the Directorate General of Taxes of Cte dIvoire linked to production rates of crude oil. Petroci retained a greater participating interest in respect of two wells drilled in Block CI-11 which were developed prior to the effective date. Except for such area, Petrocis initial participating interest in Block CI-11 is 10% with an option to increase up to a maximum of 20% for a particular exploitation area provided Petroci notifies the other contractor parties within four months of a grant of an exclusive exploitation authorization for such area. Any additional participation is assigned from each of the other contractor parties in proportion to their participating interests. There have been three subsequent amendments to the contract and the current parties to the contract are The Republic of Cte dIvoire, Afren Cte dIvoire, Petroci, the IFC and SK Energy. UMIC Cte dIvoire Corporation changed its name to Ocean International Limited and then to Devon Cte dIvoire, Ltd., and the shares in Devon Cte dIvoire, Ltd. were subsequently acquired by Afren CI (II) Limited on September 24, 2008 pursuant to a share purchase agreement dated March 5, 2008. On June 10, 2010, IFC sold its interest in Block CI-11 to Compagnie Ivoirienne du Ptrole et des Mines SA (CIPEM). Joint Operating Agreement A joint operating agreement was entered into by UMIC Cte dIvoire Corporation and Petroci on June 27, 1992, with an effective date of January 4, 1993. There have been eight amendments to the agreement. The current parties to the agreement are Afren Cte d1voire, Petroci, IFC and SK Energy. Under the Block CI-11 Petroleum Production Sharing Contract, Petroci retained a greater interest in a special area of Block CI-11 encompassing two previously drilled wells. The parties now hold the following percentage participating interests in Block CI-11: Afren Cte d1voire (47.9592%), Petroci (20.1360%), CIPEM (18.9456%) and SK Energy Co Ltd (12.9592%). The parties can elect whether or not to take part in proposed projects which are in addition to the minimum exploration work commitments set out in the Block CI-11 Petroleum Production Sharing Contract. Parties have the right, but not the obligation, to assume any non-consenting parties participating interest in such case. If parties elect not to participate in such a project, they have an option to reinstate such rights and participate within a specified timeframe and subject to certain conditions and payments. The agreement continues until only one party holds 100% of the interest in Block CI-11 or when the Block CI-11 Petroleum Production Sharing Contract terminates, whichever is the earlier. Unitization Agreement Petroci, UMIC Cte dIvoire Corporation, IFC, Pluspetrol Cte dIvoire CI-11 Corporation (which later transferred its interest to Yukong Limited) and GNR (Cte dIvoire) Limited entered into a unitization agreement on July 1, 1996. The Block CI-11 Petroleum Production Sharing Contract covers two areas (being Block CI-11 and the special areas inside Block CI-11 in which Petroci is entitled to enhanced participating interest) and both the Lion field and the Panthre field are covered by the contract and are each partly located within and outside the special areas. As the participating interests of the parties in the special area differ from that of the parties in Block CI-11 excluding the special area, the parties agreed to unitize the Lion field and the Panthre field to obtain an equitable allocation of production and cost for the two areas. The Unitization Agreement provides for the formation of a unit area for the purposes of unitizing the reserves in the two areas, the ownership of all joint property used for petrol operations and reserves in any future exploitation perimeter within the two areas. For that purpose, unit interests over the area are determined and calculated by a selected engineering firm first on July 1, 1996, and subsequently recalculated on a yearly basis on 1 July; the amount of reserves determined, however, takes into account reserves that were produced and sold between the Block CI-11 Petroleum Production Sharing Contract effective date (January 4, 1993) and the date of the Unitization Agreement. Gas Sale and Purchase Agreements An agreement for the sale and purchase of natural gas in Block CI-11 was entered into between Socit Ivoirienne de Raffinage (the Buyer) and Afren Cte D1voire Ltd., International Finance Corporation, SK Energy, Petroci Holding and Republic of Cte DIvoire (together, the Sellers) on December 18, 2009. Under the agreement from January 1, 2010, the Sellers are required to deliver a daily quantity of up to 7,000,000 cubic feet of natural gas and a minimal annual quantity of 2.6 billion cubic feet of natural gas, with pricing determined pursuant to a specific formula in accordance with the agreement. If the quality of the natural gas is not in accordance with the prescribed specifications, the Buyer is entitled to refuse to accept the non-conforming gas until the deficiency in quality is remedied or to pay the Sellers 80% of the contract price. The agreement is due to expire on the earlier of: (i) on December 31, 2012 or (ii) on the date of expiration of the latest exclusive development and production permit as defined in the agreement. Each Seller is required to assign its interest in this agreement as a consequence of any assignment of its interest in the production sharing contract dated June 27, 1992 between 159

Afren Cte D1voire Limited, Petroci Holding and the Republic of Cte DIvoire. The Buyer is also entitled to assign the rights and obligations under this agreement to a third party capable of performing the contractual obligations. Pursuant to the sale of its interest in Block CI-11, the IFCs interest in the agreement was duly assigned to CIPEM. An agreement for the sale and purchase of natural gas in Block CI-11 was entered into between La Caisse Autonome dAmortissement (the Buyer) (now SOGEPE), UMIC Cte dIvoire Corporation, IFC, G.N.R. (Cte dIvoire) Ltd, Pluspetrol S.A. (collectively, the Sellers) and Petroci and The Republic of Cte dIvoire (collectively, the Delivering Parties) on September 30, 1994 (as amended on August 1, 2003). The Sellers obligation to deliver a set annual quantity and the Buyers obligation to take or pay have expired in accordance with the terms of the agreement. Afren Cte d1voire terminated the purchase price provisions of the amendment (setting natural gas price of $2.35 per million btu for all natural gas received up to an annual base quantity, and thereafter of $2.15 per million btu) in accordance with the terms of the amendment. The parties are currently negotiating a new gas price; in the interim, it has been agreed to use a provisional price of $4 per million btu. The agreement expires (if not earlier terminated) on the expiry of the last exclusive exploration authorization issued by The Republic of Cte dIvoire to the contractor under the Block CI-11 Petroleum Production Sharing Contract. On April 17, 1998, Lion GPL, S.A. (Lion) and SIR entered into an LPG Sales Contract whereby Lion agrees to sell, and SIR agrees to purchase, commercial butane received in SIRs storage facility. The quantities which SIR agrees to purchase are determined by a formula set out in the agreement. Lion has the exclusive right to supply to SIR any shortage of commercial butane which SIR needs to supply the Ivorian market. The price for the commercial butane is determined by governmental decree. Such price was determined by decree of The Republic of Cte DIvoire on July 7, 1997, which specified that the sale price would be $244 per metric ton from the date that the volume of sales by Lion reaches 5000 tons or following the expiry of the period of the first 18 months of production. The agreement is renewable annually. Lion has the right to close down the LPG plant if it is no longer economically viable (thereby terminating the agreement). Gas Transportation Agreement On October 25, 2005, a Block CI-26 and Block CI-40 gas transportation agreement was entered into between CNR International (Cte dIvoire) SARL, Svenska Petroleum Exploration AB, Petroci Holding, Petroci Overseas Limited and The Republic of Cte dIvoire (collectively, as charterer for CI-40), CNR International (Cte dIvoire) SARL, Tullow Cte dIvoire Limited, Petroci Holding, and The Republic of Cte dIvoire (collectively, as charterer for CI-26), Ocean Energy Cte dIvoire Corporation, IFC, SK Energy Co Ltd and Petroci Holding (collectively, as transporter). Under the agreement, the transporter is required, subject to minimum and maximum specified quantity requirements, to receive, transport and deliver natural gas (and certain other associated liquids and gases) on behalf of the charterers at a price of $0.13 per thousand cubic feet for actual volumes of gas delivered by the charterer to the transporter less any unaccounted for line losses. The transporter is required to maintain the CI-11 pipeline and the Azito pipeline as part of its obligations under the agreement. The agreement expires (unless earlier terminated) on the date of expiration of any exclusive exploitation authorization to be issued by The Republic of Cte dIvoire to the contractor under the production sharing contract (such contract is not defined but it may be referring to the Block CI-11 Petroleum Production Sharing Contract). Block CI-01 Production Sharing Contract A production sharing contract was entered into by The Republic of Cte dIvoire, UMIC Cte dIvoire Corporation and Petroci on December 5, 1994 (as amended), with UMIC Cte dIvoire Corporation and Petroci as contractor and UMIC Cte dIvoire Corporation appointed as operator. The contract provides that the duration of any exclusive exploration authorization together with an approved appraisal work program is for a total of eight years and nine months and the duration of any exclusive exploitation authorization is 25 years from the date of issue, which may be extended for a further period of 10 years. A commercial petroleum discovery entitles the parties to an exploitation authorization and there have been several such discoveries in respect of the relevant area. Afren is currently in the process of obtaining an exclusive exploitation authorization. The contractor is entitled to take no more than 60% of total production of crude oil (or 40% in the case of natural gas) or such lesser percentage as would be sufficient for it to recover its costs. Any other crude oil or natural gas produced is to be shared between The Republic of Cte dIvoire and the contractor on a tiered basis linked to daily total production. The contractor is also required to pay bonuses to the Directorate General of Taxes of Cte dIvoire linked to production rates of crude oil. Under the agreement, Petroci had an initial participating interest of 10%. Petroci elected to take a 40% participating interest on February 14, 1996, but reduced such interest effective on December 31, 1997 so that it holds a 20% carried interest in exploration and appraisal. Petroci has an option to convert the 20% carried interest into a total exploitation participation of 20% or less in respect of each area where exploitation is being conducted. UMIC Cte dIvoire Corporation assigned its interest under the contract to UMIC (CI-01) Corporation which assigned a portion of its interest to 160

Yukong Limited on January 19, 2006. UMIC (CI-01) Corporation changed its name to Ocean (CI-01) Corporation and then to Devon CI One Corporation, and the shares in Devon CI One Corporation were subsequently acquired by Afren CI (II) Limited pursuant to a share purchase agreement dated March 5, 2008. Currently the parties have the following participating interests: Afren CI One Corporation (65%); Petroci (20%) and SK Energy Co Ltd (which acquired Yukong Limiteds interest) (15%). Keta Block Petroleum Agreement Under a petroleum agreement between the Republic of Ghana, GNPC, Devon Energy Ghana Limited and EnCana International (Ghana) Limited dated July 29, 2002 (as amended), Afren Energy Ghana Limited (Afren Ghana) (formerly Devon Energy Ghana Limited) is designated as the contractor in respect of the Keta Block. Under the agreement, Afren Ghana and GNPC have 90% and 10% initial participating interests, respectively, with the option for GNPC to acquire an additional 15% participating interest subject to GNPC contributing a proportionate share of development and production costs within designated commercial discovery areas. Afren Ghana assigned a 2% participating interest to Gulf and entered into a joint operating agreement with Gulf on June 18, 2008. However, this 2% interest was subsequently reacquired in February 2010. In 2008, Afren Ghana entered into a farm-down agreement with Mitsui Ghana for a 20% interest in the Keta Block, and in 2011 entered into another farm-down agreement with Eni for a 35% interest in the block, bringing Afren Ghanas current participating interest in Keta Block to 35%. The agreement was to expire on January 31, 2008 but would be extended for two additional periods up to December 31, 2009 for each well drilled beyond the minimum work requirements. On July 29, 2009 the Ministry of Energy of Ghana confirmed such extension to December 31, 2009. A new petroleum agreement on substantially the same terms received parliamentary approval and was executed on February 19, 2010. The new agreement will expire on February 18, 2016. Afren Ghana also has the option under the agreement to require the Ministry of Energy and GNPC to enter into a new petroleum agreement, covering 4,400 km2 of the contract area as selected by Afren Ghana. The new petroleum agreement is to contain the same terms and conditions as the Petroleum Agreement except that the term shall be six years divided into three periods of two years each with one exploration well work obligation and a minimum expenditure of $25 million for each period. Farm-Down Agreement On October 24, 2008 Afren Ghana and Mitsui Ghana entered into a farm-down agreement and this agreement completed on November 20, 2008. Under the agreement, Mitsui Ghana acquired a 20% participating interest in the Petroleum Agreement together with a 22.2% interest in Afrens joint operating agreement with Gulf. Mitsui Ghana agreed to pay 50% of all costs and claims incurred in the drilling program in respect of the exploration well (subject to a cap), certain well costs incurred prior to the date of the agreement, and to fund 20% of cash calls in funding any costs relating to the exploration well exceeding the approved budget. Farm-down Agreement In March 2011, Eni (through its subsidiary, Eni Ghana Exploration and Production Limited) agreed to farm-in to a 35% participating interest in the Keta Block. Upon receive of customary government and partner approvals for the assignment, Afren Ghana now holds a 35% participating interest in the Keta Block and has transferred operatorship to Eni. In consideration for the assignment of the farm-down interest, Eni has agreed to carry Afren Ghanas share of costs associated with drilling one exploration well, up to a gross well cost of $80 million, during the current exploration period. Afren Ghana will also receive non-drilling back costs and a carry through a 3D seismic acquisition program that forms part of the obligation for the next license phase. La Noumbi Permit Production Sharing Agreement A production sharing agreement was entered into between the Republic of Congo-Brazzaville (the Government), Les tablissements Maurel & Prom, Tacoma Resources Ltd and Heritage Congo Ltd (in which Afren acquired the entire issued share capital of in November 2006) (together, the Contractor) with an effective date of February 9, 2004. The agreement terminates on expiry or termination of the research permit or exploration permit. The research permit, granted by the Presidential Decree to Zetah Maurel & Prom Congo dated February 10, 2003 enters into force on the date that the Production Sharing Agreement is approved by law and is granted for a period of four years. The production sharing agreement was approved by law on June 19, 2006. Such permit can be renewed twice for a three year period each. The first period expired in June 2010. The Contractor is represented by the company Zetah Noumbi Limited. Les Etablissements 161

Maruel & Prom was appointed operator of the block (the Operator). Oil costs may be recovered in the following priority: exploration costs, development costs, research costs and lastly, the deposit agreed for the purpose of the rehabilitation works. Such oil costs may be recovered up to a limit of 60% of the net oil production and certain other limits determined by a sliding scale formula relating to the oil price. If the determined price (the parties are to meet every quarter to agree the price applicable for each month of the quarter) of oil is less than $22 then the Contractor is entitled to 45% of the oil produced and the Government is entitled to 55%. If the determined price is more than $22 then 25% of the oil production will be shared as if the determined price was less than $22 and the Contractor will be entitled to 40% and the Government will be entitled to 60% of the remainder. Excess oil will be shared between the Contractor and the Government in shares of 40% and 60%, respectively. The Government may request the Contractor sell up to 30% of its oil entitlement to Congolese industries. Barda Rash Farm-In Agreement Beta Energy Limited (Beta Energy), a wholly-owned subsidiary of Afren plc, and Komet Group S.A. (Komet) entered into a farm-in agreement relating to the transfer of a 60% participating interest in respect of the Barda Rash block in the Kurdistan Region of Iraq on July 27, 2011. Afren plc agreed to serve as a guarantor for the benefit of Komet for the payment of this consideration pursuant to a guarantee dated July 27, 2011. The farm-in agreement governs the terms and conditions for the transfer of Komets interest, including certain warranties and indemnities to Beta Energy relating to Komets interest in the block. In consideration of the 60% interest, Beta Energy agreed to pay Komet approximately $400 million of which $62.9 million represented the proportion of past petroleum costs incurred by Komet since June 20, 2008. Komet retains a 20% interest in the Barda Rash block production sharing contract. Production Sharing Contract The Kurdistan Regional Government of Iraq (the KRG) and Komet entered into a production sharing contract for the Barda Rash block in the Kurdistan Region of Iraq on June 20, 2008. Pursuant to this agreement, the KRG retained a 20% interest in the block which it can freely transfer, along with all rights and benefits, to other entities, both public and private. On July 27, 2011, KRG, Komet and Beta Energy entered into an Assignment, Novation and First Amendment Agreement to the production sharing contract effecting the transfer of Komets 60% interest to Beta Energy and documenting the KRGs consent of the assignment (the Assignment Agreement). Under the terms of the Assignment Agreement, Beta Energy agreed to pay KRG $18 million, representing Betas proportional share of a capacity building bonus of approximately $24 million. The Assignment Agreement also contained a confirmation from the KRG that no other party has a right to the interest transferred to Beta. The term of the production sharing contract is divided into two periods, an exploration period and a development period. The block recently transitioned into the development period upon declaration in November 2011 of a commercial discovery covering the whole block. Beta Energy and Komet have the exclusive right to develop and produce such discovery for a period of 20 years commencing on the declaration of such commercial discovery, with an automatic right to a five year extension. Once the block begins producing, the KRG is entitled to a 10% royalty, either in cash or in-kind (at their discretion), on both oil and natural gas production. After the deduction of the 10% royalty, Beta Energy and Komet are entitled to recover all costs incurred under the production sharing contract from up to 40% of the oil and 50% of the non-associated natural gas (as defined therein) produced at the block in each contract year. To the extent that costs are not recovered during any calendar year, the remaining amounts can be carried over indefinitely. In addition, Beta Energy and Komet are further entitled to a percentage share of profit petroleum (i.e., production after the recovery of allotted costs and application of the royalty rate) of between 15% to 30% of oil and 18% to 35% of gas based on the ratio of cumulative revenues to cumulative costs incurred by Beta Energy and Komet. The KRG is entitled to the remaining proportion of production. In addition, the KRG also reserves the right to request the transfer of any amounts of crude oil that is deemed necessary to meet the Kurdistan Region of Iraq internal consumption requirements. After there has been a declaration of a commercial discovery, Beta Energy and Komet are also responsible for paying the KRG the following bonuses upon reaching certain production thresholds as assessed separately for oil and gas: (i) $2.5 million at production commencement of both oil and gas production; (ii) $5 million when production reaches 10 mmbbl and 10 mmboe; (iii) $10 million when production reaches 25 mmbbl and 25 mmboe; and (iv) $20 million when production reaches 50 mmbbl and 50 mmboe. The production sharing contract is subject to termination based on noncompletion of certain activities, among others, such as failure to commence exploration drilling or seismic acquisition. Pursuant to the production sharing contract, as amended, Beta Energy and Komet are jointly and severally responsible for making monthly capacity building payments in the amount of 20% of their respective profit petroleum.

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Joint Operating Agreement Beta Energy and Komet entered into a joint operating agreement relating to the Barda Rash block on July 27, 2011. This joint operating agreement is modeled on the oil industry standard as provided by the Association of International Petroleum Negotiators (AIPN) and defines the respective rights and obligations of Beta Energy and Komet under the production sharing contract. The agreement provides that all rights and interests as well as all liabilities and expenses shall be shared jointly between Beta Energy and Komet in accordance with their respective participating interests. In the event that Afren plc ceases to directly and/or indirectly control Beta, the Operating Committee, comprised of one representative per company with voting power proportional to its participating interest, shall determine whether a new successor should be named. The Operating Committee further has the power to authorize and supervise all joint operations, and vote on certain matters such as budgets, development plans and work programs. Beta Energy and Komet may propose that an operation be an exclusive operation and not a joint operation, subject to the approval of other interest holders. Should a party wish to join an exclusive operation, it must reimburse to the exclusive operator a percentage of the costs associated with making any discoveries. Pursuant to the production sharing contract, Beta Energy and Komet must pay KRG production bonuses. The joint operating agreement provides that any production bonus shall be paid in proportion to each parties participating interest in the exploitation area that produced the petroleum; although the parties remain jointly and severally liable to the KRG under the production sharing contract. In the event of a default of a partys account, the defaulting party loses rights under the production sharing contract, such as the right to receive entitlement and to vote in Operating Committee meetings. If the default is not cured within 30 days of the default notice, non-defaulting parties may exercise a buy-out option, and acquire all or a portion of the defaulting partys participating interest for an appraised value. The non-defaulting parties may also be authorized to sell the defaulting partys entitlement in an arms-length commercially reasonable sale. Any transfer in interest by a party is subject to certain terms and conditions, such as the condition that no transfer can be made that would result in the transferor or transferee having less than a 5% participating interest. Any change in control over a party must meet specified conditions, such as the ability to provide reasonably satisfactory evidence that the new party in control will have the capacity to satisfy its payment obligations under the production sharing contract. Furthermore, in the event of a change of control, other parties will have the option of purchasing the acquired partys participating interest for cash value. Beta Energy and Komet may exercise an option to withdraw from the contract. In order to withdraw, the party must abandon the contract area and terminate the production sharing contract and the joint operating agreement. If any parties remain after a partys withdrawal, the withdrawing party must assign its participating interest to the parties that are not withdrawing, without any compensation. Furthermore, the withdrawing party will be liable for all costs of joint and exclusive operations and any minimum work obligations for the current period or phase of the production sharing contract, among other costs. Ain Sifni Production Sharing Contract The KRG, Hunt Oil Middle East Limited (previously known as Hunt Oil Company of the Kurdistan Region) (Hunt Oil) and Impulse Energy Corporation (Impulse) entered into a production sharing contract for the Ain Sifni block on September 8, 2007. Pursuant to an Assignment, Novation, and First Amendment Agreement relating to the Ain Sifni block dated July, 26 2011, Impulse relinquished all of its former interest in the production sharing contract to the KRG. On July 27, 2011, the KRG entered into an Assignment, Novation and Second Amendment Agreement with Hunt Oil and Beta Energy (the Second Assignment Agreement). Under Second Assignment Agreement the KRG transferred a 20% interest to Beta Energy and Hunt Oil maintained its 60% interest. The KRG retained a 20% interest in the block which it can freely transfer, along with all rights and benefits, to other entities, both public and private. For consideration of the 20% interest, Beta Energy agreed with the KRG and Hunt Oil to pay Hunt Oil approximately $26.03 million, representative of proportional past petroleum costs incurred by Hunt Oil since June 30, 2008, and separately agreed to make specified payments to the KRG pursuant to the TPI Capacity Building Bonus Agreement dated July 27, 2011. Afren plc agreed to guarantee the terms of the Second Assignment Agreement for the benefit of KRG pursuant to a Guarantee dated July 27, 2011. The term of the production sharing contract is divided into two periods, an exploration period and a development period. The initial exploration period is for five years and is extendable annually (subject to certain conditions) for up to seven years from the date of the production sharing contract. At the end of the initial term of the exploration period, and again at the end of the first extension period of the exploration period, Beta Energy and Hunt Oil must surrender to the KRG 25% of the net area (determined by subtracting the production area from the initial contract area). In the event of a commercial discovery, Beta Energy and Hunt Oil would have the exclusive right to develop and produce such discovery for a period of 20 years commencing on the declaration of such commercial discovery, with an automatic right to a five year extension. The Ain Sifni block is currently in year five of the exploration phase. Once the block begins producing, the KRG is entitled to a 10% royalty, either in cash or in-kind (at their discretion), on both oil and natural gas production. After the deduction of the 10% royalty, Beta Energy and Hunt Oil are entitled to recover all costs incurred under the production sharing contract from up to 40% of the oil and 50% of the non-associated natural gas (as defined therein) produced at the block. To the extent that costs are not recovered during any calendar year, the remaining amounts can be carried over indefinitely. In addition, Beta Energy 163

and Hunt Oil are further entitled to a percentage share of profit petroleum (i.e., production after the recovery of allotted costs and application of the royalty rate) of between 15% to 30% of oil and 18% to 35% of gas based on the ratio of cumulative revenues to cumulative costs incurred by Beta Energy and Hunt Oil. The KRG is entitled to the remaining proportion of production. In addition, KRG also reserves the right to request the transfer of any amounts of crude oil that is deemed necessary to meet the Kurdistan Region of Iraq internal consumption requirements. In the event of a commercial discovery, Beta Energy and Hunt Oil are also responsible for paying KRG the following bonuses upon reaching certain production thresholds as assessed separately for oil and gas: (i) $2.5 million at production commencement of both oil and gas production; (ii) $5 million when production reaches 10 mmbbl and 10 mmboe; (iii) $10 million when production reaches 25 mmbbl and 25 mmboe; and (iv) $20 million when production reaches 50 mmbbl and 50 mmboe. The production sharing contract is subject to termination based on non-completion of certain activities, among others, such as failure to commence exploration drilling or seismic acquisition. Pursuant to the production sharing contract, Beta Energy and Hunt Oil are jointly and severally responsible for making monthly capacity building payments in the amount of 20% of their respective profit petroleum. TPI Capacity Bonus Building Agreement On July 27, 2011, Beta Energy entered into the TPI Capacity Building Bonus Agreement with the KRG in connection with the acquisition of the 20% interest in the Ain Sifni block (the Capacity Building Agreement). Pursuant to the Capacity Building Agreement, Beta Energy paid KRG the following three capacity building bonuses: $50 million, which KRG dedicated to the construction of primary schools in the Kurdistan Region of Iraq; $37.5 million, which the Government dedicated to the construction of an Anfal museum in the Kurdistan Region of Iraq; and $50 million, which the KRG instructed Beta Energy to pay directly to the University of Suleymania and the University of Kurdistan (Erbil) for the development of geoscience and petroleum engineering facilities pursuant to a Sponsorship Agreement. In an amendment to the Capacity Building Agreement, the KRG instructed Beta Energy to make the payments directly to the University of Suleymania and the University of Kurdistan and acknowledged that these payments discharge the obligation under the Capacity Building Agreement. Joint Operating Agreement Beta Energy and Hunt Oil entered into a joint operating agreement, based on the AIPN guidelines, relating to the Ain Sifni block dated December 15, 2011. This joint operating agreement defines the respective rights and obligations of Beta Energy and Hunt Oil under the production sharing contract. The agreement provides that all rights and interests as well as all liabilities and expenses shall be shared jointly between Beta Energy and Hunt Oil in accordance with their respective participating interests. The agreement establishes the Operating Committee, comprised of one representative per company with voting power proportional to its participating interest. The Operating Committee has the authority to authorize and supervise all joint operations, and vote on certain matters such as budgets, development plans and work programs. Beta Energy and Hunt may propose that an operation be an exclusive operation and not a joint operation, subject to the approval of other interest holders. Should a party wish to join an exclusive operation, it must reimburse to the exclusive operator a percentage of costs associated with making any discoveries. In the event of a default of a partys account, the defaulting party loses rights under the production sharing contract, such as the right to receive entitlement and to vote in Operating Committee meetings. If the default is not cured within 30 days of the default notice, non-defaulting parties may exercise a buy-out option, and acquire all or a portion of the defaulting partys participating interest for an appraised value. The nondefaulting party may also be authorized to sell the defaulting partys entitlement in an arms-length commercially reasonable sale. Any transfer in interest by a party is subject to certain terms and conditions, such as the condition that no transfer can be made that would result in the transferor or transferee having less than a 5% participating interest. Beta Energy and Hunt Oil may exercise an option to withdraw from the contract. If any parties remain after a partys withdrawal, the withdrawing party must assign its participating interest to the parties that are not withdrawing, without any compensation. Furthermore, the withdrawing party will be liable for all costs of joint and exclusive operations and any minimum work obligations for the current period or phase of the production sharing contract, among other costs.

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MANAGEMENT Board of Directors The persons set forth below are the current members of our Board of Directors. The address for each of our Directors and executive officers is Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU.
Name Age Position Type of Director

Mr. Dr. Mr. Mr. Mr. Mr. Mr. Mr. Mr.

Egbert Imomoh ......................... Osman Shahenshah .................... Darra Comyn............................. Shahid Ullah ............................. Ennio Sganzerla ........................ Peter Bingham........................... John St. John ............................ Patrick Obath ............................ Toby Hayward ..........................

66 50 50 52 67 76 48 48

Chairman Chief Executive Group Finance Director Chief Operating Officer Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director Senior Independent non-Executive 52 Director

Non-Executive Director Executive Director Executive Director Executive Director Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director Senior Independent non-Executive Director

Mr. Egbert Imomoh was appointed as our non-Executive Chairman on December 18, 2008 and has been an Executive member of the Board of Directors since February 16, 2005. Prior to assuming his current position, Mr. Imomoh, one of our founders, was Managing Director and Executive Chairman of Afren Energy Resources Limited. He successfully led the growth of our Nigerian asset base, established partnerships with indigenous companies and realized the first oil milestone at the Okoro field. Mr. Imomoh has over 36 years experience with the Shell group of companies, in Nigeria, the UK and The Netherlands. Prior to his retirement, he served as Deputy Managing Director of SPDC, one of the Shell Groups largest operating companies, which is responsible for operating a joint venture that produces approximately 1,000,000 bopd. Trained in Mechanical and Petroleum Engineering, in addition to serving as Deputy Managing Director of SPDC, Mr. Imomoh held a wide variety of senior positions throughout the Shell Group, including Chief Petroleum Engineer in SPDC, Technical. He is a member of the Society of Petroleum Engineers and serves on its board as Regional Director for Africa. Mr. Imomohs other current directorships include First Hydrocarbon Nigeria, Guaranty Trust Bank and Guaranty Trust Asset Ltd. Dr. Osman Shahenshah was appointed as Chief Executive on February 27, 2007. Dr. Shahenshah has been a member of the Board of Directors since December 3, 2004. Dr. Shahenshah is one of our founders and has over 20 years experience in oil and gas finance. His international career began with Credit Suisse First Boston and has included senior positions in the oil and gas finance groups of the IFC (private sector arm of the World Bank), and the investment banking divisions of Dresdner Kleinwort Wasserstein and Mediocredito Centrale. Dr. Shahenshah has been actively involved in the African oil and gas sector for more than 15 years, working with companies including Shell, Chevron, Total, Eni and the Nigerian National Petroleum Corporation. He holds a PhD from the University of Pennsylvania, a Masters Degree from Columbia University and a Bachelors Degree from Brown University. Dr. Shahenshah also serves on the board of directors for Gasol plc and First Hydrocarbon Nigeria. Mr. Darra Comyn was hired in December 2009 as Group Finance Director and was appointed to the Board on March 23, 2010. Prior to joining us, Mr. Comyn was Finance Director for ITE Group plc and Expomendia Group plc (both international groups focused on emerging markets); and in the oil industry with Chevron Oil UK and Dragon Oil where he was Group Financial Controller and Company Secretary. Mr. Comyns other current directorships include Elmfield Services Ltd (UK), Expocentres (Poland) Limited and Informedia India Pty Limited. He is a Chartered Accountant with a degree in Economics from Trinity College, University of Dublin. Mr. Shahid Ullah was appointed as Chief Operating Officer on July 1, 2008. Mr. Ullah has been a member of the Board of Directors since July 1, 2008 and has worked within the international oil and gas industry for several years. Mr. Ullah has held senior management positions at Western Atlas and Baker Hughes, where he was responsible for managing petroleum equities and assets. In particular, he brings extensive technical and commercial knowledge of the African petroleum industry. Mr. Ullah holds a degree in Petroleum Engineering from the University of Texas and received executive development training at Oxford University and the London Business School. He is a member of the Engineering Advisory Board at the University of Texas and also serves on the board of directors for Stratum Energy, Kismet Family Ltd, Caymus Fund, RTL Fund and Stiletto Real Estate. Mr. Ennio Sganzerla was appointed as Independent non-Executive Director on June 26, 2009. Mr. Sganzerla, a senior industry practitioner with a wealth of African upstream oil and gas experience, has been an advisor to our Board since 165

November 2006. He was previously Senior Vice President (E&P) at Eni, having joined in 1971. From 1997, he was responsible for Enis business unit encompassing the North Sea, America, Australasia and Russia, with production in excess of 500,000 boepd. Previously, he was Managing Director of Enis North Sea Operations. Over the course of his wide ranging career at Eni, he was instrumental in establishing and building Enis presence in Congo-Brazzaville, and played an active part in increasing Enis position in Nigeria and Gabon. Mr. Sganzerla was also active in leading Enis M&A activities, including the acquisitions of Lasmo plc and British Borneo. Mr. Peter Bingham was appointed as Independent non-Executive Director on May 10, 2005 and is a senior financial executive with over 40 years experience in international financial markets, primarily at the Barclays Bank Group. Mr. Bingham successively held directorships at the London branch level, the merchant banking division and at BZW (now Barclays Capital). Mr. Bingham ultimately became Head of Banking at BZW where he set up the credit risk management team and served as a member of the central Barclays Group Credit Committee. Mr. Bingham also currently serves on the board of Capital & Corporate Holdings. Mr. John St. John was appointed as Independent non-Executive Director on June 18, 2007. Prior to his appointment as non-Executive Director, Mr. St. John was Strategic Financial Advisor to the Board. He was formerly Global Head of Equity Capital Markets at Dresdner Kleinwort, Commerzbank and Lehman Brothers and European Head of Equity Capital Markets at Citigroup, formerly Salomon Brothers. He was also until most recently the Chairman of Equity Capital Markets at Nomura International plc. Mr. St. John is a founding Partner of STJ Advisors. Mr. St. John has acted as an advisor on over $100 billion of equity and equity linked issuances in all major markets worldwide. Mr. St. John also serves on the board of St. John Advisers Ltd, St. John Estates LLP, St. John Estates Limited, MMJ Advisors LLP and STJ Advisors LLP. Mr. Toby Hayward was appointed as Independent non-Executive Director on June 26, 2009 and is currently a Senior Independent non-Executive Director. He qualified as a Chartered Accountant with Touche Ross & Co in 1984 and subsequently held a number of senior Equity Capital Market positions in the City of London. Mr. Hayward was formerly Managing Director and Head of Corporate Broking at Jefferies International Limited, where he was responsible for all international equity and equity linked capital markets transactions together with corporate broking and Nomad responsibilities. Prior to this, Mr. Hayward was Head of Oil and Gas Equity Capital Markets at Canaccord Adams where led a number of initial public offerings, including our public offering in March 2005. Mr. Haywards other current directorships include Severfield Rowen plc, Sirius Petroleum plc and THC Consultants Limited. Mr. Patrick Obath was appointed as Independent non-Executive Director on February 2, 2012. Mr. Obath is a senior energy industry practitioner, having held a number of senior management positions in his 37 year career, including over 20 years with the Shell Group across their African operations (namely Shell International, Shell Kenya, Shell Tanzania and Shell Oil Products Africa). Mr. Obaths positions across the Shell Group included roles within Engineering Management, Corporate Health, Safety and Environmental Management and Executive Management where he served as Chief Executive of Kenya Shell and Shell Tanzania Mr. Obath has a B.Sc. (Hons) in Mechanical Engineering from the University of Nottingham. He is Chairman of the Kenya Private Sector Alliance and has received a number of East African Honorary recognitions, including the Order of the Grand Warrior (OGW) by the President of the Republic of Kenya, the National Peace Award, Kenya and the Order of the Moran of the Burning Spear (MBS) by the President of the Republic of Kenya. Mr. Obath is currently Chairman of PZ Cussons EA Limited and a non-executive Director at Standard Chartered Bank Kenya Limited and Kenya Power and Lighting Company Limited. Prior to his appointment as Minister of Petroleum in Nigeria, Dr. Rilwanu Lukman, one of our founders, served as a member and Chairman of our Board of Directors. Upon accepting the position as Minister of Petroleum in December 2008, Dr. Lukman resigned from our Board of Directors. See Legal and RegulatoryNigeriaGovernment Regulations. Senior Management The following table sets forth our senior management other than those individuals that are also members of the Board of Directors.
Name Position

Shirin Johri ........................................................................... David Capra .......................................................................... Andrew Olleveant ................................................................. Galib Virani .......................................................................... Jeremy Whitlock ................................................................... Iain Wright ............................................................................

Group General Counsel and Company Secretary Group Head of EHSS Head of Risk Management and Assurance Acquisitions and Investor Relations Director Head of Treasury and Planning Technical Director 166

Ms. Shirin Johri, Group General Counsel and Company Secretary, has extensive experience advising on acquisitions and disposals, joint ventures, infrastructure projects and private equity investment. Prior to joining us in 2006, Ms. Johri worked with Cadwalader, Wickersham & Taft LLPs Africa practice. Ms. Johri holds a LLM from the Cornell Law School, New York, a LLB (Hons) from Delhi University, India and a Bachelor of Arts degree in Sociology from Delhi University and has also been admitted to the New York Bar. David Capra, Group Head of EHSS, has over 25 years experience in Environmental, Health & Safety and Social matters, including over 20 years international experience in oil and gas. His recent assignments include acting as Senior Safety Advisor for Occidental; HSEQ Managing Coordinator for Enis drilling and production operations in Alaska and the Gulf of Mexico; and Environmental, Health & Safety and Social, and & Social Responsibility Corporate Manager for Addax Petroleum in Geneva, where he had responsibility for Environmental, Health & Safety and Social, and Community Relations activities worldwide including Africa and the Middle East. Mr. Capra has a Bachelor of Science degree in Health Science from Brigham Young University and an Masters degree in Industrial Safety from Central Missouri State University. Andrew Olleveant, Head of Risk Management and Assurance, is a qualified health and safety professional with over 18 years experience in the oil industry, over 10 of which were spent in an international role with Lasmo plc. He has extensive experience of managing the Environmental, Health & Safety and Social issues associated with major oil and gas projects as well as wider risk management experience. In previous roles he has been responsible for developing and implementing management systems and providing corporate assurance that effective controls are in place. Mr. Olleveant holds a Master of Science degree in Engineering Geology from Durham University and a Bachelor of Science degree in Environmental Science from Lancaster University. Mr. Galib Virani, Acquisitions and Investor Relations Director joined us in 2005 following a career in the City of London in Corporate Finance and Mergers & Acquisitions. Mr. Virani has played a key role in the growth of our portfolio of assets, in our equity financing and in diversifying our shareholder base. Mr. Virani is an East African national. He is a Fellow of the Securities Institute, and has a Master of Finance & Investment (with Distinction) and a Master of Philosophy in Emerging Market Finance. Mr. Jeremy Whitlock, Head of Treasury and Planning, is a qualified accountant with over 20 years experience in the oil industry. He spent 13 years with Enterprise Oil in a variety of roles across the finance department, including several years as Financial Planning Manager and International & Corporate Accounting Manager. Prior to joining us, he was Planning Manager at Nexen (UK) Ltd. He is a member of the Institute of Chartered Management Accountants and holds a degree in Mathematics from Durham University. Mr. Iain Wright, Technical Director, leads our technical team and is responsible for all geoscience and reservoir engineering activities associated with our ongoing exploration, development and production assets together with new business technical assessments to enhance our portfolio. With over 25 years working in the industry, he has extensive international geosciences experience and has served in both development and exploration geology roles. Previously, he was a Managing Director at Jefferies. He also worked with Randall & Dewey, Baker Hughes, Qatar Petroleum, Conoco (UK) Ltd and Anadrill Schlumberger. Mr. Wright received a BSc (Hons) from the City of London Polytechnic and is a Certified Petroleum Geologist (CPG) with the AAPG, a fellow with the Geolsoc, the SPE and PESGB. International Advisory Board Following his appointment as our Chairman on November 2, 2006, Dr. Rilwanu Lukman established an International Advisory Board to assist and advise the Board to grow the company into a leading pan-African independent exploration and production company. The International Advisory Board is a consultative body with a strong orientation to Africa, the oil and gas industry and the international capital markets. The founding members of the International Advisory Board were Mr. Brian Ward and Mr. Ennio Sganzerla, two senior oil industry practitioners with significant African experience. In 2009, Mr. Hiroshi Kanematsu, Prof. Ekwere Peters and Mr. Henry Groppe joined the International Advisory Board and in June 2009, Mr. Ennio Sganzerla stepped down from the International Advisory Board to join our Board. Mr. Brian Ward was formerly the Regional Chief Executive for Shell E&P Africa. He was responsible for Shells Upstream African operations and relationships with host governments. Prior to managing Shells operations in Africa, Mr. Wards career included a number of senior positions within the Shell Organization, including Managing Director of Petroleum Development Oman, Managing Director of Shell E&P (NAM) in Holland, and Deputy Managing Director and Production Director for Shell Expro UK.

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Mr. Hiroshi Kanematsu is the President of the Energy and Mineral Resources Division at Sojitz Corporation and Senior Managing Executive Officer of Sojitz. He has been involved in international energy and mining projects for over 25 years. Prior to assuming his current position, his career included a number of senior positions within Sojitz, including President and Chief Executive Officer for Sojitz Asia and General Manager for Sojitz South East Asia. Prof. Ekwere Peters is the Frank W. Jessen Professor of Petroleum Engineering at the University of Texas at Austin where he has been a faculty member since 1980. He is a former chairman of the Department of Petroleum & Geosystems Engineering at UT Austin. He has over 35 years of varied petroleum engineering experience in field operations, education and research. His petroleum industry experience was with Shell BP in Nigeria, Amoco Production Company in the USA and United Petro Laboratories in Canada. Mr. Henry Groppe has had 63 years of management, economic and technical experience in the energy field. He was with Dow Chemical, Monsanto, Texaco, and Arabian American Oil Company (in Saudi Arabia) before establishing his consulting firm in 1955. The firm, Groppe, Long & Littell, based in Houston, Texas, provides consulting services to government, corporate and private clients involved in the petroleum, natural gas, refining and petroleum industries. During the past 25 years the firm has earned an international reputation for accurate long range forecasts of major changes in oil and natural gas supply, consumption and prices. Mr. Groppe is a Distinguished Graduate of The University of Texas College of Engineering, a Fellow of the American Institute of Chemical Engineers, a member of the Chancellors Council of The University of Texas, is a member and former chairman The University of Texas Engineering Foundation Advisory Council and founder of The University of Texas Chemical Engineering Alumni Association. Board Committees Audit and Risk Committee The purpose of the Audit and Risk Committee is to assist the Board in fulfilling its responsibilities of oversight and supervision of, among other things: the integrity of our financial statements including annual and interim reports, financial returns to regulators and announcements of a price sensitive nature; the adequacy of our internal controls and accountancy standards; assessing consistency and clarity of disclosure as well as the operating and financial review and corporate governance statement; and the relationship with our external auditor including appointment, remuneration, terms of engagement, assessing independence and objectivity and ultimately reviewing the findings and assessing the standard and effectiveness of the external audit.

The Audit and Risk Committee considers annually how our internal audit requirements shall be satisfied and makes recommendations to the Board accordingly as well as on any area it deems needs improvement or action. The Audit and Risk Committee meets at least three times a year at appropriate times in our reporting and audit cycle and more frequently if required. The following table sets forth the current members of the Audit and Risk Committee.
Name Position Type

Peter Bingham ............................................................ John St. John .............................................................. Ennio Sganzerla .......................................................... Toby Hayward ............................................................ Remuneration Committee

Chairman Member Member Member

Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director

The Remuneration Committee is responsible for: making recommendations to the Board on our overall framework for remuneration and its cost and in consultation with the Chairman and Chief Executive determining remuneration packages of each Executive Director; reviewing the scale and structure of Executive Directors remuneration and the terms of their service or employment contracts, including share based schemes, other employee incentive schemes adopted from time to 168

time and pension contributions. Executive directors are not permitted to participate in discussions or decisions of the Committee regarding their own remuneration; and ensuring that payments made on termination are fair to the individual and the company.

The remuneration of the non-Executive Directors is determined by the Chairman and the other Executive Directors outside the framework of the Remuneration Committee. The following table sets forth the current members of the Remuneration Committee.
Name Position Type

John St. John .............................................................. Ennio Sganzerla .......................................................... Peter Bingham ............................................................ Nomination Committee

Chairman Member Member

Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director

The Nomination Committee meets at least once a year and more frequently if required and is responsible for reviewing and recommending to the Board suitable candidates for appointment as Directors. It regularly reviews the structure, size and composition (including the skills, knowledge and experience) required on the Board. The following table sets forth the current members of the Nomination Committee.
Name Position Type

Egbert Imomoh ........................................................... Ennio Sganzerla .......................................................... Toby Hayward ............................................................ Corporate Governance Code of Business Conduct

Chairman Member Member

Independent non-Executive Director Independent non-Executive Director Independent non-Executive Director

We have implemented a Code of Business Conduct to articulate and formalize our commitment to high ethical standards and to reinforce our prompt and consistent action in the maintenance of those standards. Through the Code of Business Conduct we strive to uphold these standards for the conduct of our business activities. We operate with integrity and honesty throughout our organization and with all our external stakeholders, namely governments, business partners, shareholders, contractors and local communities. The Code of Business Conduct crystallizes these goals and standards by documenting the objectives for (i) our corporate governance, (ii) our environment, health, safety and social management, (iii) the role of our employees and their responsibilities, (iv) our interaction with business partners and local governments and (v) the treatment of company assets, such as confidential materials and equity holdings. The Code of Business Conduct highlights the commitment we have made to perform positively and responsibly towards the people, the physical environments and the host communities that our business may affect. We communicate and monitor our environmental, health, safety and social issues through our Environment, Health & Safety and Social (EHSS) management system. Similarly, we have a structured approach to the management of security issues through a documented security management system. In addition, we ensure that all members of staff are treated fairly and we encourage diversity within our team. Our people are offered equal opportunities, training and career progression. We also assign responsibility to all individuals working for us to challenge or stop any activity that conflicts with our business ethics. We have documented these commitments in our human resources policies and procedures. Furthermore, we have provided guidelines for responsible hospitality and the importance of respecting local laws and customs. Pursuant to this policy, all payments and revenues are processed and recorded in a transparent manner. As noted above, we have established an Audit and Risk Committee which reviews such systems and works with external auditors relating to our accounts and internal control matters.

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Governance Issues The Directors support high standards of corporate governance. As a UK listed company, Afren plc is required to state whether it has complied with the provisions of the UK Corporate Governance Code 2010 (the Code) published by the Financial Reporting Council throughout the year, and where provisions have not been complied with, to provide an explanation. We are also required to explain how we have applied the principles in the Code. The Directors consider that we complied with the provisions set out in Section 1 of the Combined Code since the admission to listing and trading on the London Stock Exchanges main market for listed securities on the Official List on December 3, 2009 (the 2009 Admission). Throughout 2011 and up to the date of this Offering Memorandum, we have complied with the provisions of the Code. The Board comprises a non-Executive Chairman, three Executive Directors and five non-Executive Directors. We regard all of the non-Executive Directors to be independent within the meaning of independent as defined in the Code. Between January 1, 2009 and December 31, 2009 and between January 1, 2010 and December 31, 2010, Mr. St. John, through his consultancy company St. John Advisers Ltd, has received payments totaling approximately $1.1 million and $0.6 million, respectively, for providing consultancy services. Mr. St. John has also historically been granted options over ordinary shares. In the opinion of the Board, these historic option grants, and these payments by us to Mr. St. John, do not affect the ability of Mr. St. John to be independent in character and judgment so as to prevent being considered independent for the purposes of the Combined Code. Mr. Bingham has historically been granted options over ordinary shares. No further options have been granted to any non-Executive Director since the 2009 Admission. In the opinion of the Board, these historic option grants do not affect the ability of these directors to be independent in character and judgment so as to prevent being considered independent for the purposes of the Combined Code. The Board meets on at least five occasions during the course of the year to review trading performance and budgets, funding, to set and monitor strategy, examine acquisition opportunities and report to shareholders. The Board has a formal schedule of matters specifically reserved to it for decisions. The roles of Chairman and Chief Executive are separate and the responsibilities of Chairman and Chief Executive are independently defined. It is the Chairmans responsibility to ensure that the Board is provided with accurate, timely and clear information in relation to our business. The Combined Code recommends that the Board should appoint one of its independent non-Executive Directors to be the senior independent director. The senior independent director should be available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive or Chief Operating Officer has failed to resolve or where such contact is inappropriate. Toby Hayward is the Boards existing senior independent director and has continued in this role since the 2009 Admission. The Board has appointed an Audit and Risk Committee, a Remuneration Committee and a Nomination Committee, each of which have defined terms of reference which are summarized above. Each committee and each Director has the authority to seek independent professional advice where necessary to discharge their respective duties in each case at our expense. In addition, each Director and committee has access to the advice of our Secretaries, Shirin Johri and Elekwachi Ukwu. Compensation Compensation Paid to our Board of Directors and Committee Members Our Board receives an aggregate compensation in the amount of $2,694,000 per year. The non-Executive Directors each receive $72,800 per year apart from the Senior non-Executive Director who receives $77,500. In addition, the Chairman of the Board, in his capacity as Chairman, receives compensation in the amount of $217,000 per year. Compensation Paid to Senior Management The aggregate compensation paid to our executive officers and senior management holding positions comparable to those identified in the Senior Management table above for the ten months ended October 31, 2011, excluding the long term incentive plan described below, pension, retirement and similar benefits, was $2.4 million.

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Share Option Scheme The share option scheme was adopted on June 28, 2005 (the Share Option Scheme). The Remuneration Committee has responsibility for supervising the Share Option Scheme. A summary of the rules of the Share Option Scheme is set out below. Eligibility Any of our employees or Executive Directors are eligible to receive options under the Share Option Scheme. Prior to the 2009 Admission, non-Executive Directors were also granted options, but the Share Option Scheme has been amended so that no further options may be granted to non-Executive Directors, although their rights to exercise options already granted are unaffected. Grant of Options An option may be granted at any time. Options are awarded at our absolute discretion, although our policy is to award options to participants on appointment or completion of their probationary period and periodically thereafter as part of their annual bonus. Options are not pensionable. Options are personal and may not be transferred, assigned or charged, except on death. The exercise price per ordinary share is the market value of an ordinary share at the time of grant. Vesting, Performance Conditions and Exercise of Options Options may vest on a specific date, the occurrence of a specific event or be conditional upon an achievement of a given performance condition as determined at the time of grant. The vesting date for options already granted typically is 20% on the first anniversary of grant of the option; a further 20% on the second anniversary and the remaining 60% on the third anniversary although some options have been granted on other terms. Where options have been granted with performance conditions, the condition has related to the achievement of an increase in the ordinary share price above the exercise price. It is currently intended that future options will be granted with the 20/20/60 vesting described above and with a performance condition requiring an increase in the price of an ordinary share so that it is 40 to 50% above the price on the day the option was granted for at least three months. Options may be exercised in whole or part. To the extent that an option has not already been exercised or lapsed, an option will then lapse on the tenth anniversary of the date of grant. In the case of an optionholders death, the relevant option may be exercised (to the extent it has vested) by a personal representative of the deceased in the twelve months following his death, when the option will lapse if it has not been exercised. If an optionholder ceases to be employed by reason of, inter alia, ill health, injury, disability, redundancy, retirement or pregnancy or as a result of a sale out of Afren of the optionholders employer or business in which he is employed, that optionholder may exercise his option (to the extent it has vested) during the twelve months following termination of employment, when the option will lapse if it has not been exercised. Where an optionholder ceases to be employed for a reason not specified above, the Remuneration Committee may in certain circumstances allow an option to be exercised during a period of 40 days following the date of termination and the options will lapse at the end of this period, but there is discretion to allow a longer period for exercise. In other cases, an option will lapse on termination of employment. Issue of Shares Shares issued on the exercise of options will be ordinary shares and will rank pari passu with other ordinary shares except in respect of rights arising prior to the date of issue. Change of Control and Exchange of Options In the event of a change of control or other similar event, options will vest in full but will lapse after the optionholder has had a short period to exercise the option. In certain circumstances, and with the agreement of the acquiring company, an optionholder may instead exchange his option for an equivalent option over shares in the acquiring company.

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Variation of Share Capital To preserve the value of an option, options may be varied in the event of any capitalization, rights issue, consolidation, subdivision, reduction or other variation of our the share capital. Scheme Limit On any date, the maximum number of ordinary shares which can be placed under an option to be satisfied by the issue of ordinary shares under the Share Option Scheme, when added to the number of ordinary shares issuable or issued (i.e., excluding lapsed awards) in the preceding 10 years under the Share Option Scheme or any other adopted employee share scheme, must not exceed 12% of our issued ordinary share capital immediately prior to that date. Amendments The Board may amend any of the rules of the Share Option Scheme as they see fit at any time, except that any variation to the maximum number of ordinary shares that may be placed under option at any particular time may not be made without approval of our shareholders. Termination The Share Option Scheme will terminate on June 28, 2015, but may be terminated earlier. Termination will not prejudice existing optionholder rights. Performance Share Plan The performance share plan was adopted by the Board on January 15, 2008 and revised in June 2011 (the Performance Share Plan). The Remuneration Committee has responsibility for supervising the Performance Share Plan. A summary of the rules of the Performance Share Plan is set out below. Eligibility Any of our employees or Executive Directors are eligible to participate in the Performance Share Plan. Making of Awards Awards are granted at our absolute discretion, although, in practice, the number of ordinary shares over which an award is made is based on a multiple of the recipients salary. Awards are not pensionable. Awards are personal and may not be transferred, assigned or charged except with our consent or on death. Awards may be granted in the form of a conditional award, or a nominal value option or in such other form as has a similar purpose or effect so that substantially free ordinary shares are received. The Performance Share Plan further permits that at the date of grant a conditional award or an option shall be expressed as a right of the participant to acquire a cash sum at our discretion. The cash sum is calculated by reference to the number of ordinary shares in respect of which the relevant award has vested or, in the case of an option, has been exercised. Vesting of Awards and Performance Conditions Awards may contain a performance target and/or such other conditions on the vesting of the awards. Awards will ordinarily vest on the third anniversary of the date of grant, subject to the achievement of performance targets set at the date of grant. Any such target imposed must be assessed over a period of at least three financial years unless determined otherwise on grant. The performance criteria which have been set and which are currently intended to apply to future grants require us to outperform a comparator group of similarly focused oil and gas exploration and production companies in terms of shareholder return over a three year period. The full number of ordinary shares is received only if we have performed in the top quartile when compared against a selected peer group of upstream oil and gas companies focused on Africa including, among others, Bowleven, Gulf Keystone Petroleum, Gulfsands Petroleum, Hardy Oil & Gas, Petroceltic International, Serica Energy, SOCO International, Sterling Energy and Tullow Oil. If we do not achieve at least median performance in the peer group, no ordinary shares will be received. At the median level, 30% of the ordinary shares will vest and there is a sliding scale between median and top quartile performance where only a percentage of the total award will vest. 172

Where ordinary shares vest, a payment may be made of an amount equal to the dividends paid on the relevant number of ordinary shares between the grant of the award and the receipt of ordinary shares. Exercise of Options If the award is in the form of an option, it may be exercised in whole or in part. Lapse of Awards Options lapse on the tenth anniversary of the date of grant or such other date as is specified on grant. Other awards lapse on the vesting date to the extent to which they have not then vested. If an awardholder ceases to be an employee because of death, illness, injury or disability, redundancy, retirement by agreement or the sale of the business in which he works or other reason decided by the Remuneration Committee, ordinary shares can be received but vesting will be scaled back taking into account the achievement of the performance condition and (unless the Remuneration Committee decides otherwise) the period since the awards were granted. Options already vested can be held for up to twelve months. If an awardholder leaves for other reasons, his award will usually lapse, although options may be exercised for up to 40 days following the termination of his employment. Issue of Shares Shares issued on the exercise of options will be ordinary shares and will rank pari passu with other ordinary shares except in respect of rights arising prior to the date of issue. Change of Control and Exchange of Awards In the event of a change of control or other similar event, awards will can be received but vesting will be scaled back taking into account the achievement of the performance condition and (unless the Remuneration Committee decides otherwise) the period since the awards were granted. Options will similarly vest and may be exercised for a short period following the change of control. In certain circumstances, and with the agreement of the acquiring company, an awardholder may instead exchange his award for an equivalent award over shares in the acquiring company. Variation of Share Capital To preserve the value of an award, awards can be adjusted in the event of any capitalization issue, demerger, any offer or invitation made by way of rights issue, subdivision, consolidation, reduction, other variation in our share capital, or other such reason as we may consider justifies an adjustment. Plan Limits No participant may be granted awards which would, at the time of grant, cause the market value of ordinary shares which the participant may acquire as a result of the award to exceed 200% of his base salary (or such other percentage as may be determined by the Remuneration Committee from time to time). Further, an award may not be made if it would result in the number of ordinary shares issued or issuable during a period of ten years (i.e. excluding lapsed awards), under the Performance Share Plan or any other adopted employee share scheme, to exceed 12% of our issued ordinary share capital at that time. Amendments The Board may amend the rules of the Performance Share Plan as they see fit at any time. Amendments to the material advantage of participants cannot be made without the approval of our Shareholders. Amendments to the disadvantage of awardholders cannot be imposed without the agreement of awardholders holding at least 75% of the ordinary shares under outstanding awards.

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Termination The Performance Share Plan will terminate on January 15, 2018, but may be terminated earlier. Termination will not prejudice existing awardholder rights. Jefferies, Randall & Dewey Employee Share Plan As part of the incentive to attract the Jefferies, Randall & Dewey technical team, a number of ordinary shares were awarded to the team under arrangements known as the Jefferies, Randall & Dewey Employee Share Plan. None of the team was eligible to receive an award under the Performance Share Plan in 2008. The rules of the plan are, in all material respects, the same as the rules of the Performance Share Plan, as described above under Performance Share Plan, subject to the differences described below. Performance Conditions The receipt of ordinary shares is not subject to the achievement of any performance targets. Vesting Awards will generally vest in equal installments each year after grant over a consecutive period of three years, and in most cases is subject to being in Group employment at the relevant vesting date.

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PRINCIPAL SHAREHOLDERS We have a share capital of 1,073,665,088, comprised of an equivalent number of ordinary shares with a par value of one pence, each being fully paid up. The following table sets forth certain information concerning the significant shareholders of our ordinary shares and each or our Directors who hold shares as of February 20, 2012.
Number of Shares Total percentage of shares beneficially owned (%)

Name of beneficial owner

Direct

Indirect

Financial Instruments

Total

Vidacos Nominees (Standard Life) .................................... HSBC Client Holdings UK Limited .................................. GLG Partners LP ............................................................... Investec Asset Management Ltd ........................................ AllianceBernstein LP ......................................................... Legal & General Group Plc ............................................... Deutsche Bank AG ............................................................ Other investors ...................................................................

56,266,557 26,851,968 N/A

38,121,573 43,806,532 34,579,104 39,993,467 21,619,962 N/A

383,658 N/A

94,388,130 43,806,532 34,962,762 39,993,467 88,600,671 26,851,968 21,619,962

8.793% 4.931% 3.60% 4.498% 8.28% 3.01% 3.01%

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Energy Investment Holdings Ltd Energy Investment Holdings Ltd is the contractor company for the consulting services of Bert Cooper, a former member of the International Advisory Board and Special Advisor until his resignation on July 23, 2010. The majority of the payments in 2010 and 2011 related to his monthly fee. In 2010, $0.5 million of payment was made in shares (2009: $2.1 million; 2008: $2.25 million). As of July 2011, Energy Investment Holdings Ltd was no longer a related party. St. John Advisers and STJ Advisors St. John Advisers is the contractor company for the consulting services of John St. John, a Non-executive Director. St. John Advisers provides consulting advice and, since June 2008, has received a monthly retainer of 15,000 for equity consulting advice pursuant to a contract that currently can be terminated by either party at any time. St. John Advisers has also received success fee payments for certain of our equity financings. A separate agreement was entered into for consulting services related to the offering of the 2016 Notes. Tzell Travel Group Tzell Travel Group operates as a franchise. We utilize the franchisee for some of our travel needs. The franchisee is a close family member of the Chief Executive Officer, and Tzell Travel Group is, therefore, considered a related party. We use several travel agents as there is a significant travel element to our operations and Tzell competes on an even basis with these. In 2010, Tzell provided 18% (2009: 14%) of the travel arrangements by value. First Hydrocarbon Nigeria First Hydrocarbon Nigeria is an associate company where we hold a 45% interest. As of October 31, 2011, there is a receivable due from First Hydrocarbon Nigeria. The amounts outstanding are unsecured and are expected to be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts on the amounts owed by related parties.

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DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS The following summary of the material terms of certain financing arrangements to which we and certain of our subsidiaries are a party does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents. For further information regarding our existing indebtedness, see Use of Proceeds, Capitalization, and Managements Discussion and Analysis of Financial Condition and Results of Operations. We and certain of our subsidiaries have entered into financing arrangements which are summarized below. Ebok Facility Afren Resources as borrower and Afren plc as guarantor entered into a senior secured reserves based lending revolving credit facility dated as of March 24, 2010, as amended, restated and acceded to from time to time, with BNP Paribas, Crdit Agricole Corporate and Investment Bank, Natixis, Standard Bank, Standard Chartered and Bank of America Merrill Lynch each as initial mandated lead arranger and technical bank, for the purpose of the development and establishment of initial production of the Ebok field and certain other development projects in offshore Nigeria (the Ebok Facility.) The Ebok Facility has a five year term (subject to maintenance of certain reserve levels) and a margin of 4%-5.5% over LIBOR. Subject to the satisfaction of certain conditions, the Ebok Facility shall extend to the development funding of subsequent phases of the Ebok field, the Okwok field, OML 115 or other development projects located in OML 67, offshore Nigeria. Commitments and additional commitments The Ebok Facility provides for a revolving credit facility in an aggregate amount not exceeding the total commitments from time to time. As of October 31, 2011, the borrowing capacity under the Ebok Facility was reduced to $228.4 million. As of January 1, 2012, commitments under the facility were $245 million in accordance with the reduction schedule provided for in the Ebok Facility. The borrowing base amount is reassessed on a semi-annual basis and determined based on leverage and coverage ratios for developed and undeveloped assets and is subject to a ceiling of the maximum amount of loans that would result in a debt service coverage ratio of not less than 1.2 to 1.0 at all times until the final maturity date. Purpose Afren Resources is permitted to draw the funds available under the Ebok Facility for the purposes of: (i) funding budgeted capital expenditure relating to the Ebok field or any other borrowing base asset to the extent taken into account in a projection; (ii) funding certain expenditures related to any development borrowing base asset that becomes a borrowing base asset; (iii) funding fees, expenses and interest accruing under the Ebok Facility; (iv) funding cost overruns (up to a cap to be agreed) in relation to the development of the Ebok field or any other borrowing base asset to the extent taken into account in a projection; (v) issuing letters of credit or repayment of rollover loans; (vi) refunding overfunded equity in relation to the project with unused debt; and (vii) general corporate purposes. Reduction and repayment Loans made under the Ebok Facility must be repaid in full on the final maturity date, being the earlier of (i) five years from the closing date (as defined in the agreement); (ii) the projected date on which the specified assets subject to the agreement fall below 25% of their initial reserves; or (iii) June 30, 2015. Amounts repaid by the borrower may be reborrowed, subject to certain exceptions. The total aggregate commitments under the Ebok Facility reduce at a rate of approximately $55 million per six month period beginning on December 31, 2011 to the higher of (i) the borrowing base amount (which is recalculated every six months based on cashflow and debt service projections) and (ii) $56.25 million on January 1, 2015, with the total commitment falling to zero on the final maturity date. The Ebok Facility began amortizing on January 1, 2012 with the first repayment due on July 1, 2012. Prepayment The Ebok Facility will be immediately cancelled, and all obligations thereunder will be payable on the last day of the relevant interest period in the event of illegality. If there is a change of control or sale of business, the Majority Lenders (as defined therein) may declare the outstanding loans immediately due and payable. 177

Subject to the payment of break costs (if any), the borrower may voluntarily prepay or prepay and cancel amounts outstanding under the Ebok Facility without penalty or premium, at any time in whole or in part, subject to a minimum repayment of $5 million, on not less than five business days notice to the facility agent. Interest The rate of interest payable is calculated on the basis of a formula which incorporates the aggregate of the applicable margin, LIBOR, and the mandatory cost specified. Covenants The Ebok Facility contains customary operating and financial covenants, subject to certain agreed exceptions, including covenants restricting the ability of each borrower and each guarantor (and where expressly provided, the subsidiaries of such borrowers and guarantors) to, among other things: create security; sell, lease, transfer or dispose of assets; merge or consolidate with other companies (does not apply to Afren plc); make a substantial change to the general nature of its business; incur indebtedness or issue guarantees (does not apply to Afren plc); pay dividends, redeem share capital or redeem affiliate indebtedness (does not apply to Afren plc); allow its rights under certain project documents to be terminated, suspended or limited; issue shares (does not apply to Afren plc); enter into affiliate transactions (does not apply to Afren plc); and enter into restrictive agreements or agreements creating negative pledges (does not apply to Afren plc).

The Ebok Facility also requires each borrower and each guarantor (and in certain cases, the subsidiaries of such borrowers or guarantors) to observe certain affirmative covenants, subject to certain exceptions and including, but not limited to, covenants relating to: maintenance of corporate existence and relevant authorizations; compliance with laws, including environmental laws and regulations; payment of taxes; certain actions in respect of the borrowing base assets; maintenance of insurance; ensuring that its obligations under the Ebok Facility rank at least pari passu with the claims of other creditors; compliance with agreed field development plans; maintenance of project accounts; selection of an acceptable offtaker; provision of financial and other information to lenders; and funding of the Ebok Equity Account (as defined therein) to ensure that the Ebok Sources and Uses Test remains satisfied at all times (i.e. the facility agent is satisfied that projected project costs, a contingency budget and 178

funding of the debt service reserve account will be satisfied through the maximum available amount under the Ebok Facility, equity from Afren plc and early cash flows from the project). The Ebok Facility also requires Afren plc to comply with a maximum ratio of total net indebtedness to EBITDA of 3.00 to 1.00, tested each June 30 and December 31 with respect to the prior twelve months. Events of Default The Ebok Facility sets out certain events of default, the occurrence of which would allow the majority lenders to accelerate all outstanding loans and cancel their commitments and/or declare that all or part of the utilizations and other amounts outstanding are immediately due and payable. The events of default include, among other events and subject in certain cases to grace periods, thresholds and other qualifications: non-payment of amounts due under a finance document; breach of covenants; inaccuracy of a representation or statement when made, deemed to be made or repeated; cross defaults (including cross payment defaults in excess of $5 million) and certain judgment defaults; insolvency; change of control of Afren Resources; invalidity or unlawfulness of the finance documents; nationalization or expropriation (or announcement of intent in respect thereof) of all or any part of any borrowing base asset or any petroleum or revenues derived therefrom; material audit qualification; an adverse change in the political situation in Nigeria; the Phase 1A completion date has not been reached on or before March 31, 2012; and material adverse change.

Accounts Agreement The Ebok Facility restricts Afren Resources from maintaining and operating any account with any financial institution other than in accordance with the Ebok Accounts Agreement (defined below). Afren Resources entered into an Accounts Agreement on June 23, 2010 (the Ebok Accounts Agreement) governing the terms by which Afren Resources shall operate and maintain Project Accounts (as defined therein) and pursuant to which BNP Paribas was appointed Account Bank. The Ebok Accounts Agreement contains the terms and conditions by which Afren Resources shall maintain the various Project Accounts, in addition to procedures for post-cost recovery ringfencing in the event Afren Resources defaults under the Ebok Facility. Security The Ebok Facility is secured by (i) a fixed and floating charge and security over substantially all of the assets and undertakings of Afren Resources, (ii) a pledge by Afren Nigeria Holdings (Nigeria) Limited of the shares in Afren Resources, (iii) account pledges over Afren Resources onshore and offshore bank accounts and (iv) assignment of insurances, reinsurance rights and major contracts (including the floating production storage and offloading unit services contract entered into on or about January 13, 2010). The Notes will be secured on a contractual second priority basis by the same collateral that secures the Ebok Facility. See Ebok Intercreditor Agreement. 2016 Notes On February 3, 2011, we issued $450 million aggregate principal amount of 111/2% senior secured notes due February 1, 2016 (the Original 2016 Notes). The Original 2016 Notes were issued pursuant to an indenture dated 179

February 3, 2011. Pursuant to this indenture, we issued an additional $50 million aggregate principal amount of 111/2% senior secured notes due February 1, 2016 (the Additional 2016 Notes, and together with the Original 2016 Notes, the 2016 Notes). The 2016 Notes are senior secured debt ranking pari passu in right of payment to all of Afren plcs existing and future senior indebtedness. The 2016 Notes are guaranteed on a senior basis (the 2016 Senior Guarantees) by the same entities that will guarantee the Notes on a senior basis, Afren Nigeria, Afren Nigeria Holdings (Nigeria) Limited, Afren CI (UK) Limited, Afren CI (II) Limited, Afren Cte d1voire, Lion G.P.L SA, AERL and Afren Okoro and on a senior subordinated basis (the 2016 Subordinated Guarantee and, together with the 2016 Senior Guarantees, the 2016 Note Guarantees) by the same entity that will guarantee the Notes on a senior subordinated basis, Afren Resources Limited (collectively, the 2016 Note Guarantors). The 2016 Senior Guarantees in respect of the 2016 Notes are senior debt of each of the relevant 2016 Note Guarantors ranking pari passu in right of payment to all of the relevant 2016 Note Guarantors existing and future senior indebtedness, including guarantees of the Notes. The 2016 Subordinated Guarantee in respect of the 2016 Notes is subordinated in right of payment to Afren Resources Limiteds existing and future senior indebtedness, including indebtedness under the Ebok Facility. The 2016 Notes and the 2016 Note Guarantees in respect thereof are secured by first priority liens on certain assets related to the Okoro field and the 2016 Notes and the 2016 Subordinated Guarantee in respect thereof are secured by a second priority floating charge and certain other second priority liens on certain assets related to the Ebok field that secure Afren Resources Limiteds obligations under the Ebok Facility. The trustee for the 2016 Notes is party to the Ebok Intercreditor Agreement and will enter into the Pari Passu Intercreditor Agreement with, among others, the Trustee for the Notes on the Issue Date. The 2016 Notes are non-call for life, subject to a specified make-whole premium. Prior to February 1, 2014, we may redeem, at our option, up to 35% of the 2016 Notes with the net proceeds from certain equity offerings. If we undergo a change of control or sell certain of our assets, we may be required to make an offer to purchase the 2016 Notes. In the event of certain developments affecting taxation, we may redeem all, but not less than all, of the 2016 Notes. Socar Facility On August 3, 2011, Afren plc, as borrower, and Socar Trading S.A., as agent and original lender, entered into a $50 million facilities agreement (the Socar Facility). The Socar Facility has a term of the earlier of (i) 23 months from the date of the agreement (i.e., July 3, 2013) or (ii) the date falling 90 days from and including the date the Ebok Crude Oil Purchase Contract terminates. Socar Trading S.A. is a commercial trading partner. It is one of our two crude oil offtakers pursuant to the Ebok Crude Oil Purchase Contract. For a summary of our commercial arrangements, see Business Material Agreements Relating to Our AssetsEbokEbok Crude Oil Purchase Contract. The Socar Facility is intended for use by Afren plc for its general corporate purposes and has an interest rate of LIBOR plus 4.5%. The facility agreement includes representations and undertakings which are standard for facilities of this nature. In addition, the Socar Facility requires Afren plc to comply with (i) a maximum ratio of total net indebtedness to EBITDA of 3.00 to 1.00; (ii) a ratio of cashflow to debt service of not less than 1.2 to 1.0, both (i) and (ii) tested each June 30 and December 31 with respect to the prior twelve months; and (iii) a requirement that total shareholder equity shall exceed $300 million. The occurrence of any event which would terminate the Ebok Crude Oil Purchase Contract or the failure to meet certain Ebok production volumes stipulated in the Ebok Crude Oil Purchase Contract would constitute an event of default under the Socar Facility. The events of default also comprises, among others standard for facilities of this nature, a cross default in connection with financial indebtedness in the aggregate amount of more than $20 million. Capital Lease AgreementFloating Production Storage and Offloading Unit A services contract for the provision of a floating production storage and offloading unit was entered into between Afren Resources and Mercator Offshore (Nigeria) Pte Ltd (the Contractor) on or about January 13, 2010. The term of the contract is seven years from the issuance of the provisional acceptance certificate with an option for Afren Resources to extend the term for a period of one year. If such extension option has been exercised, Afren Resources is entitled to further extend the period for one year, provided that it provides at least six months prior written notice. Rates are applied daily for the FSO hire in the amount of $78,040 per day and the operation and maintenance services in the amount of $33,610 per day, including insurance, subject to review. The Contractor shall be entitled to an early installation fee of $20,000 for each day that the FSO has been installed in advance of the stipulated target date (September 15, 2010, or such other date as may be adjusted in accordance with the contract), up to a maximum early installation fee of $1,200,000. If the FSO is not installed in accordance with the agreement, the Contractor shall pay to Afren Resources as liquidated damages for such delay an amount of 50% of the operating rate per day (or pro-rata per hour) until the notice of readiness has been issued, up to a maximum of 120 days.

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Mercator International Pte Limited has been appointed as the guarantor for the Contractor under the agreement. Afren Resources has also provided a standby letter of credit until August 31, 2011 from BNP Paribas to guarantee timely payment which shall be extended if the contract extends beyond that date. Afren Resources may terminate the contract on not less than three months written notice to the Contractor provided that if termination occurs before January 13, 2017, the end of the primary term of the contract, an early termination payment is payable by Afren Resources. An early termination payment is not incurred in the case of termination as a result of certain conditions including force majeure events or material breach of the Contractors material obligations. The Contractor is also entitled to terminate the contract under certain circumstances, including failure to provide the letter of credit and material breach of Afren Resources material obligations. Under the agreement, Afren Resources has the option to purchase the FSO provided that six months written notice is given to the Contractor. In the event of early termination, the Contractor shall sell the FSO to Afren Resources in exchange for the early termination payment. If Afren Resources purchases the FSO while the Contract continues, the contract will terminate on the purchase of the FSO. The FSO purchase fee is $12 million subject to a discount and other contractual provisions. The Contractor may grant security over the FSO property and assign its rights under the contract for the benefit of its financiers. For a further description of this agreement, see Our BusinessMaterial Agreements Relating to Our AssetsEbok. Hedging Arrangements We currently maintain certain commodity hedges to protect our minimum cash flow requirements and mitigate a portion of the risk associated with volatile crude oil prices. We have entered into International Swaps and Derivatives Association (ISDA) master agreements with several hedging partners. In February 2011 and May 2011, we purchased a number of deferred put options from BNP Paribas, NATIXIS, Standard Bank and Standard Chartered in connection with our production from the Ebok field. On March 3, 2011, Afren plc granted security over the hedging transactions with BNP Paribas, NATIXIS, Standard Bank and Standard Chartered pursuant to the terms of the Ebok Facility. The deferred put options allow us to sell approximately 5.9 mmbbl in the period from April 2011 to December 31, 2013 at a price of $90/bbl (1.5 mmbbl) and $80/bbl (4.4 mmbbl). Of these, 1.9 mmbbl of production were sold in 2011, 2.8 mmbbl of production will be sold in 2012 and 1.2 mmbbl of production will be sold in to 2013. The average cost of the hedges is $4.7/bbl, giving us effective protection and a price floor of $85.3/bbl in respect of the $90/bbl hedges and a price floor of $75.3/bbl in respect of the $80/bbl hedges. In February 2012, we purchased additional deferred put options at $90/bbl for the second half of 2012 and deferred put spreads at $90/bbl and $60/bbl for 2013. These allow us to sell 300,000 bbls in 2012 at $90/bbl and a further 720,000 bbls in 2013 at $90/bbl. However, if the actual oil price falls below $60/bbl during 2013, we will be liable for the difference between the actual oil price and $60/bbl. This effectively limits the benefit of the 2013 hedges to $30/bbl above the market price in the event the actual price of oil falls below $60/bbl. The average cost of these new hedges is $4.32/bbl. Certain of the Initial Purchasers have entered and may from time to time enter into hedging arrangements with the Company and its affiliates. For a further discussion of our current hedging arrangements, see Managements Discussion and Analysis of Financial Condition and Results of OperationSignificant Factors Affecting Results of OperationsDerivative Financial Instruments. Ebok Intercreditor Agreement On February 3, 2011, the trustee for the 2016 Notes, with BNP Paribas (in its capacities as agent (the Senior Agent) and security agent for the lenders under the Ebok Facility and also in its capacity as Ebok Collateral Agent) entered into an Intercreditor Agreement (the Ebok Intercreditor Agreement). On the Issue Date, the Trustee is expected to accede to the Ebok Intercreditor Agreement. The Ebok Intercreditor Agreement purports to: regulate the circumstances in which the security for the Notes and the 2016 Notes constituted by the shares in or any assets of Afren Resources (the Ebok Note Security) and the guarantee of the Notes and the 2016 Notes by Afren Resources as Senior Subordinated Guarantor (the Subordinated Ebok Guarantee) may be enforced; and ensure that all proceeds of the enforcement of security over the assets of and shares in Afren Resources are applied in the discharge of the indebtedness under the Ebok Facility (as increased or refinanced from time to time as permitted by the Indenture (the Senior Ebok Debt)) before being applied in or towards the discharge of indebtedness under the Indenture, indebtedness under the Notes or indebtedness constituted by claims against Afren Resources under its guarantee of the Notes, indebtedness under the 2016 Notes or indebtedness constituted by claims against Afren Resources under its guarantee of the 2016 Notes (such claims against Afren Resources, collectively the Subordinated Ebok Guarantee Obligations and the documents constituting the Ebok Note Security the Note Documentation) or any other indenture pursuant to which any additional notes 181

are issued as permitted by the Indenture (all such other indentures, additional notes and agreements relating thereto, including those relating to the incurrence of indebtedness incurred to refinance all or any part of the indebtedness constituted by the Note Documentation, being Additional Note Documentation). The Ebok Intercreditor Agreement includes accession arrangements for the trustees (Additional Trustees) under any Additional Note Documentation such that (a) any security over the assets the subject of the Ebok Note Security for the indebtedness attributable to such Additional Note Documentation (Additional Notes Ebok Security) will rank pari passu with the Ebok Note Security and (b) the rights of such trustees with respect to the enforcement of their guarantee claims against Afren Resources and the Additional Notes Ebok Security will be limited to the same extent as the Ebok Intercreditor Agreement limits the rights of the trustee for the 2016 Notes and will limit the rights of the Trustee with respect to the enforcement of the Ebok Note Security and the guarantee of the Notes by Afren Resources as Senior Subordinated Guarantor. The Ebok Intercreditor Agreement also provides that the Senior Ebok Debt will rank in right and priority of payment before the indebtedness constituted by the Note Documentation and the Additional Note Documentation, including claims under the Subordinated Ebok Guarantee and any claims against Afren Resources under any guarantee included in any Additional Note Documentation (collectively the Subordinated Guarantee) (collectively, the Bond Debt). The Ebok Intercreditor Agreement provides that neither the trustee for the 2016 Notes, the Trustee nor any Additional Trustee will be entitled to enforce the Ebok Note Security or the Additional Note Ebok Security (the Subordinated Ebok Security) or a Subordinated Note Guarantee except: with the consent of the Senior Agent acting on the instructions of all the lenders under the Ebok Facility; if the requisite majority of the lenders under the Ebok Facility have instructed that the security for the Senior Ebok Debt be enforced (in which case the same or equivalent action may be taken with respect to the enforcement of any of the Subordinated Ebok Security and demand may be made under any Subordinated Note Guarantee); if the Notes, any additional Notes, the 2016 Notes or any additional 2016 Notes have been accelerated (otherwise than as a result of non-payment under the Note Documentation or the Additional Note Documentation or as a result of a cross default under the Note Documentation or the Additional Note Documentation which is attributable to a default under the Ebok Facility) and: (i) (ii) (iii) the Senior Agent has received notice thereof and of the relevant default; a period of not less than 270 days has elapsed after the date on which the Senior Agent received such notice; and the relevant default has not been remedied or waived, the acceleration has not been cancelled and the relevant Indebtedness remains outstanding and immediately payable at the end of such 270 day period;

if there occurs a payment default under the Note Documentation or the Additional Note Documentation and: (i) (ii) (iii) the Senior Agent has received notice thereof and of the relevant payment default; a period of not less than 179 days has elapsed after the date on which the Senior Agent received such notice; and the relevant default has not been remedied or waived and the relevant Indebtedness remains outstanding at the end of such 179 day period; or

if Afren Resources has been declared bankrupt or insolvent by a court of competent jurisdiction and such declaration has not been appealed to a higher court within 10 business days and the requisite majority of the lenders under the Ebok Facility have not instructed that the security for the Senior Ebok Debt be enforced within 20 business days of that event.

The Ebok Intercreditor Agreement provides that in no event will the restrictions on enforcement described above operate to prevent or in any way restrict the trustee for the 2016 Notes, the Trustee or any Additional Trustee from exercising or enforcing its rights (i) under the Note Documentation or the Additional Note Documentation to accelerate the Companys 182

payment obligations in respect of the relevant notes, (ii) under any Senior Note Guarantee or (iii) under any security (other than Subordinated Ebok Security) which secures any Bond Debt. The Ebok Intercreditor Agreement includes provisions whereby (a) any guarantee claims in relation to any Indebtedness under the Note Documentation or the Additional Note Documentation against any entity that accedes to the Ebok Facility as an additional obligor thereunder otherwise than contrary to the terms of the Note Documentation or the Additional Note Documentation will be subordinated to the Senior Ebok Debt, (b) any security granted by any such entity to secure the Indebtedness under the Note Documentation or the Additional Note Documentation will be subordinate to any security granted by that entity as security for the Senior Ebok Debt and (c) the rights of the trustee for the 2016 Notes, the Trustee and any Additional Trustee with respect to the enforcement of any such guarantee claims or security in respect of the Indebtedness under the Note Documentation or the Additional Note Documentation will be limited to the same extent as its rights with respect to the enforcement of the Subordinated Guarantee or the Subordinated Ebok Security (as the case may be). The Ebok Intercreditor Agreement provides that the security for the Senior Ebok Debt (the Senior Ebok Security) will: rank in priority to the Subordinated Ebok Security, irrespective of the order of execution, creation, registration, notice, enforcement or otherwise; and secure the Senior Ebok Debt, irrespective of: (i) (ii) (iii) the date on which the Senior Ebok Debt arose; whether a lender under the Ebok Facility was obliged to advance any Senior Ebok Debt; or any fluctuation in the amount, or any intermediate discharge in whole or in part, of any Senior Ebok Debt,

and in addition will contain limitations pursuant to which none of the Subordinated Ebok Security will have Nigerian stamp duty paid to an extent greater than that contemplated by the Ebok Facility Agreement and that all upstamping of the Senior Ebok Security and the Subordinated Ebok Security as described in Risk FactorsRisk factors relating to the Notes Certain Collateral securing the Notes will neither be perfected nor enforceable for the full amount of the indebtedness thereby secured unless and until additional stamp duties and registration fees are paid in respect thereof by or on behalf of the holders of Notes will be effected in such a way that the priority of the Senior Ebok Security and the Subordinated Ebok Security is preserved and all proceeds of the enforcement thereof will be required to be applied as specified in the following paragraph. The Ebok Intercreditor Agreement includes provisions whereby the proceeds of the enforcement of the Senior Ebok Security and the Subordinated Ebok Security will be applied first, in or towards payment of any unpaid fees, costs, expenses, liabilities and remuneration of the Ebok Collateral Agent and its advisors and agents; second, in or towards payment to the Senior Agent for application towards any other unpaid costs and expenses constituting Senior Ebok Debt; third, in or towards payment to the Senior Agent for application towards the balance of the Senior Ebok Debt (in accordance with the Ebok Facility); fourth, in or towards payment to the Trustee and any Additional Trustee for application towards the pro rata payment of any unpaid fees, costs, expenses, liabilities and remuneration of the Trustee and any Additional Trustee; fifth, in or towards payment to the Trustee and any Additional Trustee for pro rata application towards the balance of the Indebtedness under the Note Documentation and the Additional Note Documentation (in accordance with the Note Documentation and the Additional Note Documentation); and sixth, after the Final Discharge Date, in payment of the surplus (if any) to the relevant obligor or other person entitled to it.

Pursuant to the Ebok Intercreditor Agreement, until the Senior Ebok Debt has been discharged the Ebok Collateral Agent will be obliged to act (or to refrain from acting) on the instructions of the requisite majority of the lenders under the 183

Ebok Facility. Thereafter (subject as mentioned in the final sentence of this paragraph), it will be obliged to act (or refrain from acting) on the instructions of the trustee for the 2016 Notes, the Trustee or any Additional Trustee. Subject as mentioned in the final sentence of this paragraph, the Ebok Collateral Agent will also be obliged to act on the instructions of the trustee for the 2016 Notes, the Trustee or any Additional Trustee before the Ebok Senior Debt Discharge Debt, but only if (i) the trustee for the 2016 Notes, the Trustee or such Additional Trustee is then entitled to enforce the relevant Subordinated Ebok Security and (ii) the lenders under the Ebok Facility have taken no action with respect to the enforcement of the Senior Ebok Security. The Ebok Collateral Agent will not be obliged to act on the instructions of the trustee for the 2016 Notes, the Trustee or any Additional Trustee (or the respective noteholders for whom they act) (and in particular will not be obliged to take any enforcement action on their behalf) unless it is satisfied that it will be indemnified for any costs, losses or liabilities that may arise as a result of taking such action or following such instructions. The Ebok Intercreditor Agreement includes provisions pursuant to which the Subordinated Ebok Security is required to be released at the request of the Ebok Collateral Agent for the purpose of any enforcement action to be taken in accordance with the Ebok Intercreditor Agreement or any disposal permitted by the Ebok Facility, the Note Documentation and the Additional Note Documentation. The Ebok Intercreditor Agreement includes the terms and conditions upon which the Ebok Collateral Agent is to act in that capacity on behalf of the Trustee and each Additional Trustee and the respective noteholders for whom they act. Such terms and conditions include provisions which exonerate the Ebok Collateral Agent from liability for actions taken by it in relation to the Subordinated Ebok Security, the Senior Ebok Security or the Ebok Intercreditor Agreement unless directly caused by its gross negligence or willful misconduct. The Ebok Intercreditor Agreement includes provisions pursuant to which the Ebok Collateral Agent may resign or be replaced and the Ebok Intercreditor Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law. Pari Passu Intercreditor Agreement On the Issue Date, an intercreditor agreement (the Pari Passu Intercreditor Agreement) will be entered into by and among Deutsche Bank Trust Company Americas, in its capacities as each of the 2016 notes trustee (the 2016 Notes Trustee) and the trustee in respect of the Notes (the 2019 Notes Trustee) and the primary collateral agent in respect of the 2016 Notes and the Notes (the Primary Collateral Agent), in order to: regulate the circumstances in which certain security interests for the 2016 Notes and the Notes offered hereby, constituted by: (i) (ii) (iii) the capital stock of Afren Energy Resources Limited, the bank accounts of each of Afren Energy Resources Limited and Afren Okoro Limited, the assets of Afren Energy Resources Limited that are subject to fixed and floating charges, including property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Okoro Project, the rights of Afren Okoro Limited in respect of certain hedging agreements, if any, and intercompany loans, the rights of the Issuer under funding loans, if any, made Afren Energy Resources Limited with the proceeds of the 2016 Notes, and the rights and interests in Afren Energy Resources Limiteds primary operating, production sharing and off-take contracts ((i) through (vi) collectively, the Okoro Collateral) may be enforced, and

(iv) (v) (vi)

ensure that all proceeds of the enforcement of the Okoro Collateral are distributed pari passu and pro rata.

The Okoro Collateral will not extend to assets, including bank accounts, held by or jointly held with the Issuers indigenous partners. The Pari Passu Intercreditor Agreement will provide that notwithstanding any date, manner or order of perfection of the security interests and liens in respect of Okoro Collateral granted to the 2016 Notes Trustee, the 2019 Notes Trustee 184

(together with the 2016 Notes Trustee, the Creditor Representatives) or the Primary Collateral Agent, and notwithstanding whether the Primary Collateral Agent or any Creditor Representative has possession of all or any part of the Okoro Collateral, as between secured creditors party to the Pari Passu Intercreditor Agreement, all claims shall for all purposes be treated as though they are secured by the Okoro Collateral on a pari passu basis, and all proceeds from enforcement of the Okoro Collateral will be distributed in accordance with the Pari Passu Intercreditor Agreement. The Pari Passu Intercreditor Agreement will provide that the Primary Collateral Agent shall enforce the Okoro Collateral on the instructions of holders of the 2016 Notes and the Notes whose aggregate principal amount aggregates more than 50 percent of the aggregate principal amount of all notes issued under the 2016 Notes Indenture and the Indenture (the Instructing Creditors). The Primary Collateral Agent shall incur no liability as a result of the sale or realization of any asset of the Okoro Collateral at any private sale conducted in a commercially reasonable manner, and the Primary Collateral Agent shall not be obliged to monitor any enforcement action, and all parties to the Pari Passu Intercreditor Agreement waive any claim against the Primary Collateral Agent regarding any price at which any asset may have been sold at a private sale was less than the price that might have been obtained at a public sale. The proceeds of any sale or other realization upon all or any assets of the Okoro Collateral under the Pari Passu Intercreditor Agreement shall be distributed by the Primary Collateral Agent (it being understood that the Creditor Representatives shall be responsible for providing the Primary Collateral Agent with details of the amounts required to be paid), and any such distributions shall be final and the Primary Okoro Collateral Agent shall have no duty to inquire as to the application of proceeds by the parties after distribution. The Pari Passu Intercreditor Agreement will include provisions whereby the proceeds of the enforcement of the Okoro Collateral will be applied: first, to the payment of taxes and filing, registration, and other government fees incurred with the sale or realization of the Okoro Collateral; second, the payment of expenses incurred by the Primary Collateral Agent in connection with such sale or realization and any amounts owed to the Primary Collateral Agent under the Pari Passu Intercreditor Agreement or any other security document, including without limitation, all amounts for which the Primary Collateral Agent is entitled to indemnification under the 2016 Notes Indenture and the 2019 Notes Indenture and any other amount owed to the Primary Collateral Agent in connection with its performance of its functions or the preservation and protection of the Okoro Collateral; third, pro rata and pari passu to (a) the 2016 Notes Trustee to reimburse any costs and expenses then due and payable under the 2016 Notes Indenture, and (b) the 2019 Notes Trustee to reimburse any costs and expenses then due and payable under the 2019 Notes Indenture; fourth, to reimburse any Creditor Representative or the Primary Collateral Agent pursuant to the Intercreditor Documents not covered previously; fifth, to the pro rata and pari passu payment of any obligations of the Issuer to the 2016 Noteholders and the 2019 Noteholders; and finally, to pay the relevant Collateral Provider or its successors or assigns, or as a court may direct, any surplus proceeds.

Pursuant to the Pari Passu Intercreditor Agreement, the Primary Collateral Agent will be obliged to take enforcement action against the Okoro Collateral on the instructions of the Instructing Creditors, but shall not be obliged to take any enforcement action on the Okoro Collateral if it determines that such action is contrary to the terms of the Pari Passu Intercreditor Agreement, any applicable law or regulation, or if the Primary Collateral Agent is not indemnified and/or secured to its satisfaction. The Pari Passu Intercreditor Agreement will also contain certain Nigerian upstamping provisions in respect of the Okoro Collateral that is Nigerian Collateral. The Pari Passu Intercreditor Agreement will include provisions pursuant to which the Okoro Collateral may be substituted or released and new security granted only to the extent permitted by the 2016 Notes Indenture, the Indenture and 185

the related security documents (it being understood that the Primary Collateral Agent shall have no responsibility to make any determination as to whether such release is permitted under the relevant documents, but shall be entitled to rely upon the direction of the Issuer, without investigation). Furthermore, the Instructing Creditors shall have the right to instruct the Primary Collateral Agent to release any or all of the Okoro Collateral for the purpose of any enforcement action to be taken in accordance with the underlying security documents. The Pari Passu Intercreditor Agreement and any actions arising out of or in connection with it are governed by the laws of the State of New York. The Pari Passu Intercreditor Agreement may also provide, or may be amended to provide, that the creditors of any pari passu indebtedness of the Company and/or its subsidiaries also secured by the Okoro Collateral as permitted under the terms of the Indenture may become a party to the Pari Passu Intercreditor Agreement through their representative (each, a Pari Passu Creditor Representative). In case such a Pari Passu Creditor Representative becomes a party to the Pari Passu Intercreditor Agreement, the Pari Passu Intercreditor Agreement will include provisions regulating the circumstances under which the creditors in respect of all pari passu indebtedness (including the 2016 Notes and the Notes) subject to the Pari Passu Intercreditor Agreement may enforce the Okoro Collateral and ensure that all proceeds of the enforcement of the Okoro Collateral are distributed pari passu and pro rata among such creditors. In such a case, the Pari Passu Intercreditor Agreement may provide that the Primary Collateral Agent is entitled to enforce the Okoro Collateral: if the requisite majority of creditors under each class of pari passu indebtedness made available pursuant to a loan, credit, guarantee facility agreement or other similar instrument or any hedging arrangement that creates or evidences any pari passu indebtedness (collectively the Pari Passu Loans) have instructed the Primary Collateral Ageement that the Okoro Collateral be enforced; and if there are no Pari Passu Loans outstanding, the majority of the holders of the 2016 Notes, the holders of the Notes and the holders of other notes or bonds constituting Pari Passu Indebtedness have instructed the Primary Collateral Agent that the Okoro Collateral be enforced.

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DESCRIPTION OF NOTES Afren plc (the Company) will issue the Notes under an indenture (the Indenture) among, inter alios, the Company, the Guarantors, Deutsche Bank Trust Company Americas, as trustee (the Trustee), Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent, Deutsche Bank Trust Company Americas as collateral agent (the Primary Collateral Agent) and BNP Paribas as Ebok security agent (the Ebok Collateral Agent) in a private transaction that is not subject to the registration requirements of the U.S. Securities Act. Unless the context requires otherwise, references in this Description of Notes to the Notes include the Notes and any additional Notes that are issued. The terms of the Notes include those set forth in the Indenture. The Indenture will not incorporate or include any of the provisions of the U.S. Trust Indenture Act of 1939, as amended. The following description is a summary of the material provisions of the Indenture and the Notes. This does not restate those agreements in their entirety. We urge you to read the Indenture and the Notes because they, and not this description, define your rights as holders of the Notes. Copies of the Indenture and the form of Note are available as set forth below under Additional Information. Certain defined terms used in this Description of Notes but not defined below under Certain Definitions have the meanings assigned to them in the Indenture. You can find the definitions of certain terms used in this Description of Notes under the subheading Certain Definitions. For purposes of this Description of Notes, the term the Company refers only to Afren plc and not to any of its subsidiaries. The registered holder of a Note will be treated as the owner of it for all purposes. Only registered holders will have rights under the Indenture. Brief Description of the Notes and the Note Guarantees The Notes The Notes will: be general senior secured obligations of the Company; be secured by the Collateral (as defined below); be effectively subordinated to any existing and future Indebtedness of the Company, to the extent such Indebtedness is secured by Liens senior to the Liens securing the Notes, or secured by property and assets that do not secure the Notes, to the extent of the value of the property and assets securing such Indebtedness; rank pari passu in right of payment with all existing and future Indebtedness of the Company that is not expressly contractually subordinated in right of payment to the Notes, including the 2016 Notes and the guarantee by Afren plc under the Ebok Facility Agreement; rank senior in right of payment to any future Indebtedness of the Company that is expressly contractually subordinated in right of payment to the Notes; be fully and unconditionally guaranteed on a subordinated basis by the Subordinated Guarantors and on a senior basis by the Senior Guarantors, subject to limitations under applicable law as set forth below under the caption Note Guarantees; and be structurally subordinated to all obligations of the Companys Subsidiaries that are not Guarantors.

The Note Guarantees The Notes will be guaranteed by the Guarantors. Each guarantee of the Notes will: be a general senior secured obligation of the Senior Guarantors and a general senior subordinated obligation of the Subordinated Guarantor; be secured by the Collateral (as defined below); 187

be effectively subordinated to any existing and future Indebtedness of that Guarantor, to the extent of the value of the collateral securing such Indebtedness that is secured by Liens senior to the Liens securing the Note Guarantees, or secured by property and assets that do not secure the Note Guarantees, to the extent of the value of the property and assets securing such Indebtedness; other than with respect to the Subordinated Guarantees, rank pari passu in right of payment with any future Indebtedness of that Senior Guarantor that is not expressly contractually subordinated in right of payment to that Senior Guarantor, including Indebtedness outstanding under the 2016 Notes; rank senior in right of payment to any future Indebtedness of that Guarantor that is expressly contractually subordinated in right of payment to the relevant Note Guarantee; in the case of the Subordinated Guarantees, be subordinated in right of payment to all existing and future Senior Debt of the relevant Guarantor, including, with respect to the Subordinated Guarantee to be provided by Afren Resources Limited, Indebtedness outstanding under the Ebok Facility Agreement; and be effectively senior to all of that Guarantors existing and future unsecured Indebtedness to the extent of the assets securing that Note Guarantee.

The Note Guarantee by Afren Resources Limited will be contractually subordinated in right of payment to the Ebok Facility. The applicable Subordinated Guarantee will be fully and unconditionally released upon an enforcement action with respect to the Ebok Facility as initiated by the relevant senior creditors. See Description of Certain Financing ArrangementsIntercreditor Agreements. Not all of the Companys Subsidiaries will guarantee the Notes. In the event of a bankruptcy, liquidation or reorganization of any non-guarantor Subsidiary, the non-guarantor Subsidiary will pay the holders of its debt and its trade creditors before it will be able to distribute any of its assets to the Company. As of and for the twelve months ended October 31, 2011, the Company and the Guarantors represented all of the consolidated revenue of the Company and its Subsidiaries and substantially all of the total assets of the Company and its Subsidiaries. As of the Issue Date, all of the Companys Subsidiaries will be Restricted Subsidiaries. However, under the circumstances described below under the caption Certain CovenantsDesignation of Restricted and Unrestricted Subsidiaries, the Company will be permitted to designate certain of its Subsidiaries as Unrestricted Subsidiaries. The Companys Unrestricted Subsidiaries will not be subject to any of the restrictive covenants in the Indenture. Principal, Maturity and Interest The Company will issue $300 million in aggregate principal amount of Notes in this offering. The Company may issue additional Notes (the Additional Notes) under the Indenture from time to time after this offering. Any issuance of Additional Notes is subject to all of the covenants in the Indenture, including the covenant described below under the caption Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock. The Notes and any Additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, except for certain waivers and amendments. The Company will issue Notes in minimum denominations of $200,000 and integral multiples of $1,000 in excess thereof. The Notes will mature on April 8, 2019. Interest on the Notes will accrue at the rate of 10.250% per annum and will be payable semiannually in arrears on April 8 and October 8, commencing on October 8, 2012. Interest on overdue principal and interest, if any, will accrue at a rate that is 1.0% higher than the then applicable interest rate on the Notes. The Company will make each interest payment to the holders of record on the immediately preceding March 24 and September 23. Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Transfer and Exchange Notes sold within the United States to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act will initially be represented by one or more global notes in registered form without interest coupons attached (the 144A Global Note). Notes sold outside the United States pursuant to Regulation S under the U.S. Securities Act will initially be

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represented by one or more global notes in registered form without interest coupons attached (the Reg S Global Note and, together with the 144A Global Note, the Global Notes). Ownership of interests in the Global Notes (Book-Entry Interests) will be limited to persons that have accounts with DTC or persons that may hold interests through such participants, including through Euroclear and Clearstream. Ownership of interests in the Book-Entry Interests and transfers thereof will be subject to the restrictions on transfer and certification requirements summarized below and described more fully under Notice to Investors. In addition, transfers of Book-Entry Interests between participants in DTC, participants in Euroclear or participants in Clearstream will be effected by DTC, Euroclear or Clearstream pursuant to customary procedures and subject to the applicable rules and procedures established by DTC, Euroclear or Clearstream and their respective participants. Book-Entry Interests in a 144A Global Note, or the 144A Book-Entry Interests, may be transferred to a person who takes delivery in the form of Book-Entry Interests in a Reg S Global Note, or the Reg S Book-Entry Interests, only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S under the U.S. Securities Act. Any sale or transfer of such interest to US persons shall not be permitted unless such resale or transfer is made pursuant to Rule 144A. Subject to the foregoing, Reg S Book-Entry Interests may be transferred to a person who takes delivery in the form of 144A Book-Entry Interests only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made to a person who the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or otherwise in accordance with applicable transfer restrictions and any applicable securities laws of any state of the United States or any other jurisdiction. Any Book-Entry Interest that is transferred will, upon transfer, cease to be a Book-Entry Interest in the Global Note from which it was transferred and will become a Book-Entry Interest in the Global Note to which it was transferred. Accordingly, from and after such transfer, it will become subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in the Global Note to which it was transferred. If definitive Notes in registered form (Definitive Registered Notes) are issued, they will be issued only in denominations of $200,000 and integral multiples of $1,000 in excess thereof upon receipt by the Registrar of instructions relating thereto and any certificates, opinions and other documentation required by the Indenture. It is expected that such instructions will be based upon directions received by DTC from the participant which owns the relevant Book-Entry Interests. Definitive Registered Notes issued in exchange for a Book-Entry Interest will, except as set forth in the Indenture or as otherwise determined by the Company in compliance with applicable law, be subject to, and will have a legend with respect to, the restrictions on transfer summarized below and described more fully under Notice to Investors. Subject to the restrictions on transfer referred to above, Notes issued as Definitive Registered Notes may be transferred or exchanged, in whole or in part, in denominations of $200,000 in principal amount or integral multiples of $1,000 in excess thereof. In connection with any such transfer or exchange, the Indenture will require the transferring or exchanging holder, among other things, to furnish appropriate endorsements and transfer documents, to furnish information regarding the account of the transferee at DTC, Euroclear or Clearstream, where appropriate, to furnish certain certificates and opinions, and to pay any taxes, duties and governmental charges in connection with such transfer or exchange. Any such transfer or exchange will be made without charge to the holder of the Notes, other than any taxes, duties and governmental charges payable in connection with such transfer or exchange. Notwithstanding the foregoing, the Company is not required to register the transfer of any Definitive Registered Notes: (1) for a period of 15 calendar days prior to any date fixed for the redemption of the Notes; (2) for a period of 15 calendar days immediately prior to the date fixed for selection of Notes to be redeemed in part; (3) for a period of 15 calendar days prior to the record date with respect to any interest payment date; or (4) which the holder of the Notes has tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer. Paying Agent and Registrar for the Notes The Company will maintain one or more paying agents (each, a Paying Agent) for the Notes in each of (i) the Borough of Manhattan, City of New York (the Paying Agent) and (ii) Luxembourg, for so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange. The Company will ensure that it maintains a Paying Agent in a member state of the European Union that will not be obliged to withhold or deduct tax pursuant to the European Union Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings income, or any law implementing, or complying with or introduced in order to 189

conform to, such directive. The initial Paying Agents will be Deutsche Bank Trust Company Americas in New York and Deutsche Bank Luxembourg S.A. in Luxembourg. The Company will also maintain one or more registrars (each, a Registrar) with offices in the Borough of Manhattan, City of New York. The Company will also maintain a transfer agent in the Borough of Manhattan, City of New York and Luxembourg. The initial Registrar will be Deutsche Bank Trust Company Americas. The initial transfer agents will be Deutsche Bank Trust Company Americas in the Borough of Manhattan, City of New York and Deutsche Bank Luxembourg S.A. in Luxembourg. The Company may change the Paying Agents, the Registrars or the transfer agents without prior notice to the holders of the Notes. For so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and its rules so require, the Company will publish a notice of any change of Paying Agent in a newspaper having a general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, to the extent and in the manner permitted by such rules, post such notice on the official website of the Luxembourg Stock Exchange (www.bourse.lu). Note Guarantees The Notes will be guaranteed by the Guarantors. These Note Guarantees will be joint and several obligations of the Guarantors. The obligations of the Guarantors will be contractually limited under the applicable Note Guarantees to reflect limitations under applicable law with respect to maintenance of share capital, corporate benefit, fraudulent conveyance and other legal restrictions applicable to the Guarantors and their respective shareholders, directors and general partners. For a description of such limitations, see Risk FactorsFraudulent conveyance laws, bankruptcy regulations and other limitations on the Note Guarantees may adversely affect their validity and enforceability. The Notes will initially be guaranteed on a senior basis by the following Senior Guarantors: Afren Nigeria; Afren Nigeria Holdings (Nigeria) Limited; Afren CI (UK) Limited; Afren CI (II) Limited; Afren Cte d1voire; Lion G.P.L SA; AERL; and Afren Okoro.

The Notes will initially be guaranteed on a subordinated basis by the Subordinated Guarantor, Afren Resources. The claims under the Note Guarantee issued by Afren Resources will rank in right and priority of payment subordinate to Afren Resources obligations under the Ebok Facility (as amended, increased or refinanced from time to time). Note Guarantees Release The Note Guarantee of a Guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger, amalgamation or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the provisions set forth below under Repurchase at the Option of HoldersAsset Sales; in connection with any sale or other disposition of all of the Capital Stock of that Guarantor (whether by direct sale or through a holding company) to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition does not violate the provisions set forth below under Repurchase at the Option of HoldersAsset Sales; 190

(2)

(3)

if such Guarantor is a Restricted Subsidiary and the Company designates such Guarantor (or any parent entity thereof) as an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; upon repayment in full of the Notes or upon Legal Defeasance or Covenant Defeasance as described below under the caption Legal Defeasance and Covenant Defeasance or upon satisfaction and discharge of the Indenture as described under the caption Satisfaction and Discharge; upon the liquidation or dissolution of such Guarantor provided no Default or Event of Default has occurred or is continuing; as described under Amendments and Waivers; upon such Guarantor consolidating with, merging into or transferring all of its properties or assets to the Company or another Guarantor, and as a result of, or in connection with, such transaction such Guarantor dissolving or otherwise ceasing to exist; as described in the fourth paragraph of the covenant described below under Limitation on Guarantees of Indebtedness by Restricted Subsidiaries; or in connection with certain enforcement actions taken by the creditors under the Ebok Intercreditor Agreement, any Additional Ebok Intercreditor Agreement or any Pari Passu Intercreditor Agreement.

(4)

(5) (6) (7)

(8) (9)

Notes Security The Notes and the Note Guarantees will be secured by contractual first priority Liens over the following assets (together, the Okoro Collateral): (i) the capital stock of AERL; (ii) bank accounts of each of AERL and Afren Okoro; (iii) the assets of AERL pursuant to fixed and floating charges, including property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Okoro field; (iv) the rights of Afren Okoro in respect of certain hedging agreements, if any, and intercompany loans owed to it by AERL; and (v) subject to receipt of counterparty approvals, which we will use commercially reasonable efforts to obtain within six months, the rights and interests in AERLs primary operating, production sharing and off-take contracts. The Notes and the Subordinated Guarantee will be secured by contractual second priority Liens over the same assets that secure Afren Resources obligations under the Ebok Facility. These contractual second priority Liens will take the form of a contractual second priority floating charge over Afren Resources property, equipment, facilities, insurance policies, contracts and rights, in each case related to the Ebok field, and contractual second priority Liens over: (i) the capital stock of Afren Resources; and (ii) bank accounts of Afren Resources, (the assets subject of such Liens, together the Ebok Collateral). The security interests granted by AERL, Afren Okoro, Afren Resources and Afren Nigeria will not extend to assets, including bank accounts, held jointly with our indigenous partners. The Okoro Collateral and the Ebok Collateral, together with any other assets from time to time in which a security interest has been granted to secure the Notes and/or any Note Guarantee are referred to as the Collateral. Under the Indenture, the Company and the Restricted Subsidiaries will be permitted to pledge the Collateral in connection with future issuances of Indebtedness, including any Additional Notes, in each case, permitted under the Indenture. The amount of any Permitted Collateral Liens will be limited by the covenants described under the captions Certain CovenantsLiens and Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock. Under certain circumstances, the amount of such additional Indebtedness secured by Permitted Collateral Liens could be significant. Enforcement of the Collateral The proceeds from any sale of the Collateral may not be sufficient to satisfy the obligations owed to the holders of the Notes. No appraisals of the Collateral have been made in connection with this offering of the Notes. By its nature, some or all of the Collateral will be illiquid and may have no readily ascertainable market value. Accordingly, the Collateral may not be able to be sold in a short period of time, or at all. See Risk FactorsRisk Factors Related to the NotesYour ability 191

to enforce on the security granted over our assets may be limited and Risk FactorsRisk Factors Related to the NotesIt may be difficult to realize the value of the collateral securing the Notes. In addition, the creation of enforceable security interests under Security Documents (a) entered into by the Companys Nigerian Subsidiaries and/or (b) governed by Nigerian law will attract stamp duties and registration fees, which will not be fully stamped or paid until enforcement. Enforcement of Collateral under such Security Documents will therefore attract an upstamping cost of up to 1.375% of the total amount of Indebtedness secured by such Collateral (or such other amount reflecting the relevant stamp duty and registration at the time), less the amount of stamp duties and registration fees initially stamped for and registered. See Risk FactorsRisk factors relating to the NotesCertain Collateral securing the Notes will neither be perfected nor enforceable for the full amount of the indebtedness thereby secured unless and until additional stamp duties and registration fees are paid in respect thereof by or on behalf of holders of Notes. For further information regarding enforcement of Nigerian security, see Legal and RegulatoryNigeriaEnforcement of Security under Nigerian law. In the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all then outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee may, and at the written direction of the holders of at least 25% in aggregate principal amount of the then outstanding Notes shall, declare all of the then outstanding Notes to be due and payable immediately by notice in writing to the Company specifying the relevant Event of Default and that it is a notice of acceleration. Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or certain other Additional Amounts or premium, if any. The Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any holders of Notes unless such holders have offered to the Trustee an indemnity and security satisfactory to it against any loss, liability or expense. Except (subject to the provisions described under Amendment, Supplement and Waiver) to enforce the right to receive payment of principal, premium, if any, or interest or Additional Amounts when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless: such holder has previously given the Trustee notice that an Event of Default is continuing; holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested the Trustee to pursue the remedy; such holders have offered the Trustee security and an indemnity satisfactory to it against any loss, liability or expense; the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or an indemnity; and holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a written direction inconsistent with such request within such 60-day period.

The holders of a majority in aggregate principal amount of the Notes then outstanding by written notice to the Trustee may, on behalf of the holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Additional Amounts or premium on, or the principal of, the Notes held by a non-consenting holder (which may be waived with the consent of each holder of Notes affected). At any time after the Notes shall have been declared to be immediately due and payable, the Trustee may give instructions to the Primary Collateral Agent to enforce any of the Collateral (but, in the case of instructions with respect to the enforcement of the Ebok Collateral, only to the extent it is permitted to do so by the terms of the Ebok Intercreditor Agreement). Upon the receipt from the Trustee of instructions to enforce any of the Collateral (an Enforcement Instruction), the Trustee will instruct the relevant Primary Collateral Agent to and the Primary Collateral Agent will establish and thereafter maintain in its name a segregated bank account in New York City (Enforcement Proceeds Account) for the purpose of depositing therein: (a) any amounts from time to time available to be applied to Notes in accordance with the provisions of the Indenture and the Ebok Intercreditor Agreement; (b) the proceeds of any Enforcement Action (net of the 192

costs and expenses of such action); and (c) all proceeds and any moneys otherwise received for application in or towards satisfaction of the Notes. Following receipt of Enforcement Instructions with respect to any Collateral, the relevant Primary Collateral Agent will, upon receipt of an indemnity satisfactory to it, proceed to protect and enforce its rights and the rights of the holders of the Notes under the Indenture and in relation to such Collateral (including by enforcement of the security interests in the assets the subject of such Collateral) (each, an Enforcement Action) consistent with the Enforcement Instructions and subject to applicable law and restrictions therein. Priority of Payment No moneys attributable to any enforcement of the Ebok Collateral will be available for application in or towards the discharge of the Indebtedness constituted by the Indenture or the Notes until after the Senior Debt (other than Senior Debt constituted under paragraph (2) of the definition thereof and the related Obligations constituted under paragraph (4) of such definition) shall have been paid in full. Subject to the foregoing sentence, all moneys received as a result of any enforcement of the Collateral and credited to the Enforcement Proceeds Account will be applied promptly by the Primary Collateral Agent in payment to the Trustee for application in making the following payments in the following order of priority: first, in payment to the payment of any fees, costs, indemnities, charges, disbursements, liabilities and expenses and all other amounts payable to the Trustee, the Luxembourg Paying Agent and Transfer Agent or the Primary Collateral Agent, and any of their respective agents pursuant to the Indenture; second, in payment to the holders of the Notes of an amount equal to the unpaid fees and expenses and all other amounts (including principal) then due and payable to such holders of the Notes under the Indenture; and third, the balance, if any, to the Obligor that owned the assets the subject of the Collateral giving rise to such moneys (or its successors) or as a court of competent jurisdiction may otherwise direct.

The Company will provide the Trustee with any requested additional information in its possession necessary for the Trustee to make the payments mentioned above. Release of the Collateral The Company and the Guarantors will be entitled to the release of the Liens on property and other assets constituting the Collateral in the following circumstances: in connection with any sale, assignment, transfer, conveyance or other disposition of such property or other assets that does not violate the provisions set forth below under Repurchase at the Option of HoldersAsset Sales; in the case of a Guarantor that is released from its Note Guarantee pursuant to the terms of the Indenture, the release of the property and assets, and Capital Stock, of such Guarantor; if the Company designates any of its Restricted Subsidiaries to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture, the release of the property and assets of such Restricted Subsidiary; upon repayment in full of the Notes or upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions Legal Defeasance and Covenant Defeasance and Satisfaction and Discharge; as described under Amendment and Waivers; upon the release and discharge of the initial lien giving rise to the obligation to provide such lien as described below under Liens; and as otherwise permitted in accordance with the Indenture or required under any Pari Passu Intercreditor Agreement.

193

Release of the Ebok Collateral Liens on the Ebok Collateral will be required to be released by the Ebok Collateral Agent (without any consent from the Trustee or the holders of Notes) in connection with any enforcement of security in respect of Indebtedness under the Ebok Facility over such asset or shares. Additional Amounts All payments made by the Company under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee will be made free and clear of and without withholding or deduction for, or on account of, any present or future Taxes unless the withholding or deduction for, or on account of, such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of (1) any jurisdiction in which the Company or any Guarantor is then incorporated, organized or resident for tax purposes or any political subdivision thereof or therein or (2) any jurisdiction from or through which payment is made by or on behalf of the Company or any Guarantor (including the jurisdiction of any Paying Agent) or any political subdivision thereof or therein (each, a Tax Jurisdiction) will at any time be required to be made from any payments made by the Company under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee, including payments of principal, redemption price, purchase price, interest or premium, the Company or the relevant Guarantor, as applicable, will pay such additional amounts (the Additional Amounts) as may be necessary in order that the net amounts received in respect of such payments after such withholding or deduction (including any such withholding or deduction from such Additional Amounts) will equal the respective amounts that would have been received in respect of such payments in the absence of such withholding or deduction; provided, however, that no Additional Amounts will be payable with respect to: (1) any Taxes, to the extent such Taxes would not have been imposed but for the existence of any present or former connection between the holder or the beneficial owner of the Notes and the relevant Tax Jurisdiction (including being a resident of such jurisdiction for Tax purposes), other than the mere holding of such Note, the enforcement of rights under such Note or under a Note Guarantee or the receipt of any payments in respect of such Note or a Note Guarantee; any Taxes, to the extent such Taxes were imposed as a result of the presentation of a Note for payment (where presentation is required) more than 30 days after the relevant payment is first made available for payment to the holder (except to the extent that the holder would have been entitled to Additional Amounts had the Note been presented on the last day of such 30 day period); any estate, inheritance, gift, sales, transfer, personal property or similar Taxes; any Taxes withheld, deducted or imposed on a payment to an individual that are required to be made pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directive; Taxes imposed on or with respect to a payment made to a holder or beneficial owner of Notes who would have been able to avoid such withholding or deduction by presenting the relevant Notes to another Paying Agent; any Taxes payable other than by deduction or withholding from payments under, or with respect to, the Notes or with respect to any Note Guarantee; any Taxes, to the extent such Taxes are imposed, withheld or deducted by reason of the failure of the holder or beneficial owner of Notes, to comply with any reasonable written request of the Company addressed to the holder or beneficial owner and made at least 60 days before any such withholding or deduction is to be made, to satisfy any certification, identification, information or other reporting requirements, whether required by statute, treaty, regulation or administrative practice of a Tax Jurisdiction, as a precondition to exemption from, or reduction in the rate of deduction or withholding of, Taxes imposed by the Tax Jurisdiction (including, without limitation, a certification that the holder or beneficial owner is not resident in the Tax Jurisdiction), but in

(2)

(3) (4)

(5)

(6) (7)

194

each case, only to the extent the holder or beneficial owner is legally entitled to satisfy such requirements; or (8) any combination of items (1) through (7) above.

In addition to the foregoing, the Company and the Guarantors will also pay and indemnify the holder for any present or future stamp, issue, registration, court or documentary taxes, or any other excise or property taxes, charges or similar levies (including penalties, interest and any other reasonable expenses related thereto) which are levied by any jurisdiction on the execution, delivery, issuance, or registration of any of the Notes, the Indenture, any Note Guarantee or any other document referred to therein, except for any such taxes, charges or levies imposed or levied as a result of a transfer after the Issue Date between parties that are not Affiliates of the Company or any Guarantor. If the Company or any Guarantor, as the case may be, becomes aware that it will be obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes or any Note Guarantee, each of the Company or the relevant Guarantor, as the case may be, will deliver to the Trustee on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises less than 30 days prior to that payment date, in which case the Company or the relevant Guarantor shall notify the Trustee promptly thereafter) an officers certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. The officers certificates must also set forth any other information reasonably necessary to enable the Paying Agents to pay Additional Amounts to holders on the relevant payment date. The Trustee shall be entitled to rely solely on such officers certificate as conclusive proof that such payments are necessary. The Company or the relevant Guarantor will make all withholdings and deductions for, or on account of, Tax required by law and will remit the full amount deducted or withheld to the relevant Tax authority in accordance with applicable law. The Company or the relevant Guarantor will use its reasonable efforts to obtain Tax receipts from each Tax authority evidencing the payment of any Taxes so deducted or withheld. The Company or the relevant Guarantor will furnish to the Trustee (or to a holder upon written request), within a reasonable time after the date the payment of any Taxes so deducted or withheld is made, certified copies of Tax receipts evidencing payment by the Company or a Guarantor, as the case may be, or if, notwithstanding such entitys efforts to obtain receipts, receipts are not obtained, other evidence of payments (reasonably satisfactory to the Trustee) by such entity. Whenever in the Indenture or in this Description of Notes there is mentioned, in any context, the payment of amounts based upon the principal amount of the Notes or of principal, interest or any other amount payable under, or with respect to, any of the Notes or any Note Guarantee, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The above obligations will survive any termination, defeasance or discharge of the Indenture or any transfer by a holder or beneficial owner of its Notes, and will apply, mutatis mutandis, to any jurisdiction in which any successor Person to the Company or any Guarantor is incorporated, engaged in business for tax purposes or resident for tax purposes or any jurisdiction from or through which such Person makes any payment on the Notes (or any Note Guarantee) and any department or political subdivision thereof or therein. Intercreditor Agreements On the Issue Date, the Trustee shall accede to the Ebok Intercreditor Agreement, as described under Description of Certain Financing ArrangementsEbok Intercreditor Agreement. Pursuant to the terms of the Ebok Intercreditor Agreement, any liabilities in respect of obligations under the Ebok Facility will receive priority with respect to any proceeds received upon any enforcement action. Optional Redemption Except as otherwise described below, the Notes will not be redeemable at the Companys option prior to maturity. The Company is not, however, prohibited from acquiring the Notes by means other than a redemption, whether pursuant to a tender offer, open market purchase or otherwise, so long as the acquisition does not violate the terms of the Indenture. Prior to April 8, 2015, the Company may, at its option, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the Notes (including any Additional Notes issued after the Issue Date) at a redemption price equal to 110.250% of the principal amount thereof, plus accrued and unpaid interest thereon to, but not including, the redemption date, with all or a portion of the net proceeds of one or more Equity Offerings; provided that at least 65% of the aggregate principal amount of the Notes issued under the Indenture remains outstanding immediately after the occurrence of 195

such redemption; and provided, further, that such redemption shall occur within 180 days of the date of the closing of any such Equity Offering. In addition, at any time prior to April 8, 2016 the Company may also redeem, in whole or in part, the Notes at a redemption price equal to 100% of the principal amount of Notes to be redeemed, plus the Applicable Premium (as defined below) as of, and accrued and unpaid interest to, but not including, the redemption date, subject to the rights of the holders on the relevant record date to receive interest due on the relevant interest payment date. Applicable Premium means, with respect to any Note on any redemption date, the greater of (a) 1% of the principal amount of such Note and (b) the excess of: (1) the present value at such redemption date of (i) the redemption price of the Note on April 8, 2016 (which is 100% of principal amount), plus (ii) all required interest payments due on the Note through April 8, 2016 (excluding accrued but unpaid interest to the redemption date) discounted back to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over the then-outstanding principal amount of the Note.

(2)

Treasury Rate means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to April 8, 2016; provided, however, that if the period from the redemption date to April 8, 2016 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. On or after April 8, 2016, the Company may on any one or more occasions redeem all or a part of the Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on April 8 of the years indicated below, subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date:
Year Redemption Price

2016 .......................................................................................................................................................... 2017 .......................................................................................................................................................... 2018 ..........................................................................................................................................................

105.1250% 102.5625% 100.0000%

All redemptions of the Notes will be made upon not less than 30 days nor more than 60 days prior notice, except that a redemption notice may be made more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date. Notice of any redemption including, without limitation, upon an Equity Offering may, at the Companys discretion, be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering. Redemption for Changes in Taxes The Company may redeem the Notes, in whole but not in part, at its discretion at any time upon giving not less than 30 nor more than 60 days prior notice to the holders of the Notes (which notice will be irrevocable and given in accordance with the procedures described in Selection and Notice), at a redemption price equal to 100% of the aggregate principal amount thereof, together with accrued and unpaid interest, if any, to the date fixed by the Company for redemption (a Tax Redemption Date) and all Additional Amounts (if any) then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise (subject to the right of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date and Additional Amounts (if any) in respect thereof), if on the next date on which any amount would be payable in respect of the Notes, the Company or a Guarantor is or would be required to pay Additional Amounts, and the Company or Guarantor cannot avoid any such payment obligation by taking reasonable measures available, and the requirement arises as a result of: 196

(1)

any amendment to, or change in, the laws or any regulations, treaties or rulings promulgated thereunder of a relevant Tax Jurisdiction which change or amendment becomes effective on or after the Issue Date (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the Issue Date, such later date); or any amendment to, or change in, an official written interpretation or application of such laws, regulations, treaties or rulings (including by virtue of a holding, judgment, order by a court of competent jurisdiction or a change in published administrative practice) which amendment or change becomes effective on or after the Issue Date (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the Issue Date, such later date).

(2)

The Company will not give any such notice of redemption earlier than 90 days prior to the earliest date on which the Company or Guarantor would be obligated to make such payment or withholding if a payment in respect of the Notes was then due, and the obligation to pay Additional Amounts must be in effect at the time such notice is given. Prior to the publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Company will deliver to the Trustee an opinion of independent tax counsel reasonably acceptable to the Trustee, to the effect that there has been such amendment or change which would entitle the Company to redeem the Notes hereunder. In addition, before the Company publishes or mails notice of redemption of the Notes as described above, it will deliver to the Trustee an officers certificate to the effect that it cannot avoid its obligation to pay Additional Amounts by the Company or Guarantor taking reasonable measures available to it. The Trustee will accept and shall be entitled to rely on such officers certificate and opinion of counsel as sufficient evidence of the existence and satisfaction of the conditions precedent as described above, in which event it will be conclusive and binding on the holders of the Notes. For the avoidance of doubt, the implementation of European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directive will not be a change or amendment for such purposes. Mandatory Redemption The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. However, under certain circumstances, the Company may be required to offer to purchase the Notes as described under the captions Repurchase at the Option of HoldersChange of Control and Asset Sales. The Company and any Restricted Subsidiaries may at any time and from time to time purchase Notes in the open market or otherwise. Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each holder of Notes will have the right to require the Company to repurchase all or any part (equal to $200,000 or an integral multiple of $1,000 in excess thereof) of that holders Notes pursuant to an offer (Change of Control Offer) on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer a payment in cash (the Change of Control Payment) equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest on the Notes repurchased to the date of purchase (the Change of Control Payment Date), subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the Company will mail a notice to each holder (with a copy to the Trustee) or otherwise deliver a notice (with a copy to the Trustee) in accordance with the procedures described under Selection and Notice, describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed or delivered, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the U.S. Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such compliance. On the Change of Control Payment Date, the Company will, to the extent lawful: 197

(1) (2) (3)

accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and deliver or cause to be delivered to the Paying Agent the Notes properly accepted.

The Paying Agent will promptly mail (or cause to be delivered) to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $200,000 or an integral multiple of $1,000 in excess thereof. Any Note so accepted for payment will cease to accrue interest on and after the Change of Control Payment Date unless the Company defaults in making the Change of Control Payment. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described herein that require the Company to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Company will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the time and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to the Indenture as described above under the caption Optional Redemption, unless and until there is a default in payment of the applicable redemption price. A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon the occurrence of such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other disposition of less, than all of the assets of the Company and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. The provisions under the Indenture relating to the Companys obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the consent of the holders of a majority in principal amount of the Notes. If a Change of Control Offer is made, there can be no assurance that the Company will have sufficient funds or other resources to pay the Change of Control Payment for all the Notes that might be delivered by holders thereof seeking to accept the Change of Control Offer. See Risk FactorsWe may be unable to raise the funds necessary to finance a change of control offer required by the Indenture. If and for so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market and the rules of the Luxembourg Stock Exchange so require, the Company will publish notices relating to the Change of Control Offer in a leading newspaper of general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, to the extent and in the manner permitted by such rules, post such notices on the official website of the Luxembourg Stock Exchange (www.bourse.lu). Asset Sales The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

198

(1)

the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as shown on the most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to an agreement that releases the Company or such Restricted Subsidiary from further liability or indemnifies the Company or such Restricted Subsidiary against further liabilities; any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents within 180 days following the closing of the Asset Sale, to the extent of the cash or Cash Equivalents received in that conversion; any stock or assets of the kind referred to in clauses (3) or (4) of the next paragraph of this covenant; Indebtedness (other than Subordinated Obligations) of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Sale, to the extent that the Company and each other Restricted Subsidiary are released from any Guarantee of such Indebtedness in connection with such Asset Sale; consideration consisting of Indebtedness of the Company or any Guarantor received from Persons who are not the Company or any Restricted Subsidiary; and accounts receivable of a business retained by the Company or any Restricted Subsidiary, as the case may be, following the sale of such business.

(2)

(b)

(c) (d)

(e) (f)

Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds (at the option of the Company or Restricted Subsidiary): (1) to purchase the Notes pursuant to an offer to all holders of Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to (but not including) the date of purchase (a Notes Offer); to repay Senior Debt; to invest in Additional Assets; to make capital expenditures in respect of the Companys or its Restricted Subsidiaries Oil and Gas Business; or enter into a binding commitment to apply the Net Proceeds pursuant to clause (2), (3) or (4) of this paragraph; provided that such binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment until the earlier of (x) the date on which such acquisition or expenditure is consummated, and (y) the 180th day following the expiration of the aforementioned 365 day period.

(2) (3) (4) (5)

Pending the final application of any Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this covenant will constitute Excess Proceeds. 199

When the aggregate amount of Excess Proceeds exceeds $25.0 million, within ten Business Days thereof, the Company will make an offer (an Asset Sale Offer) to all holders of Notes and may make an offer to all holders of other Indebtedness that is pari passu with the Notes or any Note Guarantees to purchase, prepay or redeem with the proceeds of sales of assets to purchase, prepay or redeem the maximum principal amount of Notes and such other pari passu Indebtedness (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out of the Excess Proceeds. The offer price for the Notes in any Asset Sale Offer will be equal to 100% of the principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of purchase, prepayment or redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into (or to be prepaid or redeemed in connection with) such Asset Sale Offer exceeds the amount of Excess Proceeds or if the aggregate amount of Notes tendered pursuant to a Notes Offer exceeds the amount of the Net Proceeds so applied, the Trustee will select the Notes and such other pari passu Indebtedness, if applicable, to be purchased on a pro rata basis (or, in the case of Notes issued in global form as discussed under Book-Entry, Delivery and Form, based on a method that most nearly approximates a pro rata selection as the Trustee deems fair and appropriate) unless otherwise required by applicable law or applicable stock exchange or depositary requirements, based on the amounts tendered or required to be prepaid or redeemed. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The Company will comply with the requirements of Rule 14e-1 under the U.S. Exchange Act and any other applicable securities laws and regulations to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to a Change of Control Offer, an Asset Sale Offer or a Notes Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control, Asset Sale or Notes Offer provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control, Asset Sale or Notes Offer provisions of the Indenture by virtue of such compliance. Selection and Notice If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata basis (or, in the case of Notes issued in global form as discussed under Book-Entry, Delivery and Form, based on a method that most nearly approximates a pro rata selection) unless otherwise required by law or applicable stock exchange or depository requirements. No Notes of $200,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder of Notes upon cancellation of the original Note. A notice of redemption shall state whether the redemption is conditioned on any events and, if so, a detailed explanation of such conditions. Subject to the satisfaction of any conditions precedent set forth in a notice of redemption, Notes called for redemption become due on the date fixed for redemption. On or after the redemption date, interest ceases to accrue on Notes or portions of Notes called for redemption. For Notes which are represented by global certificates held on behalf of DTC or Euroclear or Clearstream, notices may be given by delivery of the relevant notices to DTC or Euroclear or Clearstream for communication to entitled account holders in substitution for the aforesaid mailing. So long as any Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted to trading on the Euro MTF Market and the rules of the Luxembourg Stock Exchange so require, any such notice to the holders of the relevant Notes whether represented by global certificates or held in definitive form, shall also be published in a newspaper having a general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, to the extent and in the manner permitted by such rules, posted on the official website of the Luxembourg Stock Exchange (www.bourse.lu) and, in connection with any redemption, the Company will notify the Luxembourg Stock Exchange of any change in the principal amount of Notes outstanding.

200

Certain Covenants Restricted Payments The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (A) declare or pay any dividend or make any other payment or distribution on account of the Companys or any of its Restricted Subsidiaries Equity Interests (including, without limitation, any such payment or distribution made in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Companys or any of its Restricted Subsidiaries Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and other than dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); purchase, redeem or otherwise acquire or retire for value (including, without limitation, any such purchase, redemption, acquisition or retirement made in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, prior to the Stated Maturity thereof, any Indebtedness of the Company or any Guarantor that is expressly contractually subordinated in right of payment to the Notes or to any Note Guarantee (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries), except (i) a payment of principal at the Stated Maturity thereof or (ii) the purchase, repurchase or other acquisition of Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or scheduled maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition; or make any Restricted Investment;

(B)

(C)

(D)

(all such payments and other actions set forth in clauses (A) through (D) above being collectively referred to as Restricted Payments), unless, at the time of and after giving effect to such Restricted Payment: (1) (2) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable fourquarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption Incurrence of Indebtedness and Issuance of Preferred Stock; and such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since February 3, 2011 (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (8), (9), (10), (11), (12) and (15) of the next succeeding paragraph), is equal to or less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from January 1, 2011 to the end of the Companys most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus 100% of the aggregate net cash proceeds received, the Fair Market Value of marketable securities received and the Fair Market Value of property received by the Company since February 3, 2011 as a contribution to its common capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity

(3)

(b)

201

Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company); plus (c) (i) to the extent that any Restricted Investment that was made after February 3, 2011 is (x) sold, disposed of or otherwise cancelled, liquidated or repaid, 100% of the aggregate amount received in cash and the Fair Market Value of the property and the marketable securities received by the Company or any Restricted Subsidiary, or (y) made in an entity that subsequently becomes a Restricted Subsidiary, 100% of the Fair Market Value of the Restricted Investment of the Company and its Restricted Subsidiaries as of the date such entity becomes a Restricted Subsidiary; plus (ii) to the extent that any Unrestricted Subsidiary of the Company designated as such after February 3, 2011 is redesignated as a Restricted Subsidiary or is merged or consolidated into the Company or a Restricted Subsidiary, or all of the assets of such Unrestricted Subsidiary are transferred to the Company or a Restricted Subsidiary, the Fair Market Value of the property received by the Company or Restricted Subsidiary or the Companys Restricted Investment in such Subsidiary as of the date of such redesignation, merger, consolidation or transfer of assets, to the extent such Investments reduced the Restricted Payments capacity under this clause (c) and were not previously repaid or otherwise reduced; plus

(d)

100% of any dividends or distributions received by the Company or a Restricted Subsidiary after February 3, 2011 from an Unrestricted Subsidiary, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Company for such period.

The preceding provisions will not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of the Indenture; he making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3)(b) of the preceding paragraph; the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness for the purpose of such repurchase, redemption, defeasance or other acquisition or retirement for value; the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of its Equity Interests (other than the Company or any Restricted Subsidiary) on no more than a pro rata basis; the defeasance, repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any of the Companys (or any of its Restricted Subsidiaries) current or former officers, directors, employees or consultants pursuant to any equity subscription agreement, stock option agreement, restricted stock grant, shareholders agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $2.0 million in any calendar year (with unused amounts in any calendar year being permitted to be carried over into succeeding calendar years) and provided, further, that such amount in any 202

(2)

(3)

(4)

(5)

calendar year may be increased by an amount not to exceed the cash proceeds from the sale of Equity Interests of the Company or a Restricted Subsidiary received by the Company or a Restricted Subsidiary during such calendar year, in each case to members of management, directors or consultants of the Company, any of its Restricted Subsidiaries or any of its direct or indirect parent companies to the extent the cash proceeds from the sale of Equity Interests have not otherwise been applied to the making of Restricted Payments pursuant to clause (3)(b) of the preceding paragraph or clause (2) of this paragraph; (6) the defeasance, repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any of the Companys (or any of its Restricted Subsidiaries) current or former directors or employees in connection with the exercise or vesting of any equity compensation (including, without limitation, stock options, restricted stock and phantom stock) in order to satisfy the Companys or such Restricted Subsidiarys tax withholding obligation with respect to such exercise or vesting; repurchases of Subordinated Obligations at a purchase price not greater than (i) 101% of the principal amount of such subordinated Indebtedness and accrued and unpaid interest thereon in the event of a Change of Control or (ii) 100% of the principal amount of such subordinated Indebtedness and accrued and unpaid interest thereon in the event of an Asset Sale, in each case plus accrued interest, in connection with any change of control offer or asset sale offer required by the terms of such Indebtedness, but only if: (a) in the case of a Change of Control, the Company has first complied with and fully satisfied its obligations under the provisions described under Repurchase at the Option of HoldersChange of Control; or in the case of an Asset Sale, the Company has complied with and fully satisfied its obligations in accordance with the covenant under the heading, Repurchase at the Option of HoldersAsset Sales;

(7)

(b)

(8)

the repurchase, redemption or other acquisition for value of Capital Stock of the Company representing fractional shares of such Capital Stock in connection with a merger, consolidation, amalgamation or other combination involving the Company or any other transaction permitted by the Indenture; repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after the Issue Date in accordance with the Fixed Charge Coverage Ratio test described below under the caption Incurrence of Indebtedness and Issuance of Preferred Stock; payments of cash, dividends, distributions, advances or other Restricted Payments by the Company or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares upon (x) the exercise of options or warrants or (y) the conversion or exchange of Capital Stock of any such Person; advances or loans to (a) any future, present or former officer, director, employee or consultant of the Company or a Restricted Subsidiary to pay for the purchase or other acquisition for value of Equity Interests of the Company (other than Disqualified Stock), or any obligation under a forward sale agreement, deferred purchase agreement or deferred payment arrangement pursuant to any management equity plan or stock option plan or any other management or employee benefit or incentive plan or other agreement or arrangement or (b) any management equity plan or stock option plan or any other management or employee benefit or incentive plan or unit trust or the trustees of any such plan or trust to pay for the purchase or other acquisition for value of Equity Interests of the Company (other than Disqualified Stock); provided that the total aggregate amount of Restricted Payments made under this clause (12) does not exceed $5.0 million in any calendar year; 203

(9) (10)

(11)

(12)

(13)

the repurchase of Equity Interests of the Company to be held as treasury stock; provided that the total aggregate amount of Restricted Payments made under this clause (13) does not exceed $2.0 million plus the cash proceeds from the sale of such Equity Interests of the Company from treasury stock since the Issue Date; so long as no Default has occurred and is continuing or would be caused thereby, the declaration or payment of dividends or distributions, or the making of any cash payments, advances, loans or expense reimbursements on the common stock or common equity interests of the Company or any direct or indirect parent company; provided that the aggregate amount of all such dividends or distributions under this clause (14) shall not exceed in any fiscal year, following a Public Equity Offering, 6% of the Net Proceeds received from any Public Equity Offering or contributed to the capital of the Company or the direct or indirect parent company; and so long as no Default has occurred and is continuing or would be caused thereby, other Restricted Payments in an aggregate amount not to exceed $20.0 million since the Issue Date.

(14)

(15)

The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Unsecured Indebtedness shall not be deemed to be subordinate or junior to secured Indebtedness by virtue of its nature as unsecured Indebtedness. Incurrence of Indebtedness and Issuance of Preferred Stock The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, incur) any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock or preferred stock and any Restricted Subsidiary of the Company may incur Indebtedness (including Acquired Debt) or issue preferred stock, if the Fixed Charge Coverage Ratio for the Companys most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued, as the case may be, would have been at least 2.25 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, at the beginning of such fourquarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, Permitted Debt): (1) the incurrence by the Company and any Restricted Subsidiary of additional Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed the greater of (a) $150.0 million and (b) 20% of Adjusted Consolidated Net Tangible Assets determined as of the date of the incurrence of such Indebtedness after giving pro forma effect to such incurrence and the application of the proceeds therefrom; the incurrence by the Company and its Restricted Subsidiaries of the 2016 Notes and any Guarantee thereof by a Guarantor; the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness (other than the 2016 Notes); the incurrence by the Company of Indebtedness represented by the Notes to be issued on the date of the Indenture and the incurrence by any Guarantor of a Note Guarantee at any time; the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by:

(2) (3) (4) (5)

204

(a)

the Ebok MOPU and FSO Lease and any Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge the Ebok MOPU and FSO Lease; and Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price, lease expense, rental payments or cost of design, construction, installation or improvement of property, plant or equipment or other assets used in the business of the Company or any of its Restricted Subsidiaries, whether through the direct purchase of or the Capital Stock of any Person owning such property, plant or equipment or other assets (including any Indebtedness deemed to be incurred in connection with such purchase) (it being understood that any such Indebtedness may be incurred after the acquisition or purchase or the construction, installation or the making of any improvement with respect to any such property, plant or equipment or other assets), in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (5)(b), not to exceed the greater of (x) $25.0 million and (y) 2% of Adjusted Consolidated Net Tangible Assets at any time outstanding;

(b)

(6)

the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (11) or (16) of this paragraph or this clause (6); the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that: (a) if the Company or any Guarantor is the obligor on such Indebtedness and the payee is not the Company or a Guarantor, such Indebtedness must be ((i) except in respect of the intercompany current liabilities incurred in the ordinary course of business in connection with the cash management operations of the Company and its Restricted Subsidiaries and (ii) only to the extent legally permitted (the Company and its Restricted Subsidiaries having completed all procedures required in the reasonable judgment of directors or officers of the obligee or obligor to protect such Persons from any penalty or civil or criminal liability in connection with the subordination of such Indebtedness)) expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor; and (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary of the Company will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (7);

(7)

(b)

(8)

the issuance by any of the Companys Restricted Subsidiaries to the Company or to any of its Restricted Subsidiaries of shares of preferred stock; provided, however, that: (a) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than the Company or a Restricted Subsidiary of the Company; and any sale or other transfer of any such preferred stock to a Person that is not either the Company or a Restricted Subsidiary of the Company, will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (8); 205

(b)

(9)

the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations not for speculative purposes (as determined in good faith by a responsible financial or accounting officer of the Company); the incurrence by the Company of any of its Restricted Subsidiaries of obligations relating to production imbalances arising in the ordinary course of business; the Guarantee by the Company or any Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being Guaranteed is subordinated to or pari passu with the Notes or a Note Guarantee, as applicable, then the Guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness Guaranteed; the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within 30 Business Days; Indebtedness in respect of self-insurance obligations or captive insurance companies or consisting of the financing of insurance premiums in the ordinary course of business; the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from agreements of the Company or any of its Restricted Subsidiaries providing for indemnification, obligations in respect of earnouts or other adjustment of purchase price or, in each case, similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Capital Stock of a Subsidiary, provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds, including the Fair Market Value of non-cash proceeds (measured at the time received and without giving effect to any subsequent changes in value), actually received by the Company and its Restricted Subsidiaries in connection with such disposition; the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of (A) letters of credit, bid, performance, appeal, surety and similar bonds, completion guarantees, judgment, advance payment, customs, VAT or similar instruments issued for the account of the Company and any of its Restricted Subsidiaries in the ordinary course of business (in each case, other than an obligation for money borrowed), including guarantees and obligations of the Company or any of its Restricted Subsidiaries with respect to letters of credit or similar instruments supporting such obligations or in respect of self-insurance and workers compensation obligations; (B) any customary cash management, cash pooling or netting or setting off arrangements; Indebtedness of a Person outstanding on the date on which such Person becomes a Restricted Subsidiary or is acquired by the Company or a Restricted Subsidiary or merged, consolidated, amalgamated or otherwise combined with (including pursuant to any acquisition of assets and assumption of related liabilities) the Company or a Restricted Subsidiary in accordance with this Indenture (other than Indebtedness incurred (a) to provide all or any portion of the funds utilized to consummate the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary or was otherwise acquired by or was merged into the Company or a Restricted Subsidiary or (b) otherwise in connection with, or in contemplation of, such acquisition); provided, however, with respect to this clause (16) that at the time of the acquisition or other transaction pursuant to which such Indebtedness was deemed to be incurred, (x) the Company would have been able to incur $1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving effect to the incurrence of such Indebtedness pursuant to this clause (16) or (y) the Fixed Charge Coverage Ratio would not be less than it was immediately prior to giving effect to such acquisition or other transaction; Indebtedness represented by Guarantees of any Management Advances;

(10) (11)

(12)

(13) (14)

(15)

(16)

(17)

206

(18)

Guarantees by the Company or any Restricted Subsidiary granted to any trustee of any management equity plan or stock option plan or any other management or employee benefit or incentive plan or unit trust scheme approved by the Board of Directors of the Company, so long as the proceeds of the Indebtedness so Guaranteed is used to purchase Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any net cash proceeds from the sale of such Equity Interests of the Company will be excluded from clause (3)(b) of the first paragraph of the covenant described above under the caption Certain CovenantsRestricted Payments and will not be considered to be net cash proceeds from an Equity Offering for purposes of the Optional Redemption provisions of the Indenture; Indebtedness represented by Guarantees of pension fund obligations of the Company or any Restricted Subsidiary required by law or regulation; Indebtedness in connection with one or more standby letters of credit, Guarantees, performance bonds or other reimbursement obligations, in each case, issued in the ordinary course of business and not in connection with the borrowing of money or the obtaining of an advance or credit (other than advances or credit for goods and services in the ordinary course of business and on terms and conditions that are customary in the Oil and Gas Business, and other than the extension of credit represented by such letter of credit, Guarantee or performance bond itself); the incurrence by the Company or any Restricted Subsidiary of Indebtedness through the provision of bonds, Guarantees, letters of credit or similar instruments required by any African or international maritime commission or authority or other governmental or regulatory agencies, including, without limitation, customs authorities; in each case, for vessels owned or chartered by, and in the ordinary course of business of, the Company or any of its Restricted Subsidiaries at any time outstanding not to exceed the amount required by such governmental or regulatory authority; the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in the form of customer deposits and advance payments received in the ordinary course of business from customers for purchases in the ordinary course of business; any obligation in respect of a farm-in agreement or similar arrangement whereby such person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an oil or gas property; and the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness or the issuance of Disqualified Stock by the Company or preferred stock by any Restricted Subsidiary in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, replace, defease or discharge any Indebtedness incurred pursuant to this clause (24) not to exceed the greater of (a) $35.0 million and (b) 3.5% of Adjusted Consolidated Net Tangible Assets.

(19) (20)

(21)

(22)

(23)

(24)

Notwithstanding any other provision of this Incurrence of Indebtedness and Issuance of Preferred Stock covenant or the covenant described below under the caption Liens, the Company will not, and will not permit any of its Restricted Subsidiaries to incur Priority Indebtedness, or permit any Indebtedness to become Priority Indebtedness by virtue of the granting of a Lien or by reclassifying any such Indebtedness such that it becomes Priority Indebtedness, where the aggregate amount of Priority Indebtedness of the Company and its Restricted Subsidiaries would exceed the greater of (i) $150.0 million and (ii) 20% of Adjusted Consolidated Net Tangible Assets, determined as of the date of incurrence of such Indebtedness (or the date such Indebtedness becomes Priority Indebtedness by such granting of a Lien or such debt reclassification, as the case may be) after giving pro forma effect to the incurrence and application of the proceeds from such Indebtedness. The Company will not incur, and will not permit any Senior Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Senior Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes and the applicable Senior Note Guarantee on substantially identical terms; provided, however, that no Indebtedness will be deemed to 207

be contractually subordinated in right of payment to any other Indebtedness of the Company or any Senior Guarantor solely by virtue of being unsecured, by virtue of being secured with different collateral or by virtue of being secured on a junior priority basis or by virtue of the application of waterfall or other payment ordering provisions affecting different tranches of Indebtedness under Credit Facilities. For purposes of determining compliance with, and the outstanding principal amount of, any particular Indebtedness incurred pursuant to and in compliance with this covenant: (1) in the event that an item or portion of an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (24) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company, in its sole discretion, will be permitted to classify such item or portion of an item of Indebtedness on the date of its incurrence and only be required to include the amount and type of such Indebtedness in one of such clauses and from time to time to reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant, except that all Indebtedness outstanding on the Issue Date under any Credit Facilities shall be deemed initially incurred under clause (1) of the second paragraph of this covenant (it being understood that some or all of such Indebtedness may in the future be reclassified); guarantees of, or obligations in respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included; and Indebtedness permitted by this covenant need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness.

(2)

(3)

The amount of any Indebtedness outstanding as of any date will be: (1) (2) in the case of any Indebtedness issued with original issue discount, the amount of the liability in respect thereof determined in accordance with IFRS; in respect of Hedging Obligations (the amount of any such Indebtedness to be equal at any time to either (a) zero if such Hedging Obligation is incurred pursuant to clause (9) of the second paragraph of this covenant or (b) the notional amount of such Hedging Obligation if not incurred pursuant to such clause); the principal amount of the Indebtedness, in the case of any other Indebtedness; and in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (a) (b) the Fair Market Value of such assets at the date of determination; and the amount of the Indebtedness of the other Person.

(3) (4)

Accrual of interest, accrual of dividends, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness, the reclassification of preferred stock as Indebtedness due to a change in accounting principles and the payment of dividends in the form of additional shares of preferred stock or Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of preferred stock or Disqualified Stock for purposes of this covenant. The amount of any Indebtedness outstanding as of any date shall be the principal amount or liquidation preference thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under this Incurrence of Indebtedness and Issuance of Preferred Stock covenant, the Company shall be in Default of this covenant).

208

For purposes of determining compliance with any U.S. Dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a different currency shall be utilized, calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred; provided however, that (i) if such Indebtedness denominated in non-dollar currency is subject to a Currency Exchange Protection Agreement with respect to U.S. dollars, the amount of such Indebtedness expressed in U.S. dollars will be calculated so as to take account of the effects of such Currency Exchange Protection Agreement; and (ii) the dollar equivalent of the principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date. The principal amount of any refinancing Indebtedness incurred in the same currency as the Indebtedness being refinanced will be the euro-equivalent of the Indebtedness refinanced determined on the date such Indebtedness was originally incurred, except that to the extent that: (1) such dollar-equivalent was determined based on a Currency Exchange Protection Agreement, in which case the Refinancing Indebtedness will be determined in accordance with the preceding sentence; and the principal amount of the refinancing Indebtedness exceeds the principal amount of the Indebtedness being refinanced, in which case the dollar-equivalent of such excess will be determined on the date such refinancing Indebtedness is being incurred.

(2)

The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such Permitted Refinancing Indebtedness is denominated that is in effect on the date of such refinancing. Liens The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness upon any of its property or assets (whether now owned or hereafter acquired), except (1) in the case of any property or asset that does not constitute Collateral, Permitted Liens and (2) in the case of any property or asset that constitutes Collateral, Permitted Collateral Liens, unless: (1) in the case of any Lien securing Subordinated Obligations of the Company or a Guarantor, the Notes or Note Guarantee, as applicable, are secured by a Lien on such property or assets on a senior basis to the Subordinated Obligations so secured until such time as such Subordinated Obligations are no longer so secured by that Lien; and in the case of any other Lien securing Indebtedness, the Notes or Note Guarantees, as applicable, are secured by a Lien on such property or assets on an equal and ratable basis with the obligation or liability so secured until such time as such obligation or liability is no longer so secured by that Lien.

(2)

Notwithstanding any other provision of the covenant described above under the caption Incurrence of Indebtedness and Issuance of Preferred Stock or this Liens covenant, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Borrowed Money Indebtedness over assets located in Nigeria and owned by a Restricted Subsidiary incorporated in Nigeria (a Nigerian Company) that also constitute Collateral (the Nigerian Collateral) and on which, under Nigerian law, stamp duty or registration fees are due and payable, unless the creditors under such Borrowed Money Indebtedness have entered into an intercreditor agreement with the Trustee or the relevant Collateral Agent containing Nigerian Upstamping Protection Provisions. The foregoing sentence shall not be applicable to the extent that the Borrowed Money Indebtedness is Priority Indebtedness permitted to be incurred under the covenant described above under the caption Incurrence of Indebtedness and Issue of Preferred Stock. Dividend and other Payment Restrictions Affecting Subsidiaries The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

209

(1)

pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; make loans or advances to the Company or any of its Restricted Subsidiaries; or sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, provided that (x) the priority of any preferred stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock and (y) the subordination of (including the application of any standstill period to) loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness incurred by the Company or any Restricted Subsidiary, shall not be deemed to constitute such an encumbrance or restriction.

(2) (3)

However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the Issue Date and any amendments, restatements, modifications, renewals, supplements, increases, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, increases, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Issue Date (as determined in good faith by the Board of Directors or a responsible accounting or financial officer of the Company); the Indenture, the Notes (including Additional Notes) and the Note Guarantees, the Security Documents, the Ebok Facility, the 2016 Notes Indenture, the 2016 Notes and Guarantees thereof, the Socar Facility and, in each case, any security documents related thereto; applicable law, rule, regulation or order or the terms of any license, authorization, approval, concession or permit or similar restriction; any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; customary non-assignment and similar provisions in contracts, leases and licenses (including, without limitation, licenses of intellectual property) entered into in the ordinary course of business; purchase money obligations for property (including Capital Stock) acquired in the ordinary course of business, Capital Lease Obligations and mortgage financings that impose restrictions on the property purchased or leased of the nature described in clause (3) of the preceding paragraph; any agreement for the sale or other disposition of assets, including without limitation an agreement for the sale or other disposition of the Capital Stock or assets of a Restricted Subsidiary, that restricts distributions by the applicable Restricted Subsidiary pending the sale or other disposition; Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced (as determined in good faith by the Board of Directors or a responsible accounting or financial officer of the Company); Liens permitted to be incurred under the provisions of the covenant described above under the caption Liens that limit the right of the debtor to dispose of the assets subject to such Liens; 210

(2)

(3) (4)

(5)

(6)

(7)

(8)

(9)

(10)

provisions limiting the disposition or distribution of assets or property in, or transfer of Capital Stock of, joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements (including agreements entered into in connection with a Restricted Investment), which limitations are applicable only to the assets, property or Capital Stock that are the subject of such agreements; other Indebtedness of the Company or any of its Restricted Subsidiaries or the issuance of preferred stock by a Restricted Subsidiary or the payment of dividends thereon in accordance with the terms thereof permitted to be incurred pursuant to an agreement entered into subsequent to the Issue Date or issued, as applicable, in accordance with the covenant described under the caption Incurrence of Indebtedness and Issuance of Preferred Stock; and any amendments, restatements, modifications, renewals, supplements, increases, refundings, replacements or refinancings of those agreements; provided that such encumbrance or restriction contained in such Indebtedness are not materially more restrictive taken as a whole than customary in comparable financings in such jurisdictions as such Indebtedness is being incurred (as determined in good faith by the Board of Directors or a responsible accounting or financial officer of the Company); supermajority voting requirements existing under corporate charters, bylaws, stockholders agreements and similar documents and agreements; customary provisions restricting subletting or assignment of any lease governing a leasehold interest; encumbrances or restrictions contained in Hedging Obligations permitted from time to time under the Indenture; restrictions on cash or other deposits or net worth imposed by customers or suppliers or required by insurance, surety or bonding companies, in each case under contracts entered into in the ordinary course of business; and any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (1) through (15), or in this clause (16); provided that the terms and conditions of any such encumbrances or restrictions are not materially more restrictive taken as a whole with respect to such dividend and other payment restrictions than those under or pursuant to the agreement so extended, renewed, refinanced or replaced (as determined in good faith by the Board of Directors or a responsible accounting or financial officer of the Company).

(11)

(12) (13) (14) (15)

(16)

Merger, Consolidation or Sale of Assets The Company The Company will not, directly or indirectly (i) consolidate, amalgamate or merge with or into another Person (whether or not the Company is the surviving corporation) or (ii) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries, taken as a whole, in one or more related transactions, to another Person, unless: (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation, amalgamation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is an entity organized or existing under the laws of any member state of the European Union as in effect on December 31, 2003, Switzerland, Canada, any state of the United States or the District of Columbia; the Person formed by or surviving any such consolidation, amalgamation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made assumes all the obligations of the Company under the Notes and the Indenture; 211

(2)

(3) (4)

immediately after such transaction or transactions, no Default or Event of Default exists; the Company or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period (i) be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption Incurrence of Indebtedness and Issuance of Preferred Stock; or (ii) have a Fixed Charge Coverage Ratio not less than it was immediately prior to giving effect to such transaction; each Guarantor (unless it is the other party to the transactions above, in which case clause (2) shall apply) shall have by supplemental indenture confirmed that its Guarantee shall apply to such Persons obligations in respect of the Indenture and the Notes and shall continue to be in effect; and the Company shall have delivered to the Trustee an officers certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this covenant; provided that in giving an opinion of counsel, counsel may rely on an officers certificate as to any matters of fact.

(5)

(6)

The Guarantors A Guarantor (other than a Guarantor whose Note Guarantee is to be released in accordance with the terms of the Note Guarantee and the Indenture as described under Note Guarantees Release) may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless: (1) (2) immediately after giving effect to that transaction, no Default or Event of Default exists; and either: (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than the Company or another Guarantor) unconditionally assumes, pursuant to a supplemental indenture substantially in the form specified in the Indenture, all the obligations of such Guarantor under such Indenture and its Note Guarantee on terms set forth therein; or the Net Proceeds of such sale or other disposition are applied in accordance with the provisions of the Indenture described under the caption Repurchase at the Option of HoldersAsset Sales.

(b)

For purposes of this covenant, the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the assets of the Company. The surviving entity will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but, in the case of a lease of all or substantially all of its assets, the Company will not be released from the obligation to pay the principal of and interest and premium, if any, on the Notes. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve all or substantially all of the property or assets of a Person. Clauses (3) and (4) of the first paragraph of this covenant will not apply to any merger or consolidation of the Company or any Restricted Subsidiary into an Affiliate solely for the purpose of reincorporating the Company or such Restricted Subsidiary in another jurisdiction. Nothing in the Indenture will prevent and this covenant will not apply to (i) any 212

Restricted Subsidiary consolidating with, merging with or into or transferring all or part of its properties and assets to the Company, (ii) the Company merging with or into a Restricted Subsidiary for the purpose of reincorporating the Company in another jurisdiction, and (iii) any Restricted Subsidiary consolidating with, merging with or into or transferring all or part of its properties and assets to another Restricted Subsidiary. Transactions with Affiliates The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an Affiliate Transaction) involving aggregate payments or consideration in excess of $2.0 million, unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person (as determined in good faith by a responsible financial or accounting officer of the Company); and the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, a resolution of the Board of Directors of the Company set forth in an officers certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company; and with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $30.0 million, an opinion of an accounting, appraisal or investment banking firm of national standing, or other recognized independent expert of national standing with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required, stating that the transaction or series of related transactions is (i) fair to the Company or such Restricted Subsidiary from a financial point of view taking into account all relevant circumstances or (ii) on terms not less favorable than might have been obtained in a comparable transaction at such time on an arms length basis from a Person who is not an Affiliate.

(2)

(b)

The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement or arrangement, collective bargaining agreement, consultant agreement, stock option, stock appreciation, stock incentive or stock ownership or similar plan, employee benefit arrangements, officer or director indemnification agreement, restricted stock agreement, severance agreement or other compensation plan or arrangement, in each case entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business (as determined in good faith by a responsible financial or accounting officer of the Company) with officers, directors, consultants or employees of the Company and its Restricted Subsidiaries and payments, awards, grants or issuances of securities pursuant thereto; transactions between or among the Company and/or its Restricted Subsidiaries; Management Advances; Restricted Payments not prohibited by the provisions of the Indenture described above under the caption Restricted Payments and Permitted Investments;

(2) (3) (4)

213

(5)

transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; payment of customary directors fees, indemnification and similar arrangements (including the payment of directors and officers insurance premiums), consulting fees, employee salaries, bonuses, employment agreements and arrangements, compensation or employee benefit arrangements, including stock options or legal fees (as determined in good faith by a majority of the disinterested members of the Board of Directors of the Company or, so long as the Company remains listed on the London Stock Exchange, otherwise in compliance with the Companys code of corporate governance); any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; transactions with a joint venture or similar entity which would constitute an Affiliate Transaction solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such joint venture or similar entity; transactions pursuant to, or contemplated by any agreement or arrangement in effect on the Issue Date and transactions pursuant to any amendment, modification, supplement or extension thereto; provided that any such amendment, modification, supplement or extension to the terms thereof, taken as a whole, is not materially more disadvantageous to the holders of the Notes than the original agreement or arrangement as in effect on the Issue Date; (i) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services or providers of employees or other labor, including any transactions with First Hydrocarbon Nigeria Limited, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture that are fair to the Company or the Restricted Subsidiaries, in the reasonable determination of the members of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated Person and (ii) to the extent constituting Affiliate Transactions, transactions with any governmental agency or entity in connection with the Oil and Gas Business; payments or other transactions pursuant to any tax sharing agreement or arrangement among the Company or any of its Restricted Subsidiaries and any other Person with which the Company or any of its Restricted Subsidiaries files or filed a consolidated tax return or with which the Company or any of its Restricted Subsidiaries is or was part of a consolidated group for tax purposes or any tax advantageous group contribution made pursuant to applicable legislation in amounts not otherwise prohibited by this Indenture; provided, however, that such payments, and the value of such transactions, shall not exceed the amount of tax that the Company or such Restricted Subsidiaries would owe without taking into account such other Person; and transactions between the Company or any Restricted Subsidiary and any Person, a director of which is also a director of the Company or any direct or indirect parent of the Company and such director is the sole cause for such Person to be deemed an Affiliate of the Company or any Restricted Subsidiary; provided, however, that such director shall abstain from voting as a director of the Company or such direct or indirect parent company, as the case may be, on any matter involving such other Person.

(6)

(7) (8)

(9)

(10)

(11)

(12)

Limitation on Lines of Business The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than the Oil and Gas Business, except to the extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole.

214

Limitation on Guarantees of Indebtedness by Restricted Subsidiaries The Company will not permit any Restricted Subsidiary that is not a Guarantor, directly or indirectly, to Guarantee, assume or in any other manner become liable for the payment of any Indebtedness of the Company (other than the Notes) or a Guarantor (other than a Guarantee of the Notes), unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee of payment of the Notes by such Restricted Subsidiary on the same terms as the Guarantee of such Indebtedness; provided, however, that (a) with respect to any Guarantee of Subordinated Obligations by such Restricted Subsidiary, any such Guarantee shall be subordinated to such Restricted Subsidiarys Guarantee with respect to the Notes at least to the same extent as such Subordinated Obligation is explicitly subordinated to the Notes in right of payment, and (b) with respect to a Guarantee of the Ebok Facility (or any Permitted Refinancing Indebtedness in respect thereof) by such Restricted Subsidiary, the subordination of such Restricted Subsidiarys Guarantee of the Notes shall be on terms substantially similar to the subordination of Afren Energy Resources Limiteds Guarantee of the Notes under the terms of the Ebok Intercreditor Agreement. The foregoing paragraph will not be applicable to any Guarantees of any Restricted Subsidiary: (1) (2) existing on the date of the Indenture; that existed at the time such Person became a Restricted Subsidiary if the Guarantee was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary; arising due to the granting of a Permitted Lien; given to a bank or trust company having combined capital and surplus and undivided profits of not less than $500 million, whose debt has a rating, at the time such Guarantee was given, of at least A or the equivalent thereof by S&P and at least A2 or the equivalent thereof by Moodys, in connection with the operation of cash management programs established for the Companys benefit or that of any Restricted Subsidiary; or any Indebtedness incurred pursuant to the first paragraph or clause (1) of the second paragraph of the covenant described under Incurrence of Indebtedness and Issuance of Preferred Stock.

(3) (4)

(5)

In addition, notwithstanding anything to the contrary herein: (1) no Guarantee shall be required if such Guarantee could reasonably be expected to give rise to or result in (A) personal liability for the officers, directors or shareholders of such Restricted Subsidiary, (B) any violation of applicable law that cannot be avoided or otherwise prevented through measures reasonably available to the Company or such Restricted Subsidiary or (C) any significant cost, expense, liability or obligation (including with respect of any Taxes) other than reasonable out of pocket expenses and other than reasonable expenses incurred in connection with any governmental or regulatory filings required as a result of, or any measures pursuant to clause (B) undertaken in connection with, such Guarantee, which cannot be avoided through measures reasonably available to the Company or the Restricted Subsidiary; no Guarantee shall be required if the Company has used reasonable best efforts to cause such entity to become a Guarantor, taking into account the Agreed Guarantee and Security Principles; and each such Guarantee will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally) or other considerations under applicable law.

(2)

(3)

Future Guarantees granted pursuant to this provision may be released at the option of the Company as set forth under Note Guarantees Releases. A Guarantee of a future Guarantor may also be released at the option of the Company if at the date of such release either (i) there is no Indebtedness of such Guarantor outstanding which was incurred after the Issue Date and which could not have been incurred in compliance with the Indenture if such Guarantor had not been designated as a Guarantor, or (ii) there is no Indebtedness of such Guarantor outstanding which was incurred after the Issue 215

Date and which could not have been incurred in compliance with the Indenture as at the date of such release if such Guarantor were not designated as a Guarantor as at that date. The Trustee and the Ebok Collateral Agent or the Primary Collateral Agent, as applicable, shall each take all necessary actions, including the granting of releases or waivers under the Ebok Intercreditor Agreement, any Additional Ebok Intercreditor Agreement or any Pari Passu Intercreditor Agreement, to effectuate any release of a Guarantee in accordance with these provisions, subject to customary protections and indemnifications. Impairment of security interest The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, take or knowingly or negligently omit to take, any action which action or omission might or would have the result of materially impairing the security interest with respect to the Collateral (it being understood that the incurrence of Liens on the Collateral permitted by the definition of Permitted Collateral Liens shall under no circumstances be deemed to materially impair the security interest with respect to the Collateral) for the benefit of the Trustee and the holders of the Notes, and the Company will not, and will not cause or permit any of its Restricted Subsidiaries to, grant to any Person other than any Security Trustee, for the benefit of the Trustee and the holders of the Notes and the other beneficiaries described in the Security Documents and/or the Ebok Intercreditor Agreement, any Additional Ebok Intercreditor Agreement or any Pari Passu Intercreditor Agreement, any interest whatsoever in any of the Collateral; provided that (i) nothing in this provision shall restrict the discharge or release of the Collateral in accordance with the Indenture, the Security Documents and/or the Ebok Intercreditor Agreement, any Additional Ebok Intercreditor Agreement or any Pari Passu Intercreditor Agreement and (ii) the Company and its Restricted Subsidiaries may incur Permitted Collateral Liens; and provided further, however, that no Security Document may be amended, extended, renewed, restated, supplemented or otherwise modified or replaced, unless contemporaneously with such amendment, extension, replacement, restatement, supplement, modification or renewal, the Company delivers to the Trustee either (1) a solvency opinion, in form and substance reasonably satisfactory to the Trustee from an accounting, appraisal or investment banking of national standing confirming the solvency of the Company and its Subsidiaries, taken as a whole, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, release, modification or replacement, (2) a certificate in the form attached to the Indenture from the chief financial officer or the Board of Directors of the relevant Person which confirms the solvency of the person granting Security Interest after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification or replacement, or (3) an opinion of counsel, in form and substance reasonably satisfactory to the Trustee (subject to customary exceptions and qualifications), confirming that, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification or replacement, the Lien or Liens securing the Notes created under the Security Documents so amended, extended, renewed, restated, supplemented, modified or replaced are valid and perfected Liens not otherwise subject to any limitation, imperfection or new hardening period, in equity or at law, and that such Lien or Liens were not otherwise subject to immediately prior to such amendment, extension, renewal, restatement, supplement, modification or replacement which shall be substantially in the form attached to the Indenture. Notwithstanding the preceding paragraph which shall not apply to the actions described in this paragraph, at the direction of the Company and without the consent of the holder of Notes, a Security Trustee may from time to time enter into one or more amendments to the Security Documents to: (i) cure any ambiguity, omission, defect or inconsistency therein; (ii) (but subject to compliance with the foregoing paragraph) provide for Permitted Collateral Liens to the extent permitted by the Indenture; (iii) add to the Collateral; (iv) comply with the terms of the Ebok Intercreditor Agreement, any Additional Ebok Intercreditor Agreement or any Pari Passu Intercreditor Agreement; (v) evidence the succession of another Person to the Company and the assumption by such successor of the obligations under the Indenture, the Notes and the Security Documents, in each case, in accordance with Certain CovenantsMerger, Consolidation or Sale of Assets; (vi) provide for the release of property and assets constituting Collateral from the Lien of the Security Documents and/or the release of the Note Guarantee of a Guarantor, in each case, in accordance with (and if permitted by) the terms of the Indenture; (vii) conform the Security Documents to this Description of Notes; (viii) evidence and provide for the acceptance of the appointment of a successor Trustee or Security Trustee; or (ix) make any other change thereto that does not adversely affect the rights of the holders of the Notes in any material respect. In the event that the Company complies with this covenant, the Trustee and the Security Trustee shall (subject to customary protections and indemnifications) consent to such amendment, extension, renewal, restatement, supplement, modification or replacement with no need for instructions from holders of the Notes. Delivery of Security and Guarantees The Company will use its commercially reasonable efforts to, within six months after the Issue Date, deliver with respect to the Okoro Collateral a contractual first priority English law assignment of rights and interests in AERLs primary operating, production sharing and off-take contracts, it being understood that the forms of notices of assignment delivered in 216

respect of the 2016 Notes shall be sufficient when delivered in respect of the Notes for purposes of such assignment. The security interests to be granted by AERL will not extend to assets held by or jointly with our indigenous partners. For the avoidance of doubt, provided the Company has used commercially reasonable efforts, failure to so deliver within six months after the Issue Date will not constitute a default under the Indenture. The Company will pay the relevant stamp duty and registration fee due and payable on any Nigerian Collateral for a minimum of $1.0 million principal amount of Notes as soon as practicable following the closing of the Offering. Pari Passu Intercreditor Agreements At the request of the Company, at the time of, or prior to, any time that the Company or any of the Companys Restricted Subsidiaries incurs or guarantees any Indebtedness (the Pari Passu Indebtedness) to be secured by a Lien on assets of the Company or any of its Restricted Subsidiaries (other than a Lien in respect of the Ebok Collateral) which assets will also secure the Notes and/or a Note Guarantee (the Shared Collateral), the Company or the relevant Restricted Subsidiaries, the Trustee and the Primary Collateral Agent (or such other Collateral Agent as approved, delegated or appointed by the creditors and/or agents of creditors in respect of the Pari Passu Indebtedness (the Pari Passu Creditors)) shall enter into with the Pari Passu Creditors (or their agent, representative or trustee), an intercreditor agreement (each a Pari Passu Intercreditor Agreement) in respect of the Shared Collateral, containing the following terms (together, the Fundamental Intercreditor Rights): (i) terms providing that the holders of the Notes and the holders of Pari Passu Indebtedness shall rank equally in priority and share pro rata entitlement in and to the Shared Collateral; terms with respect to enforcement of the Shared Collateral that provides that the Collateral Agent will act only at the written direction of the Pari Passu Creditors (unless the related Pari Passu Indebtedness is capital markets indebtedness, in which case instruction may be given by holders of a majority of the outstanding principal amount of the Indebtedness secured by the Shared Collateral, including the Notes and any Additional Notes) and, except with respect to Pari Passu Indebtedness that is capital markets indebtedness, the Pari Passu Creditors will have exclusive right to make all decisions with respect to the enforcement of remedies (and determination as to whether any or all Liens on the Shared Collateral shall be released in connection therewith) relating to the shared Collateral until amounts outstanding under the Pari Passu Indebtedness and any other Indebtedness (other than the Notes and any Additional Notes) secured on a first priority Lien on the shared Collateral and any Permitted Refinancing Indebtedness in respect thereof, are paid in full and discharged; terms providing that the Shared Collateral shall only be substituted or released and Liens shall only be granted on the Shared Collateral to the extent permitted under (or not prohibited by) both the Indenture and the documents governing other Pari Passu Indebtedness (it being understood that the Pari Passu Creditors shall have the right under any Pari Passu Intercreditor Agreement to instruct the Collateral Agent to release any or all Liens on the Shared Collateral in connection with any enforcement action), and the terms for substitution or release of Shared Collateral shall be substantially similar to the terms of the release in the Indenture relating to the Notes; and to the extent relevant, Nigerian Upstamping Protection Provisions (for avoidance of doubt, in the event the Shared Collateral is not located in Nigeria and/or owned by a Nigerian Company, then the Pari Passu Intercreditor Agreement need not contain any Nigerian Upstamping Protection Provisions).

(ii)

(iii)

(iv)

Any Pari Passu Intercreditor Agreement shall provide that the Fundamental Intercreditor Rights may only be amended or waived with the consent of the holders of a majority of the outstanding principal amount of the Indebtedness secured by the Shared Collateral. Each Pari Passu Intercreditor Agreement shall have an intercreditor agent or security agent who acts on behalf of all of the holders of the Pari Passu Indebtedness and their agents.

217

The Indenture will also provide that, at the written direction of the Company and without the consent of the holders of the Notes, the Trustee may from time to time enter into one or more amendments to any Pari Passu Intercreditor Agreement or deed to: (i) cure any ambiguity, omission, defect or inconsistency therein; (ii) increase the amount of Indebtedness of the types covered by the Pari Passu Intercreditor Agreement in a manner not prohibited by the Indenture and in a manner substantially consistent with the ranking and terms of such Pari Passu Intercreditor Agreement; (iii) add Guarantors or other parties (such as representatives of new issuances of Indebtedness) thereto; (iv) make any change necessary or desirable, in the good faith determination of the Board of Directors of the Company, in order to implement any transactions permitted under the second paragraph under the caption Consolidation, Merger, Sale of Assets; provided that such change does not adversely affect the rights of the holders of the Notes in any material respect; or (v) make any other such change thereto that does not adversely affect the rights of the holders of the Notes in any material respect. The Company shall not otherwise direct the Trustee to enter into any amendment to any Pari Passu Intercreditor Agreement without the consent of the holders of a majority in aggregate principal amount of the Notes then outstanding, except as otherwise permitted below under Amendment, Supplement and Waiver. Any Pari Passu Intercreditor Agreement may be discharged at the option of the Company if at the date of such release the Indebtedness of the Company or a Restricted Subsidiary in respect of any relevant Pari Passu Indebtedness covered thereby has been discharged or refinanced. The Trustee and the Collateral Agent shall each take all necessary actions to effectuate the discharge of any Pari Passu Intercreditor Agreement in accordance with these provisions, subject to customary protections and indemnifications. Each holder of a Note, by accepting such Note, will be deemed to have: (1) (2) (3) (4) appointed and authorized the Trustee to give effect to such provisions; authorized the Trustee to become a party to any future intercreditor arrangements or deeds described above; agreed to be bound by such provisions and the provisions of any future intercreditor arrangements or deeds described above; and irrevocably appointed the Trustee to act on its behalf to enter into and comply with such provisions and the provisions of any future intercreditor arrangements or deeds described above.

Designation of Restricted and Unrestricted Subsidiaries The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption Restricted Payments or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a copy of a resolution of the Board of Directors of the Company giving effect to such designation and an officers certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption Incurrence of Indebtedness and Issuance of Preferred Stock, the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption Incurrence of Indebtedness and Issuance of Preferred Stock, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. 218

Reports (1) The Company will make available, upon request, to any holder of Notes or prospective purchaser of Notes in the United States, in connection with any sale thereof, the information specified in Rule 144A(d)(4) under the U.S. Securities Act, unless the Company is subject to Section 13 or 15(d) of the U.S. Exchange Act at or prior to the time of such request. So long as any Notes are outstanding, the Company shall furnish to the Trustee (which shall distribute the same to a holder of Notes upon such holders written request) and publish on its website: (a) within 120 days after the end of each of the Companys fiscal years beginning with the fiscal year ended December 31, 2011, annual reports containing the following information with a level of detail that is substantially comparable and similar in scope to this Offering Memorandum: (a) audited consolidated balance sheet of the Company as of the end of the two most recent fiscal years and audited consolidated income statements and statements of cash flow of the Company for the three most recent fiscal years, including complete notes to such financial statements and the report of the independent auditors on the financial statements; (b) pro forma income statement and balance sheet information, together with any explanatory footnotes, for any material acquisitions, dispositions or recapitalizations that have occurred since the beginning of the most recently completed fiscal year as to which such annual report relates, unless the pro forma information has been previously provided; provided that such pro forma financial information will be provided only to the extent available without unreasonable expense; (c) an operating and financial review of the audited financial statements, including a discussion of the results of operations including a discussion of financial condition and liquidity and capital resources, and a discussion of material commitments and contingencies and critical accounting policies; (d) a description of the business, all material affiliate transactions, Indebtedness and material financing arrangements and all material debt instruments; and (e) material risk factors and material recent developments; within 60 days after the end of the first three fiscal quarters in each fiscal year of the Company, quarterly reports containing the following information: (a) an unaudited condensed consolidated balance sheet as of the end of such three-month period and unaudited condensed statements of income and cash flow for the year-to-date periods ending on the unaudited condensed balance sheet date, and the comparable prior year periods for the Company, together with condensed note disclosure; (b) pro forma income statement and balance sheet information of the Company, together with explanatory footnotes, for any material acquisitions, dispositions or recapitalizations that have occurred since the beginning of the period as to which such report relates (provided that such pro forma financial information will be provided only to the extent available without unreasonable expense); (c) an operating and financial review of the unaudited financial statements including a discussion of the consolidated financial condition and results of operations of the Company and any material change between the current quarterly period and the corresponding period of the prior year; and (d) material recent developments; and promptly after the occurrence of any material acquisition, disposition or restructuring of the Company and its Restricted Subsidiaries, taken as a whole, or any senior executive officer changes at the Company or changes in auditors of the Company or other material event that the Company announces publicly, a report containing a description of such event.

(2)

(b)

(c)

All financial statements and pro forma financial information shall be prepared in accordance with IFRS on a consistent basis for the periods presented. Except as provided for above, no report need include separate financial statements for the Company or Subsidiaries of the Company or any disclosure with respect to the results of operations or any other financial or statistical disclosure not of a type included in this Offering Memorandum. If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries and such Subsidiaries are Significant Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include 219

a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. In addition, for so long as any Notes remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the U.S. Exchange Act nor exempt therefrom pursuant to Rule 12g3-2(b), the Company has agreed that it will furnish to the holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act. The Company will also make available copies of all reports required by clauses (i) through (iii) of the second paragraph of this covenant, if and so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market and the rules of the Luxembourg Stock Exchange so require, at the offices of the Paying Agent in Luxembourg or, to the extent and in the manner permitted by such rules, post such reports on the official website of the Luxembourg Stock Exchange (www.bourse.lu). Suspension of Covenants when Notes Rated Investment Grade If on any date following the Issue Date: (1) (2) the Notes have achieved Investment Grade Status; and no Default or Event of Default shall have occurred and be continuing on such date,

then, beginning on that day and continuing until such time, if any, at which the Notes cease to have Investment Grade Status (such period, the Suspension Period), the covenants specifically listed under the following captions in this Offering Memorandum will no longer be applicable to the Notes and any related default provisions of the Indenture will cease to be effective and will not be applicable to the Company and its Restricted Subsidiaries: (1) (2) (3) (4) (5) (6) (7) (8) Repurchase at the Option of HoldersAsset Sales; Certain CovenantsRestricted Payments; Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock; Certain CovenantsDividend and other Payment Restrictions Affecting Subsidiaries; Certain CovenantsDesignation of Restricted and Unrestricted Subsidiaries; Certain CovenantsTransactions with Affiliates; Certain CovenantsLimitation on Guarantees of Indebtedness by Restricted Subsidiaries; and clause (4) of the first paragraph of the covenant described under Merger, Consolidation or Sale of Assets.

Such covenants will not, however, be of any effect with regard to the actions of the Company and the Restricted Subsidiaries properly taken during the continuance of the Suspension Period; provided that (a) with respect to the Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as though the covenant described under the caption Restricted Payments had been in effect prior to, but not during, the Suspension Period and (b) all Indebtedness incurred, or Disqualified Stock or preferred stock issued, during the Suspension Period will be classified to have been incurred or issued pursuant to clause (3) of the second paragraph of the caption Incurrence of Indebtedness and Issuance of Preferred Stock. Upon the occurrence of a Suspension Period, the amount of Excess Proceeds shall be reset at zero. There can be no assurance that the Notes will ever achieve or maintain an Investment Grade Status.

220

Maintenance of Listing The Company will use its commercially reasonable efforts to maintain the listing of the Notes on the Euro MTF Market for so long as such Notes are outstanding; provided that it at any time the Company determines that it will not maintain such listing, it will obtain prior to the delisting of the Notes from the Euro MTF Market, and thereafter use its commercially reasonable efforts to maintain, a listing of such Notes on another recognized stock exchange or exchange regulated market in Western Europe. Events of Default and Remedies Each of the following is an Event of Default: (1) (2) (3) (4) default for 30 days in the payment when due of interest or Additional Amounts, if any, with respect to the Notes; default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes; failure by the Company or any Guarantor to comply with the provisions described under the caption Certain CovenantsMerger, Consolidation or Sale of Assets; failure by the Company or any of its Restricted Subsidiaries to comply for 30 days after notice with any of the provisions described under the caption Repurchase at the Option of Holders Change of Control above; failure by the Company or relevant Guarantor for 60 days after written notice to the Company by the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the other agreements in the Indenture (other than a default in performance, or breach, or a covenant or agreement which is specifically dealt with in clauses (1), (2), (3) or (4)), the Ebok Intercreditor Agreement or the Security Documents; default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created, after the Issue Date, if that default: (a) is caused by a failure to pay principal of such Indebtedness at final maturity thereof after giving effect to any applicable grace periods provided in such Indebtedness and such failure to make any payment has not been waived or the maturity of such Indebtedness has not been extended (a Payment Default); or results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more;

(5)

(6)

(b)

(7)

failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $20.0 million (net of any amount with respect to which a reputable and solvent insurance company has acknowledged liability in writing), which judgments are not paid, discharged, stayed or fully bonded for a period of 60 days (or, if later, the date when payment is due pursuant to such judgment); except as permitted by the Indenture (including with respect to any limitations), any Note Guarantee of a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor that is a Significant

(8)

221

Subsidiary or any Person acting on behalf of any such Guarantor that is a Significant Subsidiary, denies or disaffirms its obligations under its Note Guarantee; and (9) certain events of bankruptcy or insolvency described in the Indenture with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary.

In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company all then outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee may and at the direction of the holders of at least 25% in aggregate principal amount of the then outstanding Notes shall, declare all of the then outstanding Notes to be due and payable immediately by notice in writing to the Company and, in case of a notice by holders, also to the Trustee specifying the respective Event of Default and that it is a notice of acceleration. Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or Additional Amounts or premium, if any. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any holders of Notes unless such holders have offered to the Trustee indemnity and security satisfactory to it against any loss, liability or expense. Except (subject to the provisions described under Amendment, Supplement and Waiver) to enforce the right to receive payment of principal, premium, if any, or interest or Additional Amounts when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless: (1) (2) (3) (4) (5) such holder has previously given the Trustee notice that an Event of Default is continuing; holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested the Trustee to pursue the remedy; such holders have offered the Trustee security and indemnity satisfactory to it against any loss, liability or expense; the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.

The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may, on behalf of the holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Additional Amounts or premium on, or the principal of, the Notes held by a non-consenting holder (which may be waived with the consent of each holder of Notes affected). The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Additional Intercreditor Agreements At the request of the Company, at the time of, or prior to, the Incurrence of Indebtedness by (1) the Company or a Restricted Subsidiary under an Ebok Facility or (2) a Restricted Subsidiary that will also guarantee any Ebok Facility (or any Permitted Refinancing Indebtedness in respect thereof), the Company, the relevant Restricted Subsidiaries and the Trustee shall enter into an intercreditor agreement (each an Additional Ebok Intercreditor Agreement) in substantially the form of and on the same terms or terms substantially similar to the Ebok Intercreditor Agreement. The Indenture will also provide that, at the direction of the Company and without the consent of the holders of the Notes, the Trustee may from time to time enter into one or more amendments to the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement or deed to: (i) cure any ambiguity, omission, defect or inconsistency therein that does not adversely affect the rights of holders of Notes in any material respect; (ii) increase the amount of Indebtedness of the 222

types covered by the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement in a manner not prohibited by the Indenture and in a manner in substantially the form of and consistent with the ranking and terms of such Ebok Intercreditor Agreement or Additional Ebok Intercreditor Agreement; (iii) add Guarantors or other parties (such as representatives of new issuances of Indebtedness) thereto; (iv) make any change necessary or desirable, in the good faith determination of the Board of Directors of the Company, in order to implement any transactions permitted under the second paragraph under the caption Consolidation, Merger, Sale of Assets; provided that such change does not adversely affect the rights of the holders of the Notes in any material respect; or (v) make any other such change thereto that does not adversely affect the rights of the holders of the Notes in any material respect. The Company shall not otherwise direct the Trustee to enter into any amendment to the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement or deed without the consent of the holders of a majority in aggregate principal amount of the Notes then outstanding, except as otherwise permitted below under Amendment, Supplement and Waiver. The Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement may be discharged at the option of the Company if at the date of such release the Indebtedness of the Company or a Restricted Subsidiary in respect of any relevant Ebok Facility covered thereby has been discharged or refinanced. The Trustee and the Ebok Collateral Agent shall each take all necessary actions to effectuate the discharge of the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement in accordance with these provisions, subject to customary protections and indemnifications. Each holder of a Note, by accepting such Note, will be deemed to have: (1) (2) (3) (4) appointed and authorized the Trustee to give effect to such provisions; authorized the Trustee to become a party to any future intercreditor arrangements or deeds described above; agreed to be bound by such provisions and the provisions of any future intercreditor arrangements or deeds described above; and irrevocably appointed the Trustee to act on its behalf to enter into and comply with such provisions and the provisions of any future intercreditor arrangements or deeds described above.

No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. Legal Defeasance and Covenant Defeasance The Company may at any time, at its option, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (Legal Defeasance) except for: (1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest (including Additional Amounts) or premium, if any, on, such Notes when such payments are due from the trust referred to below; the Companys obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; the rights, powers, trusts, duties and immunities of the Trustee, and the Companys and the Guarantors obligations in connection therewith; and the Legal Defeasance and Covenant Defeasance provisions of the Indenture.

(2)

(3) (4)

In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset 223

Sale Offers) that are described in the Indenture (Covenant Defeasance) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment or, solely with respect to the Company, bankruptcy, receivership, rehabilitation and insolvency events) described under Events of Default and Remedies will no longer constitute an Event of Default with respect to the Notes. If the Company exercises either its Legal Defeasance or Covenant Defeasance option, each Guarantor will be released and relieved of any obligations under its Note Guarantee and any security for the Notes (other than the trust) will be released. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination of cash in U.S. dollars and non-callable U.S. Government Obligations, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest (including Additional Amounts) and premium, if any, on, the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date; in the case of Legal Defeasance, the Company must deliver to the Trustee an opinion of United States counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the U.S. Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; in the case of Covenant Defeasance, the Company must deliver to the Trustee an opinion of United States counsel reasonably acceptable to the Trustee confirming that the holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; the Company must deliver to the Trustee an officers certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; and the Company must deliver to the Trustee an officers certificate and an opinion of counsel, subject to customary assumptions and qualifications, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

(2)

(3)

(4)

(5)

(6)

Amendment, Supplement and Waiver Except as provided in the next two succeeding paragraphs, the Indenture, the Notes, the Note Guarantees, the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement, any Pari Passu Intercreditor Agreement or any Security Document may be amended or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing Default or Event of Default or compliance with any provision of the Indenture, the Notes, the Note Guarantees, the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement, any Pari Passu Intercreditor Agreement or any Security Document may be waived with the consent 224

of the holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes) provided that, if any amendment, waiver or other modification will only affect one series of the Notes, only the consent of a majority in principal amount of the then outstanding Notes of such series shall be required. Unless consented to by the holders of at least 90% of the aggregate principal amount of then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), without the consent of each holder of Notes affected, an amendment, supplement or waiver may not (with respect to any Notes held by a non-consenting holder): (1) (2) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption Repurchase at the Option of Holders); reduce the rate of or change the time for payment of interest, including default interest, on any Note; waive a Default or Event of Default in the payment of principal of, or interest, Additional Amounts or premium, if any, on, the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); make any Note payable in money other than that stated in the Notes; make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of, or interest, Additional Amounts or premium, if any, on, the Notes (other than as permitted in clause (7) below); waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption Repurchase at the Option of Holders); modify or release any of the Note Guarantees in any manner adverse to the holders of the Notes, other than in accordance with the terms of the Indenture and any relevant intercreditor agreement (or any additional intercreditor agreement or priority agreement entered into in accordance with the terms of the Indenture); release any Lien on the Collateral except as permitted by the Indenture, and any relevant intercreditor agreement (or any additional intercreditor agreement or priority agreement entered into in accordance with the terms of the Indenture) or the Security Documents; impair the right of any holder of Notes to receive payment of principal of and interest on such holders Notes on or after the due dates therefore or to institute suit for the enforcement of any payment on or with respect to such holders Notes or any Note Guarantee in respect thereof; make any change to the ranking of the Notes or Note Guarantees, in each case in a manner that adversely affects the rights of the holders of the Notes; or make any change in the preceding amendment and waiver provisions.

(3) (4)

(5) (6)

(7) (8)

(9)

(10)

(11) (12)

Notwithstanding the preceding, without the consent of any holder of Notes, the Company, the Guarantors and the Trustee may amend or supplement the Indenture, the Notes or the Note Guarantees: (1) (2) to cure any ambiguity, defect or inconsistency; to provide for uncertificated Notes in addition to or in place of certificated Notes; 225

(3)

to provide for the assumption of the Companys or a Guarantors obligations to holders of Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Companys or such Guarantors assets, as applicable; to make any change that would provide any additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder in any material respect; to conform the text of the Indenture, the Note Guarantees or the Notes to any provision of this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees or the Notes; to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the Issue Date; to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes or release Note Guarantees pursuant to the terms of the Indenture; to secure the Notes; or to evidence and provide for the acceptance and appointment under the Indenture of a successor trustee.

(4)

(5)

(6) (7) (8) (9)

The consent of the holders of Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. Satisfaction and Discharge The Indenture and the Note Guarantees will be discharged and will cease to be of further effect as to all Notes issued thereunder, when: (1) either: (a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee for cancellation; or all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year, and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination of cash in U.S. dollars and non-callable U.S. Government Obligations, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, Additional Amounts, if any, and accrued interest to the date of maturity or redemption;

(b)

(2)

no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and

(3)

226

(4)

the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be.

In addition, the Company must deliver an officers certificate and an opinion of counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied; provided that any such counsel may rely on any officers certificate as to matters of fact (including as to compliance with the foregoing clauses (1), (2), (3) and (4). Listing Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and for admission and trading on the Euro MTF Market. There can be no assurance that the application will be accepted. If and so long as the Notes are listed on the Luxembourg Stock Exchange, the Company will maintain a listing, paying and transfer agent in Luxembourg. Judgment Currency Any payment on account of an amount that is payable in U.S. dollars which is made to or for the account of any holder or the Trustee in lawful currency of any other jurisdiction (the Judgment Currency), whether as a result of any judgment or order or the enforcement thereof or the liquidation of the Company or any Guarantor, shall constitute a discharge of the Company or the Guarantors obligation under the Indenture and the Notes or Note Guarantee, as the case may be, only to the extent of the amount of U.S. dollars with such holder or the Trustee, as the case may be, could purchase in the London foreign exchange markets with the amount of the Judgment Currency in accordance with normal banking procedures at the rate of exchange prevailing on the first Business Day following receipt of the payment in the Judgment Currency. If the amount of U.S. dollars that could be so purchased is less than the amount of U.S. dollars originally due to such holder or the Trustee, as the case may be, the Company and the Guarantors shall indemnify and hold harmless the holder or the Trustee, as the case may be, from and against all loss or damage arising out of, or as a result of, such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in the Indenture or the Notes, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any holder or the Trustee from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order. Concerning the Trustee The Company shall deliver written notice to the Trustee within 30 days of becoming aware of the occurrence of a Default or an Event of Default. If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits the right of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days or resign as Trustee. The holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. The Company and the Guarantors jointly and severally will indemnify the Trustee for certain claims, liabilities and expenses incurred without gross negligence, wilful misconduct or bad faith on its part, arising out of or in connection with its duties. Additional Information Anyone who receives this Offering Memorandum may, following the Issue Date, obtain a copy of the Indenture without charge by writing to Afren plc, Kinnaird House, 1 Pall Mall East, London SW1Y 5AU, care of the Company Secretary. So long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF Market and the rules of the Luxembourg Stock Exchange shall so require, copies, current and future, of all of 227

the Companys annual audited consolidated financial statements and the Companys unaudited consolidated interim financial statements may be obtained, free of charge, during normal business hours at the offices of the Paying Agent in Luxembourg. Consent to Jurisdiction and Service of Process The Indenture will provide that the Company and, upon accession to the Indenture, each Guarantor, will appoint CT Corporation as its agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes and the Notes Guarantees brought in any U.S. federal or New York state court located in the City of New York and will submit to such jurisdiction. Enforceability of Judgments Since a substantial portion of the assets of the Company and the Guarantors are outside the United States, any judgment obtained in the United States against the Company or any Guarantor may not be collectable within the United States. See Service of Process and Enforcement of Civil Liabilities. Prescription Claims against the Company or any Guarantor for the payment of principal or Additional Amounts, if any, on the Notes will not be permitted ten years after the applicable due date for payment thereof. Claims against the Company or any Guarantor for the payment of interest on the Notes will not be permitted five years after the applicable due date for payment of interest. Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided. 2016 Notes means the Companys $500,000,000 aggregate principal amount of 11.500% Secured Notes due 2016 issued under the 2016 Notes Indenture. 2016 Notes Indenture means that certain indenture, dated as of February 3, 2011 and as amended or waived from time to time, by and between, among others, the Company, the guarantors named therein, Deutsche Bank Trust Company Americas, as trustee, U.S. paying agent, U.S. transfer agent, registrar and primary collateral agent, Deutsche Bank Luxembourg S.A. as Luxembourg paying agent and Luxembourg transfer agent and BNP Paribas as Ebok Collateral Agent. Acquired Debt means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

(2)

Additional Assets means: (1) (2) (3) any property or assets used or useful in the Oil and Gas Business; the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or any of its Restricted Subsidiaries; or Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary;

provided, however, that any such Restricted Subsidiary described in clause (2) or (3) is primarily engaged in the Oil and Gas Business. Adjusted Consolidated Net Tangible Assets means (without duplication), as of the date of determination: 228

(1)

the sum of: (a) discounted future net revenue from proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with the Calculation Method before any applicable income taxes, as estimated by the Company in a reserve report prepared as of the end of the Companys most recently completed fiscal year for which audited financial statements are available, as increased by, as of the date of determination, the discounted future net revenue of: (i) estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries acquired since the date of such reserve report (including oil and gas reserves to be acquired as of the date of such determination), calculated in accordance with the Calculation Method, and estimated crude oil and natural gas reserves of the Company and its Restricted Subsidiaries attributable to extensions, discoveries and other additions and upward revisions of estimates of proved crude oil and natural gas reserves (including the impact to proved reserves and future net reserves from previously estimated development costs incurred and the accretion of discount since the prior period end) due to exploration, development or exploitation, production or other activities, which reserves were not reflected in such reserve report which would, in accordance with standard industry practice, result in such determinations, calculated in accordance with the Calculation Method,

(ii)

and decreased by, as of the date of determination, the discounted future net revenue attributable to: (iii) estimated proved crude oil and natural gas reserves of the Company and its Restricted Subsidiaries reflected in such reserve report produced or disposed of since the date of such reserve report calculated in accordance with the Calculation Method, and reductions in the estimated oil and natural gas reserves of the Company and its Restricted Subsidiaries reflected in such reserve report since the date of such reserve report attributable to downward determinations of estimates of proved crude oil and natural gas reserves due to exploration, development or exploitation, production or other, activities conducted or otherwise occurring since the date of such reserve report which would, in accordance with standard industry practice, result in such determinations, in each case calculated in accordance with the Calculation Method;

(iv)

utilizing in the case of clauses (i) through (iv), prices and costs calculated in accordance with the Calculation Method as if the end of the most recent fiscal quarter preceding the date of determination for which such information is available to the Company were year end; provided, however, that such increases and decreases shall be estimated by the Companys engineers; (b) the capitalized costs that are attributable to crude oil and natural gas properties of the Company and its Restricted Subsidiaries to which no proved crude oil and natural gas reserves are attributable, based on the Companys books and records as of a date no earlier than the date of the Companys latest available annual or quarterly financial statements; the Net Working Capital as of a date no earlier than the date of the Companys latest available annual or quarterly financial statements; and the greater of (i) the net book value of other tangible assets (including Investments in unconsolidated Subsidiaries) of the Company and its Restricted Subsidiaries as of a date no earlier than the date of the Companys latest available annual or quarterly financial statements and (ii) the appraised value, as estimated by independent appraisers, of other 229

(c) (d)

tangible assets of the Company and its Restricted Subsidiaries as of a date no earlier than the date of the Companys latest available annual or quarterly financial statements (provided that the Company shall not be required to obtain such an appraisal of such assets if no such appraisal has been performed and only clause (d)(i) of this definition shall apply); minus (2) the sum of: (a) (b) Minority Interests; any net natural gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Companys latest audited financial statements (to the extent not deducted in calculating Net Working Capital of such Person in accordance with clause (1)(c) above of this definition); to the extent included in clause (1)(a) above, the discounted future net revenue, calculated in accordance with the Calculation Method (utilizing the same prices in the Companys year end reserve report), attributable to reserves subject to participation interests, overriding royalty interests or other interests of third parties, pursuant to participation, partnership, vendor financing or other agreements then in effect, or which otherwise are required to be delivered to third parties; to the extent included in clause (1)(a) above, the discounted future net revenue calculated in accordance with the Calculation Method (utilizing the same prices utilized in the Companys year end reserve report), attributable to reserves that are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments on the schedules specified with respect thereof; and the discounted future net revenue, calculated in accordance with the Calculation Method, attributable to reserves subject to Dollar-Denominated Production Payments that, based on the estimates of production included in determining the discounted future net revenue specified in the immediately preceding clause (1)(a) (utilizing the same prices utilized in the Companys year end reserve report), would be necessary to satisfy fully the obligations of the Company and its Restricted Subsidiaries with respect to Dollar-Denominated Production Payments on the schedules specified with respect thereof.

(c)

(d)

(e)

If the Company changes its method of accounting from the successful efforts method to the full cost method or a similar method of accounting, Adjusted Consolidated Net Tangible Assets will continue to be calculated as if the Company were still using the successful efforts method of accounting. Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control, as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms controlling, controlled by and under common control with have correlative meanings. Agreed Guarantee and Security Principles means the Agreed Guarantee and Security Principles as set forth in the Indenture (or a schedule thereto), as applied in good faith by the Company. Asset Sale means: (1) the sale, lease, conveyance or other disposition of any assets or rights (including by way of a Production Payment but excluding an operating lease entered into in the ordinary course of the Oil and Gas Business); provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption Repurchase 230

at the Option of HoldersChange of Control and/or the provisions described above under the caption Certain CovenantsMerger, Consolidation or Sale of Assets and not by the provisions described under the caption Repurchase at the Option of HoldersAsset Sales; and (2) the issuance of Equity Interests in any of the Companys Restricted Subsidiaries or the sale by the Company or its Subsidiaries of Equity Interests in any of its Subsidiaries.

Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (1) (2) (3) (4) (5) (6) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $10.0 million; a transfer of assets or Equity Interests between or among the Company and its Restricted Subsidiaries; an issuance of Equity Interests by a Restricted Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company; the sale or lease of products, services, Hydrocarbons or mineral products inventory or accounts receivable or other assets in the ordinary course of business; the abandonment, farm-in, farm-out, lease or sublease of any oil and gas properties or the forfeiture or other disposition of such properties, in each case in the ordinary course of business; the disposition of assets to a Person who is providing services (the provision of which have been or are to be outsourced by the Company or any Restricted Subsidiary to such Person) related to such assets; any sale or other disposition of damaged, unserviceable, worn-out or obsolete assets in the ordinary course of business; the sale or other disposition of cash or Cash Equivalents or other financial assets in the ordinary course of business; for purposes of the covenant described above under the heading Repurchase at the Option of HoldersAsset Sales only, the making of a Permitted Investment or a disposition subject to the covenant described above under the caption Certain CovenantsRestricted Payments; the sale or transfer (whether or not in the ordinary course of business) of crude oil and natural gas properties or direct or indirect interests in real property; provided, that at the time of such sale or transfer such properties do not have associated with them any proved reserves; the farm-out, lease or sublease of developed or undeveloped crude oil or natural gas properties owned or held by the Company or such Restricted Subsidiary in exchange (within 180 days) for crude oil and natural gas properties owned or held by another Person; any trade or exchange by the Company or any Restricted Subsidiaries of oil and gas properties or other properties or assets for oil and gas properties or other properties or assets owned or held by another Person, provided that any net cash received must be applied in accordance with the provisions described above under the caption Repurchase at the Option of HoldersAsset Sales; granting of Liens not prohibited by the covenant described under the caption Certain CovenantsLiens; the licensing or sublicensing of intellectual property, including, without limitation, licenses for seismic data or other general intangibles and licenses, leases or subleases of other property, in the 231

(7) (8) (9)

(10)

(11)

(12)

(13) (14)

ordinary course of business and which do not materially interfere with the business of the Company and its Restricted Subsidiaries taken as a whole; (15) (16) (17) a surrender or waiver of contract rights, oil and gas leases or the settlement, release or surrender of contract, tort or other claims of any kind; transactions permitted under Certain CovenantsMergers, consolidation or sale of assets; dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements; foreclosure, condemnation or any similar action with respect to any property or other assets; and any Production Payments and Reserve Sales.

(18) (19)

Beneficial Owner has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the U.S. Exchange Act, except that in calculating the beneficial ownership of any particular person (as that term is used in Section 13(d)(3) of the U.S. Exchange Act), such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms Beneficial Ownership, Beneficially Owns and Beneficially Owned have a corresponding meaning. Board of Directors means: (1) (2) (3) (4) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; with respect to a partnership, the board of directors of the general partner of the partnership; with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and with respect to any other Person, the board or committee of such Person serving a similar function.

Borrowed Money Indebtedness means any Indebtedness other than any Additional Notes incurred pursuant to the first paragraph or Clauses (1) or (24) of the second paragraph of the covenant entitled Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock. Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in Luxembourg or New York or place of payment under the Indenture are authorized or required by law to close. Calculation Date has the meaning given in the definition of Fixed Charge Coverage Ratio. Calculation Method means (i) the methodology used by the Company on the Issue Date or (ii) a determination by the Company in accordance with acceptable industry practice (as calculated by a responsible accounting or financial officer of the Company) and in each case either as published in the Companys most recent annual financial statements or quarterly reports as described above under Certain CovenantsReports or as otherwise published by the Company on the Investor Relations section of its website. Capital Lease Obligation means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with IFRS, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. Capital Stock means: (1) in the case of a corporation, corporate stock;

232

(2) (3) (4)

in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; in the case of a partnership or limited liability company, partnership interests (whether general or limited) or, membership interests; and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

Cash Equivalents means: (1) securities issued or directly and fully guaranteed or insured by the government of the United States of America, a member state of the European Union on December 31, 2003, Switzerland or Canada (including, in each case, any agency or instrumentality thereof), as the case may be the payment of which is backed by the full faith and credit of the United States, the relevant member state of the European Union, Switzerland or Canada, as the case may be, having maturities of not more than fifteen months from the date of acquisition the long term debt of which is rated at the time of acquisition thereof is at least A or the equivalent thereof by Standard & Poors Ratings Services, or A or the equivalent thereof by Moodys Investors Service, Inc. or the equivalent rating category of another internationally recognized rating agency; certificates of deposit, time deposits, eurodollar time deposits, money market deposits, overnight bank deposits or bankers acceptances (and similar instruments) having maturities of not more than fifteen months from the date of acquisition thereof issued by any commercial bank the long term debt of which is rated at the time of acquisition thereof at least A or the equivalent thereof by Standard & Poors Ratings Services, or A or the equivalent thereof by Moodys Investors Service, Inc. or the equivalent rating category of another internationally recognized rating agency, and having combined capital and surplus in excess of $500 million; repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (1) and (2) entered into with any financial institution meeting the qualifications specified in clause (2) above; commercial paper rated at the time of acquisition thereof at least A-2 or the equivalent thereof by Standard & Poors Ratings Services or P-2 or the equivalent thereof by Moodys Investors Service, Inc., or carrying an equivalent rating by an internationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in any case maturing within one year after the date of acquisition thereof; and interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (1) through (4) above.

(2)

(3)

(4)

(5)

Change of Control means the occurrence of both (a) a Change of Control Rating Decline and (b) any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any person (as that term is used in Section 13(d) of the U.S. Exchange Act); the adoption of a plan relating to the liquidation or dissolution of the Company other than in a transaction which complies with the provisions described under Certain CovenantsMerger, Consolidation or Sale of Assets; the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any person (as defined above) becomes the Beneficial Owner, directly 233

(2)

(3)

or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; or (4) during any 24 month period, Continuing Directors cease to constitute a majority of the Board of Directors of the Company.

Change of Control Rating Decline means the occurrence on any date within the 90-day period following the occurrence of an event specified in clauses (1), (2), (3) or (4) of the definition of Change of Control (which period shall be extended so long as during such period the rating of the Notes is under publicly announced consideration by a Rating Agency) of any of the following events: (1) (2) at least one Rating Agency shall issue or confirm a rating on the Notes which rating is at least one notch below the rating of the Notes issued by such Rating Agency as of the Issue Date; or at least one Rating Agency shall withdraw its rating of the Notes.

If no Rating Agency announces an action with regard to its rating of the Notes as soon as reasonably practicable after the occurrence of an event specified in clauses (1), (2), (3) or (4) of the definition of Change of Control, the Company shall request each Rating Agency to confirm its rating of the Notes before the end of such 90-day period. Collateral Agent means, as the context requires, (i) the Ebok Collateral Agent, (ii) the Primary Collateral Agent and/or (iii) each other collateral agent approved by any Pari Passu Creditor that enters into a Pari Passu Intercreditor Agreement to act as collateral agent in respect of Shared Collateral. Consolidated Cash Flow means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus the following, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale (together with any related provision for taxes and any related non-recurring charges relating to any premium or penalty paid, write-off of deferred financing costs or other financial recapitalization charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity) to the extent deducted in calculating such Consolidated Net Income; plus provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period to the extent deducted in calculating such Consolidated Net Income; plus the Fixed Charges of such Person and its Restricted Subsidiaries for such period to the extent deducted in calculating such Consolidated Net Income; plus depreciation, depletion, amortization (including, without limitation, amortization of intangibles and deferred financing fees but excluding amortization of prepaid cash expenses that were paid in a prior period), impairment and other non-cash charges and expenses (including, without limitation, write downs and impairment of property, plant, equipment and intangible and other long lived assets and the impact of purchase accounting on the Company and its Restricted Subsidiaries for such period), of such Person and its Restricted Subsidiaries (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) for such period to the extent deducted in calculating such Consolidated Net Income; plus any expenses, charges or other costs related to the issuance of any Capital Stock, or any Permitted Investment, acquisition, disposition, recapitalization or listing or the incurrence of Indebtedness permitted to be incurred under the covenant described above under the caption Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock (including Refinancing thereof) whether or not successful, including (i) such fees, expenses or charges related to any incurrence of Indebtedness issuance and (ii) any amendment or other modification of any incurrence; plus

(2) (3) (4)

(5)

234

(6) (7)

any foreign currency translation losses (including losses related to currency remeasurements of Indebtedness); plus the amount of any minority interest expense consisting of subsidiary income attributable to minority equity interests of third parties in any non-wholly owned Restricted Subsidiary in such period or any prior period, except to the extent of dividends declared or paid on, or other cash payments in respect of, Equity Interests held by such parties; plus consolidated exploration and abandonment expense of the Company and its Restricted Subsidiaries; of the Company and its Restricted Subsidiaries; minus non-cash items increasing such Consolidated Net Income for such period, other than items that were accrued in the ordinary course of business; and minus the sum of (a) the amount of deferred revenues that are amortized during such period and are attributable to reserves that are subject to Volumetric Production Payments and (b) amounts recorded in accordance with IFRS as repayments of principal and interest pursuant to DollarDenominated Production Payments, in each case, on a consolidated basis and determined in accordance with IFRS.

(8) (9) (10)

Consolidated Net Income means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis (excluding the Net Income (loss) of any Unrestricted Subsidiaries), determined in accordance with IFRS; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person and the Persons equity in a net loss of any such Person for such period will be included only to the extent such loss has been funded with cash flow from the Person or a Restricted Subsidiary during such period; solely for the purpose of determining the amount available for Restricted Payments under clause (c)(i) of the first paragraph under the caption Certain CovenantsRestricted Payments, any net income (loss) of any Restricted Subsidiary (other than any Guarantor) will be excluded if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company (or any Guarantor that holds the Equity Interests of such Restricted Subsidiary, as applicable) by operation of the terms of such Restricted Subsidiarys charter or any agreement, instrument, judgment, decree, order, statute or governmental rule or regulation applicable to such Restricted Subsidiary or its shareholders (other than (a) restrictions that have been waived or otherwise released, (b) restrictions pursuant to the Notes or the Indenture, (c) contractual restrictions in effect on the Issue Date with respect to the Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that taken as a whole, are not materially less favorable to the holders of the Notes than such restrictions in effect on the Issue Date and (d) any restriction listed under clauses (1), (2), (3) or (11) of the second paragraph of the covenant described above under the caption Certain CovenantsDividend and Other Payment Restrictions Affecting Subsidiaries) except that the Companys equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash or Cash Equivalents actually distributed or that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Restricted Subsidiary (other than any Guarantor), to the limitation contained in this clause); the cumulative effect of a change in accounting principles will be excluded; income resulting from transfers of assets (other than cash) between such Person or any of its Restricted Subsidiaries, on the one hand, and an Unrestricted Subsidiary, on the other hand, will be excluded; 235

(2)

(3) (4)

(5)

any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of such Person or its consolidated Restricted Subsidiaries (including pursuant to any sale or leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business (as determined in good faith by a responsible accounting or financial officer of the Company) and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person will be excluded; any ceiling limitation or other asset impairment writedowns on oil and gas properties will be excluded; any unrealized non-cash gains or losses in respect of Hedging Obligations or any ineffectiveness recognized in earnings related to qualifying hedge transactions or the fair value or changes therein recognized in earnings for derivatives that do not qualify as hedge transactions, in each case, in respect of Hedging Obligations will be excluded; any non cash compensation charge or expense arising from any grant of stock, stock option or other equity-based award will be excluded; to the extent deducted in the calculation of Net Income, any non-cash or non-recurring charges associated with any premium or penalty paid, write-off of deferred financing costs or other financial recapitalization charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity will be excluded; (a) extraordinary, exceptional, unusual or non-recurring gains, losses or charges, (b) any asset impairment charges or the financial impacts of natural disasters (including fire, flood and storm and related events) or (c) any non cash charges or reserves in respect of any restructurings, redundancy, integration or severance, in each case will be excluded.

(6) (7)

(8) (9)

(10)

Contingent Obligations means, with respect to any Person, any obligation of such Person Guaranteeing in any manner, whether directly or indirectly, any operating lease, dividend or other obligation that, in each case, does not constitute Indebtedness (primary obligations) of any other Person (the primary obligor), including any obligation of such Person, whether or not contingent: (1) (2) to purchase any such primary obligation or any property constituting direct or indirect security therefor; to advance or supply funds: (a) (b) (3) for the purchase or payment of any such primary obligation; or to maintain the working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or

to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof; or for the avoidance of doubt, any contingent obligations in respect of workers compensation claims, early retirement or termination obligations, pension fund obligations or contributions, or similar claims, obligations or contributions or social security or wage taxes.

(4)

continuing means, with respect to any Default or Event of Default, that such Default or Event of Default has not been cured or waived. Continuing Directors means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the Issue Date; or 236

(2)

was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

Credit Facilities means, one or more debt facilities, capital markets indentures, instruments or arrangements incurred by the Company any Restricted Subsidiary or any Finance Subsidiary (including the Ebok Facility or commercial paper facilities and overdraft facilities) with banks or other institutions or investors, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such institutions or to special purpose entities formed to borrow from such institutions against such receivables) or letters of credit, notes or other Indebtedness, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, refinanced, repaid, increased or extended in whole or in part from time to time (and whether in whole or in part and whether or not with the original administrative agent and lenders or another administrative agent or agents or trustees or other banks or institutions and whether provided under the Ebok Facility or one or more other credit or other agreements, indentures, financing agreements or otherwise) and in each case including all agreements, instruments and documents executed and delivered pursuant to or in connection with the foregoing (including any promissory notes and letters of credit issued pursuant thereto and any Guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other Guarantees, pledges, agreements, security agreements and collateral documents). Without limiting the generality of the foregoing, the term Credit Facilities shall include any agreement or instrument (1) changing the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding Subsidiaries of the Company as additional borrowers, issuers or guarantors thereunder, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder or (4) otherwise altering the terms and conditions thereof. Currency Exchange Protection Agreement means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option, cap, floor, ceiling or collar or agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates as to which such Person is a party. Default means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. Disqualified Stock means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable; pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, that only the portion of Capital Stock which so matures or is mandatorily redeemable, or is so redeemable at the option of the holder thereof prior to such date, will be deemed to be Disqualified Stock. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption Certain CovenantsRestricted Payments. For purposes hereof, the amount of Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Stock, such Fair Market Value to be determined as set forth herein. Dollar-Denominated Production Payments means production payment obligations recorded as liabilities in accordance with IFRS, together with all undertakings and obligations in connection therewith. Ebok Collateral Agent means BNP Paribas as the security agent for the Ebok Collateral or any successor Collateral Agent under the Ebok Intercreditor Agreement or any Additional Ebok Intercreditor Agreement. Ebok Facility means any of the following: (i) the senior secured borrowing base facility entered into by, among others, Afren Resources Limited as original borrower and BNP Paribas, Credit Agricole Corporate and Investment Bank and Natixis as arrangers; (ii) any other senior secured borrowing base facility entered into by the Company, Afren Resources Limited or any other Restricted Subsidiary of the Company with respect to the Ebok Project; (iii) any Credit Facility entered into by the Company, Afren Resources Limited or any other Restricted Subsidiary of the Company with respect to the Ebok Project pursuant to clause (1) of the second paragraph of the covenant described under Certain CovenantsLimitation on Indebtedness and Issuance of Preferred Stock; and (iv) any Permitted Refinancing Indebtedness in respect of any of the foregoing (and any Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness). 237

Ebok Facility Agreement means the facility agreement dated March 24, 2010 (as amended and restated on June 23, 2010 and as amended or restated from time to time thereafter) relating to the Ebok Facility. Ebok Intercreditor Agreement means the intercreditor agreement dated February 3, 2011 among the Ebok Collateral Agent, the Trustee under the 2016 Notes Indenture, the creditors under the Ebok Facility Agreement and certain other parties thereto, as amended or restated from time to time and as acceded to by the Trustee on or about the Issue Date. Ebok MOPU and FSO Lease means the lease of the mobile offshore production unit and floating storage and offloading unit leased to the Ebok development at a combined rate of $120,165 per day. Ebok Project means the project described in the Offering Memorandum related to the Ebok field located in OML 67, Offshore Nigeria. Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). Equity Offering means any public or private sale of Capital Stock (other than Disqualified Stock) by the Company after the Issue Date. Existing Indebtedness means Indebtedness of the Company and its Subsidiaries in existence on the date of the Indenture, until such amounts are repaid. Fair Market Value means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, as determined in good faith by a responsible accounting or financial officer of the Company. Finance Subsidiary means a wholly owned subsidiary that is formed for the purpose of borrowing funds or issuing securities and lending the proceeds to the Company or a Guarantor and that conducts no business other than as may be reasonably incidental to, or related to, the foregoing. Fitch means Fitch, Inc. Fixed Charge Coverage Ratio means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary course working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Calculation Date), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Company) to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period; provided, however, that the pro forma calculation of Fixed Charges shall not give effect to (i) any Indebtedness incurred on the Calculation Date (and, for the avoidance of doubt, not reclassified on such Calculation Date) pursuant to the provisions described in the second paragraph under Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock or (ii) the discharge on the Calculation Date of any Indebtedness to the extent that such discharge results from the proceeds incurred pursuant to the provisions described in the second paragraph under Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers, consolidations or otherwise (including acquisitions of assets used or useful in the Oil and Gas Business), or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the fourquarter reference period or subsequent to such reference period and on or prior to the Calculation Date or that are to be made on the Calculation Date, will be given pro forma effect (including Pro Forma Cost Savings) as if they had occurred on the first day of the four-quarter reference period;

238

(2)

the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; the Fixed Charges attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months, or, if shorter, at least equal to the remaining term of such Indebtedness).

(3)

(4) (5) (6)

Fixed Charges means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense (net of interest income) of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (excluding any interest attributable to Dollar-Denominated Production Payments but including, without limitation, amortization of discount (but not debt issuance costs, commissions, fees and expenses), non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments), the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers acceptance financings), and net of the effect of all payments made or received pursuant to Hedging Obligations (excluding amortization of fees) in respect of interest rates; plus the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined national, state and local statutory tax rate of such Person, expressed as a decimal; minus, to the extent included above, write-off deferred financing costs (and interest) attributable to Dollar-Denominated Production Payments.

(2) (3)

(4)

(5)

Guarantee means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to maintain financial statement conditions or otherwise), or entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however that the term Guarantee will not 239

include the endorsements for collection or deposit in the ordinary course of business or any obligation to the extent it is payable only in Capital Stock of the guarantor that is not Disqualified Stock. The term Guarantee used as a verb has a corresponding meaning. Guarantors means the Subordinated Guarantors and the Senior Guarantors. Hedging Obligations means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements, other agreements or arrangements designed to manage interest rates or interest rate risk; any foreign exchange contract, currency swap agreement, currency option, cap, floor, ceiling or collar or agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates; any forward contract, commodity futures contract, commodity option agreement, commodity swap agreement or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used, produced, processed or sold by that Person or any of its Restricted Subsidiaries at the time; and other agreements or arrangements designed to protect such Person against fluctuations in interest rates, commodity prices or currency exchange rates, including Currency Exchange Protection Agreements.

(2)

(3)

(4)

Hydrocarbons means oil, gas, casing head gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom. IFRS means International Financial Reporting Standards as adopted by the European Union and in effect on the Issue Date or, with respect to the covenant Reports, as in effect from time to time. Indebtedness means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables): (1) (2) (3) (4) (5) (6) in respect of borrowed money; evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); in respect of bankers acceptances (except to the extent any such reimbursement obligations relate to trade payables and such obligations are satisfied within 30 days of incurrence); representing Capital Lease Obligations; representing the balance deferred and unpaid of the purchase price of any property due more than one year after such property is acquired; the principal component or liquidation preference of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary, any Preferred Stock (but excluding, in each case, any accrued dividends); representing any Hedging Obligations; the principal component of all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness will be the lesser of (a) the Fair Market Value of such asset at such date of determination and (b) the amount of such Indebtedness of such other Persons; and

(7) (8)

240

(9)

the principal component of Indebtedness of other Persons to the extent Guaranteed by such Person (including, with respect to any Production Payment; any warranties or guarantees of production or payment by such Person with respect to such Production Payment, but excluding other contractual obligations of such Person with respect to such Production Payment);

provided that the foregoing indebtedness (other than letters of credit and Hedging Obligations) shall be included in this definition of Indebtedness only if, and to the extent that, the indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with IFRS. Neither Dollar-Denominated Production Payments nor Volumetric Production Payments shall be deemed to be Indebtedness. The term Indebtedness shall not include: (1) (2) (3) any lease of property which would be considered an operating lease under IFRS; for the avoidance of doubt, Contingent Obligations; or in connection with the purchase by the Company or any Restricted Subsidiary of any business, any post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing.

Investment Grade Status shall occur when the Notes are rated as follows by two of the following three Rating Agencies: Baa3 or better by Moodys, BBB or better by S&P and/or BBB- or better by Fitch (or, if any such entity ceases to rate the Notes, the equivalent investment grade credit rating from any other nationally recognized statistical rating organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act selected by the Company as a replacement agency). Investments means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations, but excluding advances or extensions of credit to customers or suppliers made in the ordinary course of business), advances or capital contributions (excluding endorsements of negotiable instruments and documents in the ordinary course of business, and commission, travel and similar advances to officers, employees and consultants made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with IFRS. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Companys Investments in such Restricted Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption Certain CovenantsRestricted Payments. The acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption Certain CovenantsRestricted Payments. Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value and, to the extent applicable, shall be determined based on the equity value of such Investment. Issue Date means the date of original issuance of the Notes. Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof. Management Advances means loans or advances made to, or Guarantees with respect to loans or advances made to, directors, officers or employees of any Company or any Restricted Subsidiary: (1) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business;

241

(2) (3)

in respect of moving related expenses incurred in connection with any closing or consolidation of any facility or office; or in the ordinary course of business and (in the case of this clause (3)) not exceeding $5.0 million in the aggregate outstanding at any time.

Minority Interest means the percentage interest represented by any shares of stock of any class of Capital Stock of a Restricted Subsidiary of the Company that are not owned by the Company or a Restricted Subsidiary of the Company. Moodys means Moodys Investors Service, Inc. Net Income means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with IFRS and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and any extraordinary or non-recurring gain (but not loss), together with any related provision for taxes on such extraordinary or non-recurring gain (but not loss).

(2)

Net Proceeds means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration or Cash Equivalents received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation: (1) all legal, accounting, investment banking, commissions and other fees and expenses incurred, title and recording tax expenses, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under IFRS, as a consequence of such Asset Sale; all payments made on any Indebtedness which is secured by any assets subject to such Asset Sale, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale, or by applicable law be repaid out of the proceeds from such Asset Sale; all distributions and other payments required to be made to holders of Minority Interests in Subsidiaries or joint ventures as a result of such Asset Sale; and the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with IFRS, or held in escrow, in either case for adjustment in respect of the sale price or for any liabilities associated with the assets disposed of in such Asset Sale and retained by the Company or any Restricted Subsidiary after such Asset Sale.

(2)

(3) (4)

Net Working Capital means (a) the sum of (i) all current assets of the Company and its Restricted Subsidiaries except current assets from commodity price risk management activities arising in the ordinary course of business and (ii) the amount of revolving credit borrowings available to be incurred under the Ebok Facility, less (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities (i) associated with asset retirement obligations relating to oil and gas properties, (ii) included in Indebtedness and (iii) any current liabilities from commodity price risk management activities arising in the ordinary course of business, in each case as set forth in the consolidated financial statements of the Company prepared in accordance with IFRS (excluding any adjustments made pursuant to IAS 39). Nigerian Collateral has the meaning ascribed to such term in the covenant described above under the caption Certain CovenantsLiens. Nigerian Upstamping Protection Provisions means provisions set out in an intercreditor agreement providing that: (1) no creditor party thereto may, without the prior written agreement of the other creditors party to such agreement, directly or indirectly, pay stamp duty and registration fees or procure that such duty or fees are paid on its behalf due and payable on any Nigerian Collateral for more than 242

$1.0 million principal amount of indebtedness, except in accordance with clause (2) of this definition; (2) creditors party thereto shall upstamp to pay any stamp duty and registration fees due and payable in order of the ranking set out in such intercreditor agreement, such that no creditors are permitted to upstamp prior to any creditor that ranks senior in right of payment to such creditor and pari passu creditors shall upstamp substantially simultaneously or otherwise in such a manner that would not result in any preference as between the creditors, unless such upstamping creditor notifies all other parties to such intercreditor agreement and shares the proceeds of any enforcement action against the relevant Nigerian Collateral in accordance with clause (3) below; and creditors party thereto shall agree to turnover provisions requiring any creditor receiving proceeds in any enforcement of shared Nigerian Collateral subject to such intercreditor agreement to share proceeds in accordance with the relevant ranking in such intercreditor agreement.

(3)

Non-Recourse Debt means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and the explicit terms of which provide there is no recourse to the stock or assets of the Company or any of its Restricted Subsidiaries, except as contemplated by clause (24) of the definition of Permitted Liens.

(2)

(3)

Note Guarantee means the Guarantee by each Guarantor of the Companys Obligations under the Indenture and the Notes, executed pursuant to the provisions of the Indenture. Obligations means any principal, interest, penalties, fees, expenses, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. Offering Memorandum means this offering memorandum dated March 1, 2012. Oil and Gas Business means: (1) the acquisition, exploration, exploitation, development, production, operation and disposition of interests in oil, natural gas, liquid natural gas and other Hydrocarbon and mineral properties or products produced in association with the foregoing; the gathering, marketing, distributing, treating, processing, storage, distribution, selling and transporting of any production from such interests or properties and products produced in association therewith and the marketing of oil, natural gas, other Hydrocarbons and minerals obtained from unrelated Persons; any other related energy business, including power generation and electrical transmission business, from oil, natural gas and other Hydrocarbons and minerals produced substantially from properties in which the Company or its Restricted Subsidiaries directly or indirectly participates; any business relating to oil field seismic mapping, sales and service; and

(2)

(3)

(4)

243

(5)

any business or activity relating to, arising from, or necessary, appropriate or incidental to the activities described in clauses (1), (2), (3) or (4) of this definition.

Permitted Business Investments means Investments made in the Oil and Gas Business, including but not limited to investments or expenditures for actively exploiting, exploring for, acquiring, developing, producing, processing, gathering, marketing or transporting oil, natural gas or other Hydrocarbons and minerals through agreements, transactions, interests or arrangements that permit one to share risk or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties, including without limitation: (1) direct or indirect ownership of crude oil, natural gas, other restricted Hydrocarbon properties or any interest therein or gathering, transportation, processing, storage or related systems or ancillary real property interests; and the entry into operating agreements, joint ventures, processing agreements, working interests, royalty interests, mineral leases, farm-in agreements, farm-out agreements, development agreements, production sharing agreements, area of mutual interest agreements, contracts for the sale, transportation or exchange of crude oil and natural gas and other Hydrocarbons and minerals, participation agreements, unitization agreements, pooling arrangements, joint bidding agreements, service contracts, partnership agreements (whether general or limited), subscription agreement, stock purchase agreements, stockholder agreements and other similar agreement (including for limited liability companies) or other similar or customary agreements, transactions, properties, interests or arrangements and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into with third parties (including Unrestricted Subsidiaries); and direct or indirect ownership interests in drilling rigs and related equipment, including, without limitation, transportation equipment.

(2)

(3)

Permitted Collateral Liens means: (1) Liens on the Ebok Collateral securing one or more Ebok Facilities (or any portion thereof) and any Permitted Refinancing Indebtedness in respect thereof (and any Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness); provided that the security securing all or any portion of any Ebok Facility may rank senior to the Collateral securing the Notes and the Note Guarantees; Liens on the Collateral to secure Indebtedness under the 2016 Notes, the Guarantees thereof and any Permitted Refinancing Indebtedness in respect thereof (and any Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness); Liens on any Collateral to secure the Notes issued on the Issue Date any Note Guarantees and, in each case, any Permitted Refinancing Indebtedness in respect thereof (and any Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness); Liens on the Collateral to secure Indebtedness under Credit Facilities permitted to be incurred pursuant to the first paragraph or clause (1) or (24) of the second paragraph of the covenant entitled Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock (and any Permitted Refinancing Indebtedness in respect of Indebtedness that was permitted to be incurred pursuant to the first paragraph thereof and any Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness); Liens on the Collateral to secure Hedging Obligations permitted to be incurred by clause (9) of the of the second paragraph of the covenant entitled Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock; Liens on the Collateral arising by operation of law described in one or more of clauses (8), (9), (11), (15), (22), (24), (25) and (28) of the definition of Permitted Liens and that, in each case, 244

(2)

(3)

(4)

(5)

(6)

would not materially interfere with the ability of the Security Trustee to enforce any Lien over the Collateral; (7) Liens incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries with respect to Indebtedness at any one time outstanding that does not exceed the greater of $10.0 million and 1% of the Companys Adjusted Consolidated Net Tangible Assets as determined on the date of Incurrence of such Indebtedness after giving pro forma effect to such Incurrence and the application of the proceeds therefrom and that do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of the Companys or such Restricted Subsidiarys business, and any Permitted Refinancing Indebtedness in respect thereof (and any Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness).

Permitted Investments means: (1) (2) (3) any Investment in the Company or in a Restricted Subsidiary of the Company; any Investment in cash and Cash Equivalents; any Investment by the Company or any Restricted Subsidiary of the Company in any Person whose primary business is the Oil and Gas Business, if as a result of such Investment: (a) (b) such Person becomes a Restricted Subsidiary of the Company; or such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company;

(4)

any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption Repurchase at the Option of HoldersAsset Sales; any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates; Investments represented by Hedging Obligations; receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; surety and performance bonds and workers compensation, utility, lease, tax, performance and similar deposits and prepaid expenses in the ordinary course of business; Guarantees of Indebtedness permitted under the covenant contained under the caption Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock; guarantees by the Company or any of its Restricted Subsidiaries of operating leases (other than Capital Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into by any Restricted Subsidiary in the ordinary course of business;

(5) (6)

(7) (8)

(9) (10) (11)

245

(12)

Investments of a Restricted Subsidiary acquired after the Issue Date or of any entity merged into the Company or merged into or consolidated or amalgamated with a Restricted Subsidiary in accordance with the covenant described under Certain CovenantsMerger, Consolidation or Sale of Assets to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger, consolidation or amalgamation and were in existence on the date of such acquisition, merger or consolidation; Permitted Business Investments; Investments received as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to any secured Investment in default; any Investment existing on, or made pursuant to binding commitments existing on, the Issue Date and any Investment consisting of an extension, modification or renewal of any Investment existing on, or made pursuant to a binding commitment existing on, the Issue Date; provided that the amount of any such Investment may be increased (a) as required by the terms of such Investment as in existence on the Issue Date or (b) as otherwise permitted under the Indenture; Guarantees of performance or other obligations (other than Indebtedness) arising in the ordinary course in the Oil and Gas Business, including obligations under oil and natural gas exploration, development, joint operating, and related agreements and licenses, concessions or operating leases related to the Oil and Gas Business; Investments in the Notes and any other Indebtedness of the Company or any Restricted Subsidiary; Management Advances; payroll, commission, travel, relocation and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; any Person to the extent such Investments consist of prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits made in the ordinary course of business by the Company or any Restricted Subsidiary; loans or grants in respect of community development projects made in the ordinary course of business customary in the Oil and Gas Business as appropriate for the Companys regions of operation and consistent with past practice or counterparty requirements, and not exceeding the aggregate at any time outstanding of $2.5 million per calendar year (with amounts in any calendar year being carried over into succeeding years); and other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (22) that are at the time outstanding not to exceed $20.0 million; provided that if an Investment is made pursuant to this clause in a Person that is not a Restricted Subsidiary and such Person subsequently becomes a Restricted Subsidiary or is subsequently designated a Restricted Subsidiary pursuant to the covenant described above under the caption Certain CovenantsRestricted Payments, such Investment shall thereafter be deemed to have been made pursuant to clause (1) or (3) of the definition of Permitted Investments and not this clause.

(13) (14) (15)

(16)

(17) (18) (19)

(20)

(21)

(22)

Permitted Liens means, with respect to any Person: (1) Liens securing Indebtedness incurred under Credit Facilities (including, without limitation, pursuant to clause (1) of the second paragraph of the covenant described under the caption Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock); Liens securing Indebtedness incurred under the 2016 Notes; 246

(2)

(3) (4)

Liens in favor of the Company or any Restricted Subsidiary; Liens on property of a Person existing at the time such Person is merged with or into or consolidated or amalgamated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger, consolidation or amalgamation and do not extend to any assets other than those of the Person merged into or consolidated or amalgamated with the Company or the Subsidiary and do not extend to any assets other than those of the Person merged into or consolidated or amalgamated with the Company or the Subsidiary; Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition; Liens existing on the Issue Date; Liens on Capital Stock of and assets of any Restricted Subsidiary that is not a Guarantor that secures Indebtedness of such Restricted Subsidiary or any other Restricted Subsidiary that is not a Guarantor; Liens for taxes, assessments or governmental charges or claims that (x) are not yet due and payable or (y) that are being contested in good faith by appropriate proceedings; survey exceptions, easements or reservations of, or rights of others for, licenses, rights ofway, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods; any attachment, prejudgment or judgment Lien that does not constitute an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made; Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees); Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the Indenture; provided, however, that: (a) the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;

(5)

(6) (7)

(8) (9)

(10) (11) (12)

(13) (14)

(b)

(15)

Liens for the purpose of securing (a) the Ebok MOPU and FSO Lease and any Permitted Refinancing Indebtedness in respect thereof permitted to be incurred under the Indenture and 247

(b) the payment of all or a part of the purchase price of, or Capital Lease Obligations with respect to, or the repair, improvement or construction cost of, assets or property acquired or repaired, improved or constructed in the ordinary course of business; provided that the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be incurred under the Indenture and does not exceed the cost of the assets or property so acquired or repaired, improved or constructed plus fees and expenses in connection therewith; (16) Liens arising solely by virtue of any statutory or common law provisions relating to bankers Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained or deposited with a depositary institution; Liens on cash, Cash Equivalents or other property arising in connection with the defeasance, discharge or redemption of Indebtedness; Liens in respect of Production Payments and Reserve Sales; Liens on pipelines and pipeline facilities that arise by operation of law; Liens arising under oil and gas leases or subleases, assignments, farmout agreements, farm in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of Hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, partnership agreements, operating agreements, royalties, working interests, carried working interest, net profit interests, joint interest billing arrangements, participation agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, licenses, sublicenses and other agreements which are customary in the Oil and Gas Business; any (a) interest or title of a lessor or sublessor under any lease, Liens reserved in oil, gas or other Hydrocarbons, mineral leases for bonus or rental payments and for compliance with the terms of such leases; (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to (including without limitation, ground leases or other prior leases of the demised premises, mortgages, mechanics liens, tax liens, and easements); or (c) subordination of the interest of the lessee or sublessee under such lease to any restrictions or encumbrance referred to in the preceding clause (b); Liens arising under the Indenture in favor of the Trustee for its own benefit and similar Liens in favor of other trustees, agents and representatives arising under instruments governing Indebtedness permitted to be incurred under the Indenture, provided, however, that such Liens are solely for the benefit of the trustees, agents or representatives in their capacities as such and not for the benefit of the holders of the Indebtedness; Liens securing Hedging Obligations, which obligations are permitted by clause (9) of the second paragraph of the covenant described under Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock; Liens upon specific items of inventory, receivables or other goods (or the proceeds thereof) of any Person securing such Persons obligations in respect of bankers acceptances or receivables securitizations issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory, receivables or other goods (or the proceeds thereof); Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of assets entered into in the ordinary course of business; (i) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord, contractor or other third party on property over which the Company or any Restricted Subsidiary has easement rights or on any real property leased by the Company or any Restricted Subsidiary (including those arising from progress or partial payments by a third party relating to such property or assets) and subordination or similar 248

(17) (18) (19) (20)

(21)

(22)

(23)

(24)

(25) (26)

agreements relating thereto and (ii) any condemnation or eminent domain proceedings or compulsory purchase order affecting real property; (27) (28) Liens (including put and call arrangements) on Capital Stock or other securities of any Unrestricted Subsidiary that secure Indebtedness of such Unrestricted Subsidiary; pledges of goods, the related documents of title and/or other related documents arising or created in the ordinary course of the Company or any Restricted Subsidiarys business or operations as Liens only for Indebtedness to a bank or financial institution directly relating to the goods or documents on or over which the pledge exists; limited recourse Liens in respect of the ownership interests in, or assets owned by, any joint ventures which are not Restricted Subsidiaries securing obligations of such joint ventures; Liens on any proceeds loan made by the Company or any Restricted Subsidiary in connection with any future incurrence of Indebtedness permitted under the Indenture and securing that Indebtedness; Liens created on any asset of the Company or a Restricted Subsidiary established to hold assets of any stock option plan or any other management or employee benefit or incentive plan or unit trust of the Company or a Restricted Subsidiary securing any loan to finance the acquisition of such assets; Liens over treasury stock of the Company or a Restricted Subsidiary purchased or otherwise acquired for value by the Company or such Restricted Subsidiary pursuant to a stock buy-back scheme or other similar plan or arrangement; the following ordinary course items: (a) (b) (c) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; landlords, carriers, warehousemens, mechanics, materialmens, repairmens or the like Liens arising by contract or statute in the ordinary course of business; pledges or deposits made in the ordinary course of business (A) in connection with leases, tenders, bids, statutory obligations, surety or appeal bonds, government contracts, performance bonds and similar obligations, or (B) in connection with workers compensation, unemployment insurance and other social security legislation (including, in each case, Liens to secure letters of credit issued to assure payment of such obligations); Liens arising from Uniform Commercial Code financing statement filings under U.S. state law (or similar filings under applicable jurisdictions) regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings in the ordinary course of business; Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to Indebtedness at any one time outstanding that does not exceed the greater of $10.0 million and 1% of the Companys Adjusted Consolidated Net Tangible Assets as determined on the date of incurrence of such Indebtedness after giving pro forma effect to such incurrence and the application of the proceeds therefrom; leases, licenses, subleases and sublicenses of assets in the ordinary course of business;

(29) (30)

(31)

(32)

(33)

(d)

(e) (f)

(g)

249

(h) (34)

Liens securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities; and

any extension, renewal, refinancing or replacement, in whole or in part, of any Lien described in the foregoing clauses (2) through (33) (but excluding clauses (15) and (33)(f)); provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced.

Permitted Refinancing Indebtedness means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, renew, refund, refinance, replace, exchange, defease or discharge other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the aggregate principal amount (or accreted value, if applicable, or if issued with original issue discount, aggregate issue price) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, or if issued with original issue discount, aggregate issue price) of the Indebtedness being extended, renewed, refunded, refinanced, replaced, exchanged, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith); such Permitted Refinancing Indebtedness has (a) a final maturity date that is either (i) no earlier than the final maturity date of the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged or (ii) after the final maturity date of the Notes and (b) has a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged; if the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged is expressly contractually subordinated in right of payment to the Notes or the Note Guarantees, as the case may be, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes or the Note Guarantees, as the case may be, on terms at least as favorable to the holders of Notes or the Note Guarantees, as the case may be, as those contained in the documentation governing the Indebtedness being extended, renewed, refunded, refinanced, replaced, exchanged, defeased or discharged; and if the Company or any Guarantor was the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged, such Indebtedness is incurred either by the Company, a Finance Subsidiary or by a Guarantor.

(2)

(3)

(4)

Notwithstanding the foregoing, any Indebtedness incurred under Credit Facilities pursuant to the covenant described above under the caption Certain CovenantsIncurrence of Indebtedness and Issuance of Preferred Stock shall be subject to the refinancing provisions of the definition of Credit Facilities and not pursuant to the requirements set forth in this definition of Permitted Refinancing Indebtedness. Person means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. Primary Collateral Agent means Deutsche Bank Trust Company Americas or any successor Collateral Agent appointed under the Indenture and any security agent under any Pari Passu Intercreditor Agreement. Priority Indebtedness means Indebtedness (without double counting) (a) incurred by the Company or any Restricted Subsidiary and secured by means of any Lien (to the extent the assets that secure such Indebtedness do not also secure the Notes on a pari passu or senior basis) permitted in accordance with clauses (1), (2) or (33)(f) of the definition of Permitted Liens or (b) incurred by the Company or any Restricted Subsidiary and secured by a Permitted Collateral Lien ranking senior in right of payment to the Collateral securing the Notes and the Notes Guarantees; provided, however, that Priority Indebtedness shall not include Indebtedness of the Company or a Restricted Subsidiary which is secured by Liens permitted in accordance with clauses (1), (2) or (33)(f) of the definition of Permitted Liens on assets that do not constitute 250

Collateral if the Company has used reasonable best efforts to grant a Lien in favor of the Notes and the Note Guarantees, taking into account the Agreed Guarantee and Security Principles. Production Payments means, collectively, Dollar-Denominated Production Payments and Volumetric Production Payments. Production Payments and Reserve Sales means the grant or transfer by the Company or a Restricted Subsidiary of the Company to any Person of a royalty, overriding royalty, net profits interest, Production Payment, partnership or other interest in oil and gas properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties, including any such grants or transfers pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical services to the Company or a Subsidiary of the Company. Pro Forma Cost Savings means, without duplication, with respect to any period, reductions in costs and related adjustments that have been actually realized or are projected by the Companys chief financial officer in good faith to result from reasonably identifiable and factually supportable actions or events, but only if such reductions in costs and related adjustments are so projected by the Company to be realized during the consecutive four-quarter period commencing after the transaction giving rise to such calculation. Public Equity Offering means, with respect to any Person, a bona fide underwritten primary public offering of the ordinary shares or common equity of such Person, either: (1) (2) pursuant to a flotation on the London Stock Exchange or any other nationally recognized stock exchange or listing authority in a member state of the European Union; or pursuant to an effective registration statement under the U.S. Securities Act (other than a registration statement on Form S-8 or otherwise relating to Equity Interests issued or issuable under any employee benefit plan).

Rating Agencies is defined to mean (1) S&P, (2) Moodys, (3) Fitch and (4) if S&P, Moodys, Fitch or any of these shall not make a rating of the Notes available, an internationally recognized securities rating agency or agencies, as the case may be, selected by the Company, which shall be substituted for S&P, Moodys, Fitch or any of these, as the case may be. Restricted Investment means an Investment other than a Permitted Investment. Restricted Subsidiary of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. S&P means Standard & Poors Ratings Group. SEC means the U.S. Securities and Exchange Commission. Security Documents has the meaning provided under Security Documents. Senior Debt means: (1) (2) (3) all Indebtedness of the Company or any of its Restricted Subsidiaries outstanding under Credit Facilities and all Hedging Obligations with respect thereof; Indebtedness of the Company or any of its Restricted Subsidiaries outstanding under the 2016 Notes Indenture, including the Guarantees thereunder; any other Indebtedness of the Company or any of its Restricted Subsidiaries permitted to be incurred under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the Notes or any Note Guarantee; and all Obligations with respect to the items listed in the preceding clauses (1), (2) and (3).

(4)

251

Notwithstanding anything to the contrary in the preceding, sentence, Senior Debt will not include: (a) (b) any intercompany Indebtedness of the Company or any of its Subsidiaries to the Company or any of its Affiliates; or any Indebtedness that is incurred in violation of the Indenture.

For the avoidance of doubt, Senior Debt will not include any trade payables or taxes owed or owing by the Company or any Restricted Subsidiary. Senior Guarantors means each of: (1) (2) (3) (4) (5) (6) (7) (8) (9) Afren Nigeria; Afren CI (UK) Limited; Afren CI (II) Limited; Afren Cte d1voire; Afren Okoro; Lion G.P.L SA; AERL; Afren Nigeria Holdings (Nigeria) Limited; and any other Subsidiary of the Company that executes a Note Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture.

Senior Note Guarantee means a Guarantee by a Senior Guarantor. Significant Subsidiary means, at the date of determination, any Restricted Subsidiary that together with its Subsidiaries which are Restricted Subsidiaries (i) for the most recent fiscal year, accounted for more than 10% of the consolidated revenues of the Company or (ii) as of the end of the most recent fiscal year, was the owner of more than 10% of the consolidated assets of the Company. Socar Facility means the unsecured credit facility with a limit of $50 million dated August 3, 2011 entered into by, among others, the Company and Company Socar Trading S.A. Stated Maturity means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Issue Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. Subordinated Guarantors means each of: (1) (2) Afren Resources; and any other Subsidiary of the Company that executes a Subordinated Guarantee in accordance with the provisions of the Indenture,

and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture. Subordinated Obligation means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement or any 252

Indebtedness of a Guarantor (whether outstanding on the Issue Date or thereafter incurred) which is subordinate or junior in right of payment to the Note Guarantee pursuant to a written agreement, as the case may be. Subsidiary means, with respect to any specified Person: (1) any corporation, association or other business entity (other than a partnership, joint venture, limited liability company or similar) of which more than 50% of the total ordinary voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and any partnership, joint venture, limited liability company or similar entity of which (a) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (b) such Person or any Subsidiary of such Person is a controlling general partner or otherwise controls such entity.

(2)

Tax means any tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and any other additions thereto, and, for the avoidance of doubt, including any withholding or deduction for or on account of Tax). Taxes and Taxation shall be construed to have corresponding meanings. U.S. Government Obligations means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. Unrestricted Subsidiary means any Subsidiary of the Company that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary: (1) (2) has no Indebtedness other than Non-Recourse Debt; except as permitted by the covenant described above under the caption Certain Covenants Transactions with Affiliates, is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; and is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Persons financial condition or to cause such Person to achieve any specified levels of operating results.

(3)

U.S. Exchange Act means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. U.S. Securities Act means the United States Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Volumetric Production Payments means production payment obligations recorded as deferred revenue in accordance with IFRS, together with all related undertakings and obligations. Voting Stock of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. Weighted Average Life to Maturity means, when applied to any Indebtedness at any date, the number of years obtained by dividing: 253

(1)

the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by the then outstanding principal amount of such Indebtedness.

(2)

254

BOOK-ENTRY, DELIVERY AND FORM General The Notes sold within the United States to qualified institutional buyers pursuant to Rule 144A will initially be represented by one or more Notes in registered, global form (each, a Rule 144 Global Note), and Notes sold outside the United States to non-U.S. persons in offshore transactions pursuant to Regulation S will initially be represented by one or more Notes in registered, global form (each, a Regulation S Global Note, and together with the 144A Global Note, the Global Notes). On the closing date, the Global Notes will be deposited with Deutsche Bank Trust Company Americas as custodian for DTC, and registered in the name of Cede & Co., as DTCs nominee. Investors who are qualified institutional buyers and who purchase Notes in reliance on Rule 144A may hold their interests in a Rule 144A Global Note directly through DTC if they are DTC participants, or indirectly through organizations that are DTC participants. Investors who hold beneficial interests in a Regulation S Global Note may hold such interests directly through Euroclear and Clearstream if they are participants in these systems, or indirectly through organizations that are participants in Euroclear or Clearstream. Euroclear and Clearstream will hold interests in the Regulation S Global Note on behalf of their participants through their respective depositaries, which in turn will hold the interests in the Regulation S Global Note in customers securities accounts in the depositaries names on the books of DTC. Book-Entry Interests will be limited to persons that have accounts with DTC or persons that may hold interests through such participants. Book-Entry Interests will be shown on, and transfers thereof will be effected only through, records maintained in Book-Entry form by DTC and its participants. The Book-Entry Interests will not be held in definitive form. Instead, DTC will credit on its Book-Entry registration and transfer systems a participants account with the interest beneficially owned by such participant. The laws of some jurisdictions, including certain states of the United States, may require that certain purchasers of securities take physical delivery of such securities in definitive form. The foregoing limitations may impair their ability to own, transfer or pledge Book-Entry Interests. In addition, while the Notes are in global form, owners of interest in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Issuance of Definitive Registered Notes Under the terms of the Indenture, owners of Book-Entry Interests will receive Definitive Registered Notes only in the following circumstances: DTC notifies the Company that it is unwilling or unable to continue to act as depositary or has ceased to be a clearing agency registered under the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act) and, in either case, a successor depositary is not appointed by the Company within 120 days; in whole, but not in part, at any time if the Company, in its sole discretion, determines that the Global Notes should be exchanged for Definitive Registered Notes; or if the owner of a Book-Entry Interest requests such exchange in writing delivered to DTC, following an event of default.

In such an event, the registrar will issue Definitive Registered Notes, registered in the name or names and issued in any approved denominations, requested by or on behalf of DTC, as applicable (in accordance with its customary procedures and based upon directions received from participants reflecting the beneficial ownership of Book-Entry Interests), and such Definitive Registered Notes will bear a restrictive legend with referred to in Notice to Investors, unless that legend is not required by the Indenture or applicable law. Redemption of Global Notes In the event either Global Note, or any portion thereof, is redeemed, DTC, Euroclear or Clearstream as applicable, will distribute the amount received by it in respect of the Global Note so redeemed to the holders of the Book-Entry Interests in such Global Note from the amount received by it in respect of the redemption of such Global Note. The redemption price payable in connection with the redemption of such Book-Entry Interests will be equal to the amount received by DTC, Euroclear or Clearstream, as applicable, in connection with the redemption of such Global Note (or any portion thereof). The Company understands that under existing practices of DTC, Euroclear and Clearstream if fewer than all of the Notes are to be redeemed at any time, DTC, Euroclear and Clearstream will credit their respective participants accounts on a proportionate 255

basis (with adjustments to prevent fractions) or on such other basis as they deem fair and appropriate; provided, however, that no Book-Entry Interest of less than $200,000 principal amount at maturity, or less, may be redeemed in part. Payments on Global Notes Payments of any amounts owing in respect of the Global Notes (including, principal, interest and additional amounts) will be made by the Company in U.S. dollars to the Paying Agent. The Paying Agent will, in turn, make such payments to DTC or its nominee, which will distribute such payments to participants in accordance with its procedures. Under the terms of the Indenture, the Company and the Trustee will treat the registered holder of the Global Notes (i.e., the custodian for DTC or its nominee) as the owner thereof for the purpose of receiving payments and for all other purposes. Consequently, neither the Company nor the Trustee nor any of their respective agents has or will have any responsibility or liability for: any aspect of the records of DTC, Euroclear, Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest, for any such payments made by DTC, Euroclear, Clearstream, or any participant or indirect participants, or for maintaining, supervising or reviewing any of the records of DTC, Euroclear, Clearstream, or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest; or any other matter relating to the actions and practices of DTC, Euroclear, Clearstream, or any participant or indirect participant.

Payments by participants to owners of Book-Entry Interests held through participants are the responsibility of such participants, as is now the case with securities held for the accounts of customers registered in a street name. Action by Owners of Book-Entry Interests DTC, Euroclear and Clearstream advised the Company that they will take any action permitted to be taken by a noteholder (including the presentation of Notes for exchange as described above) only at the direction of one or more participants to whose account the Book-Entry Interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. DTC, Euroclear and Clearstream will not exercise any discretion in the granting of consents, waivers or the taking of any other action in respect of the Global Notes. However, if there is an event of default under the Notes, each of DTC, Euroclear and Clearstream reserves the right, subject to certain restrictions, to exchange the Global Notes for Definitive Registered Notes in certificated form, and to distribute such Definitive Registered Notes to its participants. Transfers Transfers between participants in DTC will be done in accordance with DTC rules and will be settled in immediately available funds. If a holder requires physical delivery of Definitive Registered Notes for any reason, including to sell the Notes to persons in states which require physical delivery of such securities or to pledge such securities, such holder must transfer its interest in the Global Notes in accordance with the normal procedures of DTC and in accordance with the provisions of the Indenture. The Global Notes will bear a legend to the effect set forth in Notice to Investors. Book-Entry Interests in the Global Notes will be subject to the restrictions on transfer discussed in Notice to Investors. Through and including the 40th day after the later of the commencement of the offering of the Notes and the closing of the offering (the 40-day Period), beneficial interests in a Regulation S Global Note may be transferred to a person who takes delivery in the form of an interest only if such transfer is made pursuant to Rule 144A and the transferor first delivers to the Trustee a certificate (in the form provided in the Indenture) to the effect that such transfer is being made to a person who the transferor reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A in accordance with the transfer restrictions described under Notice to Investors and in accordance with all applicable securities laws of the states of the United States and other jurisdictions. After the expiration of the 40-day Period, beneficial interests in a Regulation S Global Note may be transferred to a person who takes delivery in the form of a beneficial interest in the Rule 144A Global Note without compliance with these certification requirements.

256

Beneficial interests in a Rule 144A Global Note may be transferred to a person who takes delivery in the form of a beneficial interest in the Regulation S Global Note only upon receipt by the Trustee of a written certification (in the form provided in the Indenture) from the transferor to the effect that such transfer is being made in accordance with Regulation S under the U.S. Securities Act (if available). Subject to the foregoing, and as set forth in Notice to Investors, Book-Entry Interests may be transferred and exchanged as described under Description of NotesTransfer and Exchange. Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in the other Global Note of the same denomination will, upon transfer, cease to be a Book-Entry Interest in the first-mentioned Global Note and become a Book-Entry Interest in the other Global Note, and accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as it retains such a Book-Entry Interest. Definitive Registered Notes may be transferred and exchanged for Book-Entry Interests in a Global Note only as described under Description of NotesTransfer and Exchange and, if required, only if the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes. See Notice to Investors. Transfers involving an exchange of a Regulation S Book-Entry Interest for 144A Book-Entry Interest in a Global Note will be done by DTC by means of an instruction originating from the Trustee through the DTC Deposit/Withdrawal Custodian system. Accordingly, in connection with any such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the relevant Regulation S Global Note and a corresponding increase in the principal amount of the corresponding 144A Global Note. The policies and practices of DTC may prohibit transfers of unrestricted Book-Entry Interests in the Regulation S Global Note prior to the expiration of the 40 days after the date of initial issuance of the Notes. Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in any other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first-mentioned Global Note and become a Book-Entry Interest in such other Global Note, and accordingly will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as it remains such a Book-Entry Interest. Global Clearance and Settlement under the Book-Entry System The Notes represented by the Global Notes are expected to be admitted to trading on the Euro MTF market operated by the Luxembourg Stock Exchange, and listed on the official list of the Luxembourg Stock Exchange and to trade in DTCs Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any certificated Notes will also be settled in immediately available funds. Subject to compliance with the transfer restrictions applicable to the Global Notes, cross-market transfers between participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be done through DTC in accordance with DTCs rules on behalf of each of Euroclear or Clearstream by its common depository; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream by the counterparty in such system in accordance with the rules and regulations and within the established deadlines of such system (Brussels time). Euroclear or Clearstream will, if the transaction meets its settlement requirements, deliver instructions to the common depository to take action to effect final settlement on its behalf by delivering or receiving interests in the Global Notes by DTC, and making and receiving payment in accordance with normal procedures for same-day funds settlement application to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the common depository. Because of the time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. Cash received in Euroclear and Clearstream as a result of a sale of an interest in a Global Note by or through a Euroclear or Clearstream participant to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTCs settlement date. Although DTC, Euroclear and Clearstream currently follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear or Clearstream, as the case may be, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or modified at any time. None of the Company, any Note Guarantor, the Trustee or the Paying Agent will have any responsibility for the 257

performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants, of their respective obligations under the rules and procedures governing their operations. Initial Settlement Initial settlement for the Notes will be made in U.S. dollars. Book-Entry Interests owned through DTC accounts will follow the settlement procedures applicable to conventional bonds in registered form. Book-Entry Interests will be credited to the securities custody accounts of DTC holders on the business day following the settlement date against payment for value on the settlement date. Secondary Market Trading The Book-Entry Interests will trade through participants of DTC and will settle in same-day funds. Since the purchase determines the place of delivery, it is important to establish at the time of trading of any Book-Entry Interests where both the purchasers and sellers accounts are located to ensure that settlement can be made on the desired value date. Information Concerning DTC, Euroclear and Clearstream All Book-Entry Interests will be subject to the operations and procedures of DTC, Euroclear and Clearstream as applicable. The Company provides the following summaries solely for the convenience of investors. The operations and procedures of each settlement system are controlled by that settlement system and may be changed at any time. Neither the Company nor the Initial Purchasers are responsible for those operations or procedures. DTC has advised the Company that it is: a limited-purpose trust company organized under New York Banking Law; a banking organization within the meaning of New York Banking Law; a member of the Federal Reserve System; a clearing corporation within the meaning of the New York Uniform Commercial Code; and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act.

DTC was created to hold securities for its participants and to facilitate the clearance and settlement of transactions among its participants. It does this through electronic Book-Entry changes in the accounts of securities participants, eliminating the need for physical movement of securities certificates. DTC participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others, such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a direct participant either directly or indirectly as indirect participants. Euroclear and Clearstream, Luxembourg hold securities for participating organizations and facilitate the clearance and settlement of securities transactions between their respective participants through electronic Book-Entry changes in accounts of such participants. Euroclear and Clearstream, Luxembourg provide to their participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream interface with residential securities markets. Euroclear and Clearstream participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear or Clearstream is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodian relationship with a Euroclear or Clearstream participants, either directly or indirectly. Because DTC, Euroclear and Clearstream can only act on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of an owner of a beneficial interest to pledge such interest to persons or entities that do not participate in DTC, Euroclear or Clearstream systems, or otherwise take actions in respect of such interest, may be limited by the lack of a definite certificate for that interest. The laws of some jurisdictions require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests to such person may 258

be limited. In addition, owners of beneficial interests through DTC, Euroclear or Clearstream systems will receive distributions attributable to the 144A Global Notes only through DTC, Euroclear or Clearstream participants.

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TAXATION Certain United States Federal Income Tax Considerations TO COMPLY WITH INTERNAL REVENUE SERVICE CIRCULAR 230, PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY PROSPECTIVE INVESTORS, FOR THE PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE U.S. INTERNAL REVENUE CODE OF 1986; (B) SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR MARKETING BY US OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. The following discussion is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of the Notes by a U.S. holder (defined below), but does not purport to be a complete analysis of all potential tax effects. This summary is based upon the U.S. Internal Revenue Code of 1986, as amended (the Code), Treasury regulations issued thereunder and judicial and administrative interpretations thereof, each as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. No rulings from the U.S. Internal Revenue Service (IRS) have been or are expected to be sought with respect to the matters discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the Notes or that any such position would not be sustained. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a holder in light of such holders particular circumstances or to holders subject to special rules, such as financial institutions, U.S. expatriates, insurance companies, dealers in securities or currencies, U.S. holders whose functional currency is not the U.S. dollar, tax-exempt organizations, regulated investment companies, real estate investment trusts, partnerships or other pass through entities (or investors in such entities), persons liable for alternative minimum tax and persons holding the Notes as part of a straddle, hedge, conversion transaction or other integrated transaction. In addition, this discussion is limited to persons who purchase the Notes for cash at original issue and at their issue price (i.e., the first price at which a substantial amount of the Notes is sold for money, other than to bond houses, brokers or similar persons acting in the capacity of underwriters, placement agents or wholesalers) and who hold the Notes as capital assets within the meaning of section 1221 of the Code. For purposes of this discussion, a U.S. holder is a beneficial owner of a Note that is, for U.S. federal income tax purposes: (i) an individual who is a citizen or resident of the United States; (ii) a corporation or any entity taxable as a corporation created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; (iii) any estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or if a valid election is in place to treat the trust as a U.S. person. If any entity treated as a partnership for U.S. federal income tax purposes holds the Notes, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A holder that is a partnership, and partners in such partnerships, should consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of the Notes. Prospective purchasers of the Notes should consult their tax advisors concerning the tax consequences of holding Notes in light of their particular circumstances, including the application of the U.S. federal income tax considerations discussed below, as well as the application of U.S. federal estate and gift tax laws and state, local, foreign or other tax laws. Characterization of the Notes In certain circumstances (see Description of NotesOptional Redemption, Description of NotesRepurchase at the Option of HoldersChange of Control, and Description of NotesAdditional Amounts) we may be obligated to make payments on the Notes in excess of stated principal and interest. We intend to take the position that the foregoing contingencies should not cause the Notes to be treated as contingent payment debt instruments. Assuming such position is respected, a U.S. holder would be required to include in income the amount of any such additional payments at the time such payments are received or accrued in accordance with such U.S. holders method of accounting for U.S. federal income tax purposes. Our position is binding on a holder, unless the holder discloses in the proper manner to the IRS that it is taking a different position. If the IRS successfully challenged this position, and the Notes were treated as contingent payment debt 260

instruments, U.S. holders could be required to accrue interest income at a rate higher than their yield to maturity and to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange, retirement or redemption of a Note. This disclosure assumes that the Notes will not be considered contingent payment debt instruments. U.S. holders are urged to consult their own tax advisors regarding the potential application to the Notes of the contingent payment debt instrument rules and the consequences thereof. Payments of Stated Interest Payments of stated interest on the Notes (including any non-U.S. tax withheld on such payments) generally will be taxable to a U.S. holder as ordinary income at the time that such payments are received or accrued, in accordance with such U.S. holders method of accounting for U.S. federal income tax purposes. It is anticipated, and the following discussion assumes, the Notes will not be treated as issued with original issue discount for U.S. federal income tax purposes. Foreign Tax Credit Interest income on a Note generally will constitute foreign source income and generally will be considered passive category income or, in the case of certain U.S. holders, general category income in computing the foreign tax credit allowable to U.S. holders under U.S. federal income tax laws. Sale, Exchange, Redemption, Retirement or Other Taxable Disposition of Notes Generally, upon the sale, taxable exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder will recognize taxable gain or loss equal to the difference between the amount realized on the disposition (less any amount attributable to accrued but unpaid interest not previously included in income, which will be taxable as such) and such U.S. holders adjusted tax basis in the Note. A U.S. holders adjusted tax basis is generally the cost of the Note to such U.S. holder. Gain or loss recognized upon the sale, taxable exchange, redemption, retirement or other taxable disposition of a Note generally will be U.S. source gain or loss and generally will be capital gain or loss and will be long-term capital gain or loss if at the time of the sale, exchange, redemption, retirement or other disposition the Note has been held by such U.S. holder for more than one year. Long-term capital gain realized by a non-corporate U.S. holder will generally be subject to taxation at a reduced rate. The deductibility of capital losses is subject to limitation. Information Reporting and Backup Withholding In general, payments of interest and the proceeds from sales or other dispositions (including retirements or redemptions) of Notes held by a U.S. holder may be required to be reported to the IRS unless the U.S. holder is an exempt recipient and, when required, demonstrates this fact. In addition, a U.S. holder that is not an exempt recipient may be subject to backup withholding unless it provides a taxpayer identification number and otherwise complies with applicable certification requirements. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holders U.S. federal income tax liability and may entitle the holder to a refund, provided that the appropriate information is timely furnished to the IRS. Information with Respect to Foreign Financial Assets U.S. holders that are individuals that own specified foreign financial assets with an aggregate value in excess of $50,000 are generally required to file an information report with respect to such assets with their tax returns, subject to certain exceptions. Specified foreign financial assets include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non- U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. The Notes may be subject to these rules. U.S. holders that are individuals are urged to consult their tax advisors regarding the application of this legislation to their ownership of the Notes. Certain United Kingdom Tax Considerations The following applies only to persons who are the beneficial owners of Notes and is a summary of the Companys understanding of current law and practice in the United Kingdom relating to certain aspects of United Kingdom taxation. Some aspects do not apply to certain classes of person (such as dealers and persons connected with 261

the Company) to whom special rules may apply. The United Kingdom tax treatment of prospective noteholders depends on their individual circumstances and may be subject to change in the future. Prospective noteholders who may be subject to tax in a jurisdiction other than the United Kingdom or who may be unsure as to their tax position should seek their own professional advice. Interest on the Notes Payment of interest on the Notes Payments of interest on the Notes may be made without withholding or deduction for or on account of United Kingdom income tax provided that the Notes continue to be listed on a recognised stock exchange within the meaning of section 1005 of the Income Tax Act 2007. The Luxembourg Stock Exchange is a recognised stock exchange. The Notes will satisfy this requirement if they are officially listed in Luxembourg in accordance with provisions corresponding to those generally applicable in EEA states and are admitted to trading on the Euro MTF Market in accordance with the rules of the Luxembourg Stock Exchange. Provided, therefore, that the Notes remain so listed, interest on the Notes will be payable without withholding or deduction for or on account of United Kingdom tax. Interest on the Notes may also be paid without withholding or deduction for or on account of United Kingdom income tax where interest on the Notes is paid to a company that is the beneficial owner and, at the time the payment is made, the Company reasonably believes (and any person by or through whom interest on the Notes is paid reasonably believes) that the beneficial owner is within the charge to United Kingdom corporation tax as regards the payment of interest, provided that HM Revenue and Customs (HMRC) has not given a direction (in circumstances where it has reasonable grounds to believe that it is likely that the above exemption is not available in respect of such payment of interest at the time the payment is made) that the interest should be paid under deduction of tax. If, in such circumstances, the beneficial owner is not within the charge to United Kingdom corporation tax as regards the payment of interest, the right to pay without deduction is treated as having never applied to any such payment. In other cases, an amount must generally be withheld from payments of interest on the Notes on account of United Kingdom income tax at the basic rate (currently 20%). However, where an applicable double taxation treaty provides for a lower rate of withholding tax (or for no tax to be withheld) in relation to a noteholder, HMRC can issue a direction to the Company to pay interest to the noteholder without deduction of tax (or for interest to be paid with tax deducted at the rate provided for in the relevant double taxation treaty). Noteholders may wish to note that, in certain circumstances, HMRC has power to obtain information (including the name and address of the beneficial owner of the interest or the amount payable on the redemption of Notes, as applicable) from any person in the United Kingdom who either pays or credits interest to or receives interest for the benefit of a noteholder or, in the case of Notes that are deeply discounted securities (as to which the paragraph entitled Other United Kingdom Tax PayersTaxation of Discount below), who either pays amounts payable on the redemption of Notes to or receives such amounts for the benefit of a noteholder. Information so obtained may, in certain circumstances, be exchanged by HMRC with the tax authorities of the jurisdiction in which the noteholder is resident for tax purposes. The references to interest above are to interest as understood for the purposes of United Kingdom tax law. They do not take into account any different definition of interest that may prevail under any other tax law or that may apply under the terms and conditions of the Notes or any related document. Payments by a Guarantor If a Guarantor makes any payments in respect of interest on the Notes (or other amounts due under the Notes other than the repayment of amounts subscribed for such Notes) such payments may be subject to United Kingdom withholding tax at the basic rate (currently 20%) subject to such relief as may be available under the provisions of any applicable double taxation treaty or any other exemption which may apply. It is not certain that such payments by the Guarantor will be eligible for all the exemptions described above. Further United Kingdom Tax Issues Interest on the Notes constitutes United Kingdom source income for United Kingdom tax purposes and may be subject to United Kingdom income tax or corporation tax by direct assessment even where paid without withholding or deduction. However, interest with a United Kingdom source received without deduction or withholding will not be chargeable to United Kingdom tax in the hands of a noteholder (other than certain trustees) who is not resident for tax purposes in the 262

United Kingdom unless that noteholder carries on a trade, profession or vocation in the United Kingdom through a branch or agency in connection with which the interest is received or to which the Notes are attributable or, where that noteholder is a company, unless that noteholder carries on a trade in the United Kingdom through a permanent establishment in connection with which the interest is received or to which the Notes are attributable. There are exemptions for interest received by certain categories of agent (such as some brokers and investment managers). The provisions of an applicable double taxation treaty may also be relevant for such a noteholder. United Kingdom Corporation Tax Payers In general, noteholders that are within the charge to United Kingdom corporation tax will be charged to tax as income on all returns, profits or gains on, and fluctuations in value of, the Notes (whether attributable to currency fluctuations or otherwise) broadly in accordance with their statutory accounting treatment. Other United Kingdom Tax Payers Taxation of Chargeable Gains A disposal of Notes by an individual noteholder who is resident or ordinarily resident in the United Kingdom, or who carries on a trade, profession or vocation in the United Kingdom through a branch or agency to which the Notes are attributable, may give rise to a chargeable gain or allowable loss for the purposes of the United Kingdom taxation of chargeable gains. Taxation of Discount Notwithstanding the paragraph entitled Taxation of Chargeable Gains above, if the Notes constitute deeply discounted securities for the purposes of Chapter 8 of Part 4 of the Income Tax (Trading and Other Income) Act 2005 then any gain realized on redemption or transfer of the Notes by a noteholder who is within the charge to United Kingdom income tax in respect of the Notes will generally be taxable as income but such noteholder will not be able to claim relief from income tax in respect of costs incurred on the acquisition, transfer or redemption, or losses incurred on the transfer or redemption, of the Notes. The Notes would generally be treated as deeply discounted securities for these purposes if, as at the Issue Date, the amount payable on maturity or certain other occasions of redemption, other than an Optional Redemption or a Redemption for Changes in Taxes, (A) exceeds, or may exceed, the issue price of the Notes by more than A 0.5% Y, where Y is the number of years between the Issue Date and redemption. Noteholders are advised to consult their own professional advisers if they require any advice or further information relating to deeply discounted securities. Accrued Income Scheme On a disposal of Notes by a noteholder, any interest which has accrued since the last interest payment date may be chargeable to United Kingdom tax as income under the rules of the accrued income scheme as set out in Part 12 of the Income Tax Act 2007, if that noteholder is resident or ordinarily resident in the United Kingdom or carries on a trade, profession or vocation in the United Kingdom through a branch or agency to which the Notes are attributable. The accrued income scheme will not apply if the Notes are deeply discounted securities for the purposes of Chapter 8 of Part 4 of the Income Tax (Trading and Other Income) Act 2005, as to which see the paragraph entitled Taxation of Discount above. Stamp Duty and Stamp Duty Reserve Tax No United Kingdom stamp duty or stamp duty reserve tax should be payable on issue or transfer of the Notes. Certain European Union Tax Considerations Under EC Council Directive 2003/48/EC on the taxation of savings income (the Taxation of Savings Income Directive), Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State or to certain limited types of entities established in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories, including Switzerland, have adopted similar measures (a withholding system, in the case of Switzerland). On September 15, 2008, the European Commission issued a report to the Council of the European Union on the operation of the Taxation of Savings Income Directive, which included the Commissions advice on the need for changes to 263

the Taxation of Savings Income Directive. On November 13, 2008, the European Commission published a more detailed proposal for amendments to the Taxation of Savings Income Directive, which included a number of suggested changes. The European Parliament approved an amended version of this proposal on April 24, 2009. If any of the proposed changes are made in relation to the Taxation of Savings Income Directive, they may amend or broaden the scope of the requirements described above. Certain Nigerian Tax Considerations The following applies only to persons who are the beneficial owners of Notes and is a summary of the Companys understanding of current law and practice in Nigeria relating to certain aspects of Nigerian taxation. Nigerian tax treatment of prospective noteholders depends on their individual circumstances and may be subject to change in the future. Prospective noteholders who may be unsure as to their tax position should seek their own professional advice. Interest on Notes Payments by a Guarantor If a Guarantor incorporated in Nigeria makes any payments in respect of interest on the Notes, such payments may be subject to Nigerian withholding tax at 10% subject to such relief as may be available under the provisions of any applicable double taxation treaty or any other exemption which may apply. Currently, only dividends payable out of profits which have been subject to taxes paid on petroleum profits are exempt from withholding tax. It is not certain that such payments by a Nigerian Guarantor will be eligible for all the exemptions described above. Interest earned by Nigerian residents on the Notes will be exempt from Nigerian tax if brought into Nigeria through approved channels (Nigerian banks).

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PLAN OF DISTRIBUTION Subject to the terms and conditions set forth in the purchase agreement (the Purchase Agreement) entered into on or about March 1, 2012, by and among the Company, the Note Guarantors and the Initial Purchasers, the Company has agreed to sell to the Initial Purchasers, and the Initial Purchasers have agreed, severally and not jointly, to purchase from the Company the entire principal amount of the Notes. The Purchase Agreement provides for the obligations of the Initial Purchasers to pay for and accept delivery of the Notes. The Notes will initially be offered at the price indicated on the cover page of this Offering Memorandum. The Purchase Agreement also provides that the Company and the Note Guarantors will indemnify the Initial Purchasers against certain liabilities, including liabilities under the U.S. Securities Act, and will contribute to payments that the Initial Purchasers may be required to make in respect thereof. The Company has agreed, subject to certain limited exceptions, that during the period from the date hereof through and including the date that is 30 days after the date the Notes are issued, to not, without having received the prior written consent provided for in the Purchase Agreement, offer, sell, contract to sell or otherwise dispose of any securities issued or guaranteed by the Company that are substantially similar to the Notes and the Note Guarantees. The Initial Purchasers are offering the Notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the Notes, and other conditions contained in the Purchase Agreement, such as the receipt by the Initial Purchasers of officers certificates and legal opinions. The Initial Purchasers reserve the right to withdraw, cancel or modify offers to investors and to reject orders in whole or in part. The Initial Purchasers propose to offer the Notes for resale in transactions not requiring registration under the U.S. Securities Act or applicable state securities laws, including sales pursuant to Rule 144A. The Initial Purchasers will not offer or sell the Notes except: to persons they reasonably believe to be qualified institutional buyers, as defined in Rule 144A under the U.S. Securities Act; or pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S.

Notes sold pursuant to Regulation S may not be offered or resold in the United States or to U.S. persons (as defined in Regulation S), except under an exemption from the registration requirements of the U.S. Securities Act or under a registration statement declared effective under the U.S. Securities Act. Each purchaser of the Notes will be deemed to have made acknowledgments, representations and agreements as described under Notice to Investors. Prior to the Offering, there has been no active market for the Notes. The Initial Purchasers have advised the Company that they presently intend to make a market in the Notes as permitted by applicable laws and regulations. The Initial Purchasers are not obligated, however, to make a market in the Notes and any such market making may be discontinued at any time at the sole discretion of the Initial Purchasers without any notice. Each Initial Purchaser has also represented and agreed that, (i) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the FSMA) with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom; and (ii) it will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the Notes in circumstances in which section 21(1) of the FSMA does not apply to us. In relation to each Member State of the EEA that has implemented the Prospectus Directive (each, a Relevant Member State), each Initial Purchaser has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, it has not made and will not make an offer to the public of any Notes which are the subject of the Offering contemplated by this Offering Memorandum in that Relevant Member State, other than: (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;

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(b)

to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Company for any such offer; or in any other circumstances falling within Article 3(2) of the Prospectus Directive;

(c)

provided that no such offer of Notes shall require us or the Initial Purchasers to publish a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Notes to the public in relation to the Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. The Company expects that delivery of the Notes will be made to investors on or about the date specified on the cover page of this Offering Memorandum, which is five business days (as such term is used for purposes of Rule 15(c)6-1 of the Exchange Act) following the date of this Offering Memorandum (such settlement being referred to as T+5). Under Rule 15(c)6-1 under the Exchange Act, trades in the secondary market are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes on the date of this Offering Memorandum or the next succeeding business day will be required to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to make such trades should consult their own advisors. In connection with the Offering, Goldman Sachs International (the Stabilizing Manager) (or persons acting on behalf of the Stabilizing Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilizing Manager (or persons acting on behalf of a Stabilizing Manager) will undertake stabilization action. Any stabilization action may begin on or after the date on which adequate public disclosure of the final terms of the offer of the Notes is made and, if begun, may be ended at any time, but must end no later than the earlier of 30 calendar days after the issue date of the Notes and 60 calendar days after the date of the allotment of the Notes. The Company will apply, through its listing agent, to have the Notes admitted to trading on the Euro MTF Market operated by the Luxembourg Stock Exchange, and listed on the official list of the Luxembourg Stock Exchange. The Company cannot assume that the Notes will be approved from admission to trading and listing, and will remain admitted to trading and listed on the Euro MTF Market and listed on the official list of the Luxembourg Stock Exchange. From time to time, the Initial Purchasers and their affiliates have provided, and may in the future provide, investment banking services to the Company and its affiliates, and Goldman Sachs International, BNP Paribas Securities Corp., Deutsche Bank AG, London Branch, Global Hunter Securities, LLC and Natixis and their affiliates have provided, and may in the future provide, commercial banking services to the Company and its affiliates, for which they have received or may receive customary fees and commissions. Certain of the Initial Purchasers have entered and may from time to time enter into hedging arrangements with the Company and its affiliates. In addition, the proceeds of the Offering will be used to repay a facility for which an affiliate of BNP Paribas Securities Corp. serve as a lender.

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NOTICE TO INVESTORS You are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of any of the Notes offered hereby. Neither the Notes nor the Note Guarantees have been registered under the U.S. Securities Act or any state securities laws and may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the U.S. Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. Accordingly, we are offering and selling the Notes only: to U.S. investors that we reasonably believe to be qualified institutional buyers, commonly referred to as QIBs, (as defined in Rule 144A under the U.S. Securities Act) in compliance with Rule 144A; and in offshore transactions complying with Rule 903 or Rule 904 of Regulation S under the U.S. Securities Act.

The term foreign purchasers includes dealers or other professional fiduciaries in the Unites States acting on a discretionary basis for foreign beneficial owners, other than an estate or trust, in offshore transactions meeting the requirements of Rule 903 of Regulation S. We use the terms offshore transaction, U.S. person and United States with the meanings given to them in Regulation S. If you purchase Notes in this Offering, you will be deemed to have represented and agreed as follows (terms used in this paragraph that are defined in Rule 144A or Regulation S under the U.S. Securities Act are used herein as defined therein): (1) You understand that the Notes are being offered in a transaction not involving any public offering in the United States within the meaning of the U.S. Securities Act, that the Notes have not been and will not be registered under the U.S. Securities Act and that (A) if in the future you decide to offer, resell, pledge or otherwise transfer any of the Notes, such Notes may be offered, resold, pledged or otherwise transferred only (i) in the United States to a person whom you reasonably believe is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A; (ii) outside the United States in a transaction complying with the provisions of Rule 904 of Regulation S under the U.S. Securities Act; or (iii) to Afren, in each case in accordance with any applicable securities laws, and that (B) you will, and each subsequent holder is required to, notify any subsequent purchaser of the Notes from it of the resale restrictions referred to in the legend below. You are not our affiliate (as defined in Rule 144 under the U.S. Securities Act), you are not acting on our behalf and you are either: (a) a QIB and are aware that any sale of these Notes to you will be made in reliance on Rule 144A and such acquisition will be for your own account or for the account of another QIB; or not a U.S. person or purchasing for the account or benefit of a U.S. person (other than a distributor) and you are purchasing Notes in an offshore transaction in accordance with Regulation S.

(2)

(b)

(3)

You acknowledge that none of the Company, the Guarantors, the Initial Purchasers or any person representing the Company, the Guarantors or the Initial Purchasers has made any representation to you with respect to the Company or the offer or sale of any of the Notes, other than by the Company and the Guarantors with respect to the information contained in this Offering Memorandum, which Offering Memorandum has been delivered to you and upon which you are relying in making your investment decision with respect to the Notes. You acknowledge that the Initial Purchasers make no representation or warranty as to the accuracy or completeness of this Offering Memorandum. You have had access to such financial and other information concerning the Company, the Guarantors, the Indenture, the Notes, and the Note Guarantees as you have deemed necessary in connection with your decision to purchase Notes, including an opportunity to

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ask questions of and request information from the Company, the Guarantors and the Initial Purchasers. Each purchaser acknowledges that each Note will contain a legend substantially in the following form: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE U.S. SECURITIES ACT), OR OTHER SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT) EXCEPT TO (A) QUALIFIED INSTITUTIONAL BUYERS IN RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT PROVIDED BY RULE 144A OR (B) PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE U.S. SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE RESALE RESTRICTION TERMINATION DATE) WHICH IS [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE ISSUER, THE GUARANTORS OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE U.S. SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE U.S. SECURITIES ACT (RULE 144A), TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND TO COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, AND ANY APPLICABLE LOCAL LAWS AND REGULATIONS AND FURTHER SUBJECT TO THE ISSUERS AND THE TRUSTEES RIGHTS PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE AND (III) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. If the Notes are issued with original issue discount for U.S. federal income tax purposes, the Notes will bear the following legend: ORIGINAL ISSUE DISCOUNT. THE NOTES HAVE BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES (OID). THE ISSUE PRICE, THE AMOUNT OF OID, THE ISSUE DATE AND THE YIELD TO MATURITY MAY BE OBTAINED BY CONTACTING ELEKWACHI UKWU AT KINNAIRD HOUSE, 1 PALL MALL EAST, LONDON SW1Y 5AU, UNITED KINGDOM; +44-20-7451-9700.

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If you purchase Notes, you will also be deemed to acknowledge that the foregoing restrictions apply to holders of beneficial interests in these Notes as well as to holders of these Notes. (4) You acknowledge that the Registrar will not be required to accept for registration of transfer any Notes acquired by you, except upon presentation of evidence satisfactory to us and the Registrar that the restrictions set forth herein have been complied with. You acknowledge that: (a) the Company, the Guarantors, the Initial Purchasers and others will rely upon the truth and accuracy of your acknowledgements, representations and agreements set forth herein and you agree that, if any of your acknowledgements, representations or agreements herein cease to be accurate and complete, you will notify us and the Initial Purchasers promptly in writing; and if you are acquiring any Notes as fiduciary or agent for one or more investor accounts, you represent with respect to each such account that: (i) (ii) (6) (7) you have sole investment discretion; and you have full power to make the foregoing acknowledgements, representations and agreements.

(5)

(b)

You agree that you will give to each person to whom you transfer these Notes notice of any restrictions on the transfer of the Notes. If you are a purchaser in a sale that occurs outside the United States within the meaning of Regulation S, you acknowledge that until the expiration of the distribution compliance period (as defined below), you shall not make any offer or sale of these Notes to a U.S. person or for the account or benefit of a U.S. person within the meaning of Rule 902 under the U.S. Securities Act. The distribution compliance period means the 40-day period following the issue date for the Notes. You understand that no action has been taken in any jurisdiction (including the United States) by the Company or the Initial Purchasers that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Memorandum or any other material relating to the Company or the Notes in any jurisdiction where action for that purpose is required. Consequently, any transfer of the Notes will be subject to the selling restrictions set forth under Plan of Distribution.

(8)

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ERISA CONSIDERATIONS Prohibited Transactions Any purchaser, including, without limitation, any fiduciary purchasing on behalf of (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA)) subject to the provisions of Part 4 of Subtitle B of Title I of ERISA or a plan to which Section 4975 of the Code applies (each, a Plan), (ii) an entity whose underlying assets include plan assets (as defined in Section 3(42) of ERISA) by reason of a Plans investment in such entity (each, a Benefit Plan Investor), or (iii) a governmental, church or non-U.S. plan which is subject to any federal, state, local, non-U.S. or other laws or regulations that are substantially similar to the fiduciary responsibility or prohibited transaction provisions of ERISA or the provisions of Section 4975 of the Code (Similar Laws), transferee, or holder of the Notes will be deemed to have represented, in its corporate and fiduciary capacity, that: (a) With respect to the acquisition, holding and disposition of Notes, or any interest therein, (1) either (A) it is not, and it is not acting on behalf of (and for so long as it holds such Notes or any interest therein will not be, and will not be acting on behalf of), a Plan, a Benefit Plan Investor, or a governmental, church or non-U.S. plan which is subject to Similar Laws, and no part of the assets used or to be used by it to acquire or hold such Notes or any interest therein constitutes the assets of any such Plan, Benefit Plan Investor or governmental, church or non-U.S. plan which is subject to Similar Laws, or (B)(i) its acquisition, holding and disposition of such Notes or any interest therein does not, and will not, constitute or otherwise result in a non-exempt prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code (or, in the case of a governmental, church or non-U.S. plan, a non-exempt violation of any Similar Laws); (ii) none of us, the Guarantors, the Initial Purchasers, Trustee or any of our or their respective affiliates, is a sponsor of, or a fiduciary (within the meaning of Section 3(21) of ERISA with respect to a Plan or, with respect to a governmental, church or non-U.S. plan, any definition of fiduciary under Similar Laws) of, a Plan or governmental, church or non-U.S. plan (A) with respect to which, the acquirer, transferee or holder in connection with any acquisition or holding of such Notes is affiliated, or (B) as a result of any exercise by the Company or any of its affiliates of any rights in connection with such Notes; and (iii) no advice provided by the Company or any of its affiliates has formed a primary basis for any investment or other decision by or on behalf of the acquirer or holder in connection with such Notes and the transactions contemplated with respect to such Notes; and (2) it will not sell or otherwise transfer such Notes or any interest therein otherwise than to a purchaser or transferee that is deemed (or if required by the applicable indenture, certified) to make these same representations, warranties and agreements with respect to its acquisition, holding and disposition of such Notes or any interest therein; The acquirer and any fiduciary causing it to acquire an interest in any Notes agrees to indemnify and hold harmless us, the Guarantors, the Initial Purchasers, the Trustee, and their respective affiliates, from and against any cost, damage or loss incurred by any of them as a result of any of the foregoing representations and agreements being or becoming false; and Any purported acquisition or transfer of any Note or beneficial interest therein to an acquirer or transferee that does not comply with the requirements of the above provisions shall be null and void ab initio.

(b)

(c)

For the purposes of this notice, the Notes include interests or rights in the Notes held in Euroclear or Clearstream, Luxembourg or any other clearing system. General Fiduciary Matters ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan and prohibit certain transactions involving the assets of a Plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of a Plan or the management or disposition of the assets of a Plan, or who renders investment advice for a fee or other compensation to a Plan, is generally considered to be a fiduciary of such Plan. A fiduciary should determine whether the investment is in accordance with the documents and 270

instruments governing the Plan and the applicable provisions of ERISA, the Code and any similar law relating to a fiduciarys duties to a Plan including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable similar laws. Disclosure The foregoing discussion is general in nature and is not intended to be all inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering acquiring the Notes on behalf of, or with the assets of, a Plan, consult with their counsel regarding the potential applicability of ERISA, PTCEs, Section 4975 of the Code and any similar laws to such investment and whether an exemption would be applicable to the purchase or holding of the Notes.

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LEGAL MATTERS Certain legal matters in connection with the offering are being passed upon for us by Latham & Watkins (London) LLP with respect to matters of U.S. federal, New York State law and English law and by Templars with respect to matters of Nigerian law. Certain legal matters will be passed upon for the Initial Purchasers by Milbank, Tweed, Hadley & McCloy LLP with respect to matters of U.S. federal, New York State law and English law, and by Banwo & Ighodalo with respect to matters of Nigerian law.

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INDEPENDENT AUDITORS Afren plcs consolidated financial statements as of and for the years ended December 31, 2008, 2009 and 2010 included in this Offering Memorandum have been audited by Deloitte LLP, independent auditors, as stated in their reports appearing herein. Deloitte LLP are members of the Institute of Chartered Accountants of England and Wales.

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INDEPENDENT PETROLEUM ENGINEERS Estimates of our gas and oil reserves, related future net revenue and the present worth thereof as of December 31, 2011 included in this Offering Memorandum were based in part upon a reserve report prepared by independent petroleum engineers, Netherland, Sewell & Associates, Inc. We have included these estimates in reliance on the authority of such firm as an expert in such matters. Estimates of the contingent and prospective oil and gas resources for the Barda Rash block as of February 15, 2011 and the Ain Sifni block as of June 9, 2011 included in this Offering Memorandum were based in part upon reports prepared by independent petroleum engineers, RPS Energy. We have included these estimates in reliance on the authority of such firms as experts in such matters.

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AVAILABLE INFORMATION Each purchaser of Notes from an Initial Purchaser will be furnished a copy of this Offering Memorandum and any related amendments or supplements to this Offering Memorandum. Each person receiving this Offering Memorandum and any related amendments or supplements to the Offering Memorandum acknowledges that: (1) such person has been afforded an opportunity to request from us and to review and has received, all additional information considered by it to be necessary to verify the accuracy and completeness of the information herein; such person has not relied on the Initial Purchasers or any person affiliated with the Initial Purchasers in connection with its investigation of the accuracy of such information or its investment decision; and except as provided pursuant to clause (1) above, no person has been authorized to give any information or to make any representation concerning the Notes or each Note Guarantee offered hereby other than those contained herein and, if given or made, such other information or representation should not be relied upon as having been authorized by either us or the Initial Purchasers.

(2)

(3)

For so long as any of the Notes remain outstanding and are restricted securities within the meaning of Rule 144(a)(3) under the U.S. Securities Act, we will, during any period in which we are not subject to Section 13 or 15(d) under the Exchange Act, nor exempt from reporting thereunder pursuant to Rule 12g3-2(b), make available to any holder or beneficial holder of a Note, or to any prospective purchaser of a Note designated by such holder or beneficial holder, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the U.S. Securities Act upon the written request of any such holder or beneficial owner. Any such request should be directed to Elekwachi Ukwu, Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU; +44-20-7451-9700. Requests for copies of the NSAI Report or the RPS Report should be directed to Elekwachi Ukwu, Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU; +44-20-7451-9700. We are not currently subject to the periodic reporting and other information requirements of the Exchange Act. We are a listed company on the Official List of the London Stock Exchange and while we remain listed on the Official List of the London Stock Exchange, we must comply with the reporting requirements established by the Companies Act 2006, as amended, and the Disclosure & Transparency Rules of the UK Listing Authority. In addition to our ongoing reporting obligations under these regulations, we must send to the UK Listing Authority our preliminary annual results and our annual financial report. We must also send our semi-annual financial reports, along with interim management statements. Pursuant to the Indenture that will govern the Notes, we will agree to furnish periodic information to the holders of the Notes. See Description of NotesReports. So long as the Notes are admitted to trading on the Euro MTF Market and to listing on the Official List of the Luxembourg Stock Exchange, and the rules and regulations of such stock exchange so require, copies of such information will also be available for review during the normal business hours on any business day at the specified office of the Paying Agent in Luxembourg.

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SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES We are a public limited liability company incorporated under the laws of England and Wales and the Guarantors are organized under the laws of England and Wales, Nigeria, the Cayman Islands and Cte dIvoire. Many of our Directors, officers and other executives are neither residents nor citizens of the United States. Furthermore, most of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or us or to enforce against them or us judgments of U.S. courts predicated upon the civil liability provisions of U.S. federal or state securities laws despite the fact that, pursuant to the terms of the Indenture, we and the Guarantors have appointed, or will appoint, an agent for the service of process in New York. It may be possible for investors to effect service of process within England and Wales, Nigeria and the Cayman Islands upon those persons or us or over our subsidiaries provided that The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of November 15, 1965 is complied with. England and Wales There is no treaty providing for the reciprocal recognition and enforcement of court judgments in civil and commercial matters between the United States and the United Kingdom (although the United States and the United Kingdom are both parties to the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards). As a result, any judgment rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon U.S. federal securities law, would not be directly enforceable in England and Wales. In order to enforce any such judgment in England and Wales, proceedings must be initiated by way of civil law action on the judgment debt before a court of competent jurisdiction in England and Wales. In this type of action, an English court generally will not (subject to the matters identified below) re-try or re-examine the merits of the original matter decided by a U.S. court if: the relevant U.S. court had jurisdiction (under English rules of private international law) to give the judgment; and the judgment is final and conclusive on the merits and is for a definite sum of money (not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty or otherwise based on a U.S. law that an English court considers to be a penal, revenue or other public law).

An English court may refuse to enforce such a judgment, however, if it is established that: the enforcement of such judgment would contravene public policy or statute in England and Wales; the enforcement of the judgment is prohibited by statute (including, without limitation, if the amount of the judgment has been arrived at by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained); the enforcement proceedings were not commenced within the relevant limitation period as set out in section 24 of the Limitation Act 1980, as amended from time to time; before the date on which the U.S. court gave judgment, the issues in question had been the subject of a final judgment of an English court or of a court of another jurisdiction whose judgment is enforceable in England and which final judgment conflicts with the judgment of the U.S. court; the judgment has been obtained by fraud or in proceedings in which the principles of natural justice were breached; the bringing of proceedings in the relevant U.S. court was contrary to an agreement under which the dispute in question was to be settled otherwise than by proceedings in that court (to whose jurisdiction the judgment debtor did not submit); enforcement of the judgment is restricted by the provisions of the Protection of Trading Interests Act 1980; or an order has been made and remains effective under section 9 of the UK Foreign Judgments (Reciprocal Enforcement) Act 1933 applying that section to U.S. courts including the relevant U.S. court.

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If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. The English court generally has discretion to prescribe the manner of enforcement. In addition, it may not be possible to obtain an English judgment or to enforce that judgment if the judgment debtor is subject to any insolvency or similar proceedings, or if the judgment debtor has any set-off or counterclaim against the judgment creditor. Subject to the foregoing, investors may be able to enforce in England and Wales judgments in civil and commercial matters obtained from U.S. federal or state courts in the manner described above using the methods available for enforcement of a judgment of an English court. It is, however, uncertain whether an English court would impose liability on us or such persons in an action predicated upon the U.S. federal securities law brought in England and Wales. Nigeria In addition, the majority of the Guarantors which hold most of our assets are companies incorporated under the laws of Nigeria (the Nigerian Guarantors). Furthermore, a substantial share of our assets are located in Nigeria. As a result, it may not be possible for investors to effect service of process outside of Nigeria upon the Nigerian Guarantors to enforce against any of them judgments of U.S. courts or of jurisdictions other than Nigeria, including judgments predicated upon civil liabilities under the securities laws of the United States or any state or territory within the United States. Arbitral awards delivered in other jurisdictions are recognized and enforced in Nigeria by virtue of the Arbitration and Conciliation Act, Cap A18, LFN 2004 (the Arbitration Act). The Arbitration Act provides that an arbitral award shall, irrespective of the country in which it is made, be recognized as binding, subject to compliance with the provisions of the Arbitration Act, and shall upon application in writing to the State or Federal High Court, be enforced by the Court. In addition, Nigeria, is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, June 10, 1958) (the Convention) and where the recognition and enforcement of an award delivered in a signatory state is sought, the Convention shall be applicable, provided that the signatory state in which the award was made, has reciprocal legislation recognizing the enforcement of arbitral awards made in Nigeria. Thus, any arbitral award delivered in the United States and in the United Kingdom would be recognized as binding and enforceable subject to the terms of the Arbitration Act. The Nigerian Foreign Judgments (Reciprocal Enforcement) Act, provides that certain judgments by courts of Commonwealth countries, or countries with which Nigeria has reciprocal arrangements on the matter, may be enforced in Nigeria within 12 months to being delivered or such other longer period as may be allowed by a superior court in Nigeria. To be enforceable, such judgments must be final and capable of execution in the country of delivery, and must not have been wholly satisfied, nor suffer from want of jurisdiction, lack of fair hearing, fraud, being contrary to public policy or stopped because the issue had already been decided by another competent court before its determination by the foreign court. Judgments not covered by the Foreign Judgments (Reciprocal Enforcement) Act, (whether because they are delivered in countries that are neither part of the Commonwealth nor have any treaties with Nigeria on mutual recognition of court judgments) may be recognized and enforced under residual common law powers, which allow a new action to be brought in court to enforce such judgments as a debt owed to the investors. There is no treaty between the United States and Nigeria providing for reciprocal enforcement of judgments (except with respect to criminal matters and arbitral awards). Thus, at present, judgments from courts of the United States can only be enforced in Nigeria if the person seeking to enforce them is able to bring a successful new action on the judgment in Nigerian courts. It should be noted that a foreign judgment can only be recognized and enforced in Nigeria in the local currency, leaving the judgment creditor with the responsibility of applying through the banks to convert and remit the proceeds of the enforcement abroad. One challenge presented by this is that the judgment creditor may be faced with significant exchange rate losses given that the judgment sum will be converted into the local currency on the basis of the rate of exchange on the date the judgment sought to be enforced was obtained. Cayman Islands Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment: 277

is given by a foreign court of competent jurisdiction; imposes on the judgment debtor a liability to pay a liquidated sum (or in certain limited circumstances, orders that the defendant do or refrain from doing a certain thing); is final; is not in respect of taxes, a fine or a penalty; and was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.

While there is no binding judicial authority on the point, it is likely that this would include a non-penal judgment of a U.S. court imposing a monetary award based on the civil liability provisions of the U.S. federal securities law (provided the above conditions were also satisfied). A final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable (other than a sum payable in respect of taxes, fines, penalties or similar charges) may be subject to enforcement proceedings as debt in the courts of the Cayman Islands under the common law doctrine of obligation. Cte dIvoire Arbitral awards delivered in other jurisdictions are recognized and enforced in Cte dIvoire by virtue of the OHADA Uniform Act on Arbitration signed on March 11, 1999. The OHADA Uniform Act on Arbitration provides that an arbitral award based on rules other than those of the Uniform Act are recognized in the Member State in accordance with any international convention that may be applicable, or failing any such conventions, in accordance with the provisions of the Uniform Act. This arbitral award shall be enforced by the Court through the exequatur. In addition, Cte dIvoire is a party to the Convention on the Recognition and Enforcement of Foreign Awards (New York, June 10, 1958) (the Convention) and where the recognition and enforcement of an award delivered in a signatory state is sought, the Convention shall be applicable, provided that the signatory state in which the award was made, has reciprocal legislation recognizing the enforcement of awards made in Cte dIvoire. Thus, any arbitral award delivered in the United States and in the United Kingdom would be recognized as binding and enforceable subject to the OHADA Uniform Act on Arbitration. The Civil Procedure Code provides that certain judgments by countries with which Cte dIvoire has reciprocal arrangements on the matter, may be enforced in Cte dIvoire by courts through exequatur. To be enforceable, such judgments must be final and capable of execution in the country of delivery, must be rendered by a competent jurisdiction, and not suffer from lack of fair hearing, fraud, being contrary to public policy or stopped because the issue has already been decided by another competent court before its determination by the foreign court. It should be noted that a foreign judgment can only be recognized and enforced in Cte dIvoire in the local currency, leaving the judgment creditor with the responsibility on applying through the banks to convert and remit the proceeds of the enforcement abroad. One challenge presented by this is that the judgment creditor may be faced with significant exchange rate losses given that the judgment sum will be converted into the local currency on the basis of the rate of exchange on the date the judgment enforcement is sought.

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LISTING AND GENERAL INFORMATION Application has been made for the Notes to be listed on the Official List of the Luxembourg Stock Exchange and to be traded on the Luxembourg Stock Exchanges Euro MTF Market. So long as any of the Notes are listed on the Official List of the Luxembourg Stock Exchange and are traded on the Euro MTF Market, copies of our Articles of Association and those of the Guarantors and the Indenture, the Ebok Intercreditor Agreement, the Pari Passu Intercreditor Agreement and the security documents will be available free of charge at the specified office of the Paying Agent in Luxembourg referred to in paragraph 5 below. So long as the Notes are listed on the Official list of the Luxembourg Stock Exchange and are traded on the Euro MTF Market, copies of all of our consolidated annual financial statements and those for all subsequent fiscal years will be available free of charge during normal business hours on any weekday at the offices of such Paying Agent in Luxembourg referred to in paragraph 5 below. We accept responsibility for the information contained in this Offering Memorandum. To the best of our knowledge, except as otherwise noted, the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of this Offering Memorandum. Except as disclosed herein, there has been no material adverse change in our or the Guarantors consolidated financial positions since October 31, 2011 and neither we nor any of our subsidiaries is a party to any litigation that, in our judgment, is material in the context of the issue of the Notes. We have appointed Deutsche Bank Luxembourg SA as our Listing Agent in Luxembourg. We reserve the right to vary such appointment and shall publish notice of such change of appointment in a newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or the Luxembourg Stock Exchanges website, www.bourse.lu. The Paying Agent in Luxembourg will act as intermediary between the holders of the Notes and us and so long as the Notes are listed on the Official List of the Luxembourg Stock Exchange and are traded on the Euro MTF Market, we will maintain paying and transfer agents in Luxembourg. The Notes have been accepted for clearance through the facilities of DTC. The Regulation S Global Notes and Rule 144A Global Notes will have the following numbers:
Notes

Reg. S ISIN .............................................................................................................................................. Reg. S CUSIP .......................................................................................................................................... Reg. S Common Code ............................................................................................................................. 144A ISIN................................................................................................................................................. 144A CUSIP ............................................................................................................................................. 144A Common Code ................................................................................................................................ The Issuer

USG01283AF01 G01283AFO 075273843 US00830FAC68 00830FAC6 075273762

Afren plc is a public limited company, incorporated and registered in England and Wales with registered number 05304498. Its registered office is at Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU, United Kingdom. Its principal business address in the UK is Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU and its telephone number is +44 (0)20 7451 9700. The creation and issuance of the Notes were authorized by a meeting of the directors of Afren plc on February 21, 2012. The Guarantors Afren CI (UK) Limited was incorporated in England and Wales on June 8, 2006 under the name Afren Production & Shipping Limited. The name was changed to Afren CI (UK) Limited on January 11, 2008. Its registered office is Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU, company number 5841133. Afren CI (UK) Limited has authorized capital of 1,000, represented by 1 equal shares. Afren CI (UK) Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren CI (UK) Limited on February 21, 2012. Afren CI (II) Limited was incorporated in England and Wales on February 20, 2008. Its registered office is Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU, company number 6510841. Afren CI (II) Limited has authorized capital of 100, represented by 1 equal shares. Afren CI (II) Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. 279

The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren CI (II) Limited on February 21, 2012. Afren Cte d1voire, Ltd was incorporated in the Cayman Islands on April 20, 1993 under the name GNR (Cte dIvoire) Ltd. The name was changed several times and finally to Afren Cte d1voire, Ltd on September 23, 2008. Its registered office is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, registration number 46549. Afren Cte d1voire, Ltd has authorized capital of $10,000, represented by 10 equal shares. Afren Cte d1voire, Ltd has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren Cte d1voire, Ltd on February 21, 2012. Afren Energy Resources Limited was incorporated in Nigeria on June 2, 2005. Its registered office is The Octagon, 13A, A.J. Marinho Drive, Victoria Island Annex, Lagos, Nigeria, registration number 625397. Afren Energy Resources Limited has authorized capital of N=68,000,000, represented by N=1 equal shares. Afren Energy Resources Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren Energy Resources Limited on February 21, 2012. Afren Nigeria Holdings Limited was incorporated in England and Wales on December 19, 2006. Its registered office is Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU, company number 6033276. Afren Nigeria Holdings Limited has authorized capital of 100, represented by 1 equal shares. Afren Nigeria Holdings Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren Nigeria Holdings Limited on February 21, 2012. Afren Nigeria Holdings (Nigeria) Limited was incorporated in Nigeria on 17 August 2007. Its registered office is The Octagon, 13A, A.J. Marinho Drive, Victoria Island Annex, Lagos, Nigeria, registration number 704507. Afren Nigeria Holdings (Nigeria) Limited has authorized capital of N=2,500,000,000, represented by N= 0.50 equal shares. Afren Nigeria Holdings (Nigeria) Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren Nigeria Holdings (Nigeria) Limited on February 21, 2012. Afren Okoro Limited was incorporated in England and Wales on December 19, 2006. Its registered office is Kinnaird House, 1 Pall Mall East, London, SW1Y 5AU, company number 6033368. Afren Okoro Limited has authorized capital of 100, represented by 1 equal shares. Afren Okoro Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren Okoro Limited on February 21, 2012. Afren Resources Limited was incorporated in Nigeria on January 30, 2008. Its registered office is The Octagon, 13A, A.J. Marinho Drive, Victoria Island Annex, Lagos, Nigeria, registration number 782332. The name was changed to Afren Resources Limited on February 11, 2008. Afren Resources Limited has authorized capital of N=10,000,000, represented by N=1 equal shares. Afren Resources Limited has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a meeting of the directors of Afren Resources Limited on February 21, 2012. Lion G.P.L SA was incorporated in Cte dIvoire on June 12, 1997. Its registered office is Continuation of Avenue Delafosse, PELIEU BuildingAbidjanPlateau 04 BP 827 Abidjan 04, registration number CI -ABJ-1997-B-217-602. The name was changed to Lion G.P.L SA in 1997. Lion G.P.L SA has authorized capital of XOF1,000,000,000, represented by XOF10,000 equal shares. Lion G.P.L SA has obtained all necessary consents, approvals and authorizations in the jurisdiction of its incorporation in connection with the issuance and performance of the Note Guarantee. The creation and issuance of the Note Guarantees were authorized by a decision of the sole shareholder of Lion G.P.L SA on February 21, 2012.

280

GLOSSARY OF OIL & GAS INDUSTRY TERMS 1C 2C 3C 1P 2P 3P 2D seismic 3D seismic low estimate scenario of contingent resources best estimate scenario of contingent resources high estimate scenario of contingent resources proved proved plus probable proved plus probable plus possible geophysical data that depicts the subsurface strata in two dimensions geophysical data that depicts the subsurface strata in three dimensions. 3D seismic typically provides a more detailed and accurate interpretation of the subsurface strata than 2D seismic an individual body of moveable petroleum. A known accumulation (one determined to contain Reserves or Contingent Resources) must have been penetrated by a well American Petroleum Institute a system of classifying oil based on its specific gravity, whereby the greater the gravity, the lighter the oil refers to the phase of oil and gas operations that immediately follows successful exploratory drilling; during appraisal, delineation wells might be drilled to determine the size of the oil or gas field and how to develop it most efficiently well drilled in order to assess characteristics (such as flow rate, volume) of a proven hydrocarbon accumulation a stock tank barrel, a standard measure of volume for oil, condensate and natural gas liquids, which equals 42 U.S. gallons a ridge like structure in older rock commonly supporting the formation of structural traps in the overlying reservoir layers billions of cubic feet barrels of condensate per day the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 50% an area of licensed territory comprising one or more licenses barrels of oil equivalent; a measure of the total hydrocarbon production, converting gas volumes to a crude oil equivalent based on an approximation of the nominal heating content or calorific value of the fuel; common conversion factors range between 5,600 to 6,000 scf to 1 boe; we use 5,800 scf to 1 boe barrels of oil equivalent per day barrels of oil per day a particular type of crude oil that is a light, sweet oil produced in the North Sea with most of it being refined in Northwest Europe. Brent is a benchmark oil a contractual arrangement in which one partner assumes all or part of the cost of another partner through the completion of a specified work program a sedimentary rock formed from mechanically transported mineral particles those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies unrefined oil related to, or like a river delta and often shaped like the Greek letter . A delta is a deposit formed where a river flows into an ocean, sea, desert, lake or estuary. Deltaic sediments have high potential as hydrocarbon reservoirs refers to the phase of oil and gas operations that occurs after exploration has proven successful, and before full-scale production; the newly discovered oil or gas field is assessed during an appraisal phase, a plan to fully and efficiently exploit it is created, and additional wells are usually drilled Nigerian Department of Petroleum Resources drillstem test

accumulation API API gravity appraisal

appraisal well barrel or b or bbl basement high bcf bcpd best estimate or 2C Block boe

boepd bopd Brent carry clastic contingent resources

crude oil deltaic

development

DPR DST

281

effective working interest

exploration

exploration well farm-in

farm-out

field

formation FPSO FSO GOR gross unrisked best estimate high estimate or 3C hydrocarbons infill km km2 legal interest low estimate or 1C LPG m mmbbl mmboe mmcfd MOPU net reserves net working interest production net working interest reserves NGL OGIP OML OOIP OPL pay play porosity possible reserves

the working interest that gives the owner the right to explore, drill, produce and conduct operating activities on the property and to receive a share of production, subject to all royalties and other burdens, and to all costs of exploration, development and operations, and all risks in connection therewith; the effective working interest owners typically bear such costs on either a cash, penalty (i.e., deducted from production revenues) or carried basis (i.e., funded by a partner) refers to the initial phase in oil and gas operations that includes generation of a prospect or play or both, and drilling of an exploration well; appraisal, development and production phases follow successful exploration a well drilled to find hydrocarbons in an unproved area or to extend significantly a known oil or natural gas reservoir to acquire an interest in a license from the license holder; an arrangement whereby one exploration and production company buys in or acquires an interest in a license or concession owned by another operator on which oil or gas has been discovered or is being produced to assign or transfer an interest in a license to another party; an arrangement whereby the owner of a licenses agrees to assign the license or a portion of it to another exploration and production company an area consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition a body of rock that is sufficiently distinctive and continuous that it can be mapped floating production, storage and offloading floating storage and offloading gas to oil ratio the best estimate of the total field resources without taking into account any associated risk to that resource being present the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 10% compounds formed primarily from the elements hydrogen and carbon and existing in solid, liquid or gaseous forms the area between wells that is often drilled to better exploit a reservoir kilometer square kilometer a proprietary interest in or registered title to a given concession the probability that the quantities of contingent resources actually recovered will equal or exceed the estimated amounts is at least 90% liquefied petroleum gas meters million barrels of oil million barrels of oil equivalent millions of cubic feet of gas per day mobile offshore production unit the share of a fields reserves on a net entitlement basis the share of a fields production on a working interest basis the share of a fields reserves on a working interest basis natural gas liquids original gas in place oil mining lease original oil in place oil prospecting license a reservoir or portion of a reservoir that contains economically producible hydrocarbons a project associated with a prospective trend of potential prospects, but which requires more data, acquisition and/or evaluation in order to define specific leads or prospects the proportion of fluid-filled space found within the rock reservoir those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than probable reserves 282

post-cost recovery

pre-cost recovery

probable reserves

production

production sharing (contract) (agreement) or PSC production well

profit gas profit oil prospect prospective resources proved reserves

PSC reserves

reservoir RFT seal

seismic survey

SPE spud STOIIP tcf TEA tie-back upstream wellhead

the period following which a participant has recovered the development costs and any uplift related to the development of a particular asset; production sharing agreements frequently allocate production revenues to participants at different rates prior to and following cost recovery the period prior to which a participant has recovered the development costs and any uplift related to the development of a particular asset; production sharing agreements frequently allocate production revenues to participants at different rates prior to and following cost recovery those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves the cumulative quantity of petroleum that has been recovered at a given date; also refers to the phase that occurs after successful exploration and development and during which hydrocarbons are drained from an oil or gas field contract by which production of a field is shared between the host government and the oil company operating the field a well drilled to obtain production from a proven oil or gas field. Production wells may be used either to extract hydrocarbons from a field or to inject water or gas into a reservoir in order to improve production the balance of available commercial gas after deduction of royalty gas, tax gas and cost gas the balance of available crude oil after the deduction of royalty oil, tax oil and cost oil a project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations production sharing contract those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions a subsurface body of rock having sufficient porosity and permeability to store and transmit fluids. A reservoir is a critical component of a complete petroleum system repeat formation tester a relatively impermeable rock, commonly shale, anhydrite or salt that forms a barrier or cap above and around reservoir rock such that fluids cannot migrate beyond the reservoir. A seal is a critical component of a complete petroleum system a method by which an image of the earths subsurface is created through the generation of shockwaves and analysis of their reflection from rock strata. Such surveys can be done in two or three dimensional form reserves definitions consistent with those approved in March 1997 by the Society of Petroleum Engineers and the World Petroleum Council to start the well drilling process by removing rock and sediment with the drill bit stock tank oil initially in place trillion cubic feet technical evaluation agreement method of connecting new discoveries to existing production facilities activities related to the exploration, appraisal, development and extraction of crude oil, condensate and gas all connections, valves, nozzles, pressure gauges, thermometers, installed at the exit from a production well

283

INDEX TO FINANCIAL STATEMENTS Unaudited Condensed Group Income Statement for the Ten Months Ended 31 October 2011............................................... F-2 Unaudited Condensed Group Statement of Changes in Equity for the Ten Months Ended 31 October 2011 ......................... F-5 Directors Report ................................................................................................................................................................... F-10 Corporate Governance Statement .......................................................................................................................................... F-14 Directors Remuneration Report ............................................................................................................................................ F-22 Statement Of Directors Responsibilities............................................................................................................................... F-31 Independent Auditors Report To The Members Of Afren Plc ............................................................................................. F-32 Group Income Statement for the year ended 31 December 2010 .......................................................................................... F-34 Group Statement of Comprehensive Income ......................................................................................................................... F-35 Balance sheets........................................................................................................................................................................ F-36 Cash Flow Statements............................................................................................................................................................ F-37 Statements of Changes in Equity ........................................................................................................................................... F-38 Notes to the Consolidated Financial Statements .................................................................................................................... F-40 Notes To The Consolidated Financial Statements ................................................................................................................. F-54 Notes To The Consolidated Financial Statements ................................................................................................................. F-61 Directors Report ................................................................................................................................................................... F-72 Corporate Governance Statement .......................................................................................................................................... F-77 Directors Remuneration Report ............................................................................................................................................ F-84 Statement Of Directors Responsibilities............................................................................................................................... F-90 Independent Auditors Report To The Members Of Afren Plc ............................................................................................. F-91 Group Income Statement ....................................................................................................................................................... F-93 Group Statement Of Comprehensive Income ........................................................................................................................ F-94 Balance Sheets ....................................................................................................................................................................... F-95 Cash Flow Statements For the year ended 31 December 2009 .............................................................................................. F-96 Statements Of Changes In Equity For the year ended 31 December 2009 ............................................................................ F-97 Notes To The Consolidated Financial Statements For the year ended 31 December 2009 ................................................... F-99 Directors Report ................................................................................................................................................................. F-132 Corporate Governance Statement ........................................................................................................................................ F-136 Statement Of Directors Responsibilities............................................................................................................................. F-143 Independent Auditors Report To The Members Of Afren Plc ........................................................................................... F-144 Group Income Statement ..................................................................................................................................................... F-146 Balance Sheets ..................................................................................................................................................................... F-147 Cash Flow Statements.......................................................................................................................................................... F-148 Statements Of Changes In Equity ........................................................................................................................................ F-149 Notes To The Consolidated Financial Statements ............................................................................................................... F-150

F-1

Unaudited Condensed Group Income Statement for the Ten Months Ended 31 October 2011
10 months ended 31 October 2011 US$000s 10 months ended 31 October 2010 US$000s

Notes

Revenue............................................................................................................ Cost of sales ..................................................................................................... Gross profit ..................................................................................................... Administrative expenses ................................................................................... Other operating (expenses)/income impairment of oil and gas assets ................................................................... derivative financial instruments .................................................................... Operating profit .............................................................................................. Investment revenue ........................................................................................... Finance costs..................................................................................................... Other gains and (losses) foreign currency gains/ (losses) fair value of financial liabilities and financial assets .................................... gain on investment in associate company ..................................................... Share of profit/(loss) of an associate ................................................................. Profit from continuing activities before tax .................................................. Income tax expense........................................................................................... Profit from continuing activities after tax .................................................... Discontinued operations Loss for the period from discontinued operations............................................. Profit for the period ........................................................................................ Profit per share from continuing activities Basic ................................................................................................................. Diluted.............................................................................................................. Profit per share from continuing and discontinued operations Basic ................................................................................................................. Diluted..............................................................................................................

404,026 (212,201) 191,825 (20,745) (833) (9,692) 160,555 368 (46,306)

298,920 (171,574) 127,346 (26,979) (956) (4,835) 94,576 280 (9,861) (303) (5,538) (604) 78,550 (29,120) 49,430 (24) 49,406 5.5c 5.3c 5.5c 5.3c

4 3

727 (97) 15,878 1,622 132,747 (66,560) 66,187 (2,626) 63,561

2 2 2 2

6.6c 6.3c 6.3c 6.0c

Comprehensive income for each period was equivalent to profit after tax for each period presented.

F-2

Unaudited Condensed Group Balance Sheet As At 31 October 2011

31 October 2011 US$000s 31 December 2010 US$000s

Notes

Assets Non-current assets Intangible oil and gas assets........................................................................... Property, plant and equipment Oil and gas assets ....................................................................................... Other .......................................................................................................... Prepayments................................................................................................... Derivative financial instruments .................................................................... Investment in associate .................................................................................. Current assets Inventories ..................................................................................................... Trade and other receivables ........................................................................... Cash and cash equivalents ............................................................................. Assets held for sale ........................................................................................ Total assets ................................................................................................... Liabilities Current liabilities Derivative financial instruments .................................................................... Borrowings .................................................................................................... Obligations under finance lease ..................................................................... Deferred consideration................................................................................... Trade and other payables ............................................................................... Net current liabilities ................................................................................... Non-current liabilities Deferred tax liabilities ................................................................................... Provision for decommissioning ..................................................................... Borrowings .................................................................................................... Obligations under finance lease ..................................................................... Derivative financial instruments .................................................................... Total liabilities.............................................................................................. Net assets ...................................................................................................... Equity Share capital .................................................................................................. Share premium ............................................................................................... Merger reserve ............................................................................................... Other reserves ................................................................................................ Retained earnings/(accumulated losses) ........................................................ Total equity ..................................................................................................

5 5

930,144 1,216,505 11,114 817 14,491 30,060 2,203,131 64,321 175,681 279,456 519,458 2,722,589

443,761 759,167 6,919 1,983 11,227 1,223,057 39,055 41,343 140,221 220,619 2,812 1,446,488

6 9

(8,375) (86,000) (19,307) (193,480) (375,683) (682,845) (163,387) (76,229) (30,329) (656,290) (120,567) (13,758) (916,381) (1,580,018) 1,142,571 18,617 914,024 179,358 24,550 6,022 1,142,571

(4,927) (89,254) (216,037) (310,218) (86,787) (63,470) (35,119) (178,467) (499) (277,555) (587,773) 858,715 17,007 896,812 22,764 (77,868) 858,715

7 6

10

F-3

Unaudited Condensed Group Cash Flow Statement for the ten months ended 31 October 2011
10 months ended 31 October 2011 US$000s 10 months ended 31 October 2010 US$000s

Operating profit for the period ................................................................................................ Depreciation, depletion and amortisation ............................................................................... Derivative financial instruments (gains)/losses (unrealized) .................................................. Impairment of oil and gas assets ............................................................................................. Share based payments charge ................................................................................................. Operating cashflows before movements in working capital ................................................... Cash used by discontinued operating activities ...................................................................... Increase in trade and other operating receivables ................................................................... Increase/(decrease) in trade and other operating payables ...................................................... (Increase)/ decrease in inventory (crude oil)........................................................................... Foreign currency (gains)/losses .............................................................................................. Net cash generated by operating activities ......................................................................... Purchases of property, plant and equipment Other ................................................................................................................................... Oil and gas assets ................................................................................................................ Exploration and evaluation expenditure ................................................................................. Expenditure on acquisitions pending completion ................................................................... Increase in inventoriesspare parts ....................................................................................... Purchase of investments.......................................................................................................... Investment revenue ................................................................................................................. Acquisition of subsidiaries, net of cash acquired .................................................................... Net cash used in investing activities .................................................................................... Issue of ordinary share capital- equity raising ........................................................................ Issue of ordinary share capital- warrants and options exercises ............................................. Cost of share issued ................................................................................................................ Net proceeds from borrowings ............................................................................................... Repayment of borrowings and finance lease .......................................................................... Interest and debt financing fees paid ...................................................................................... Net cash provided/(used) by financing activities ................................................................ Net increase/(decrease) in cash and cash equivalents ............................................................. Cash and cash equivalents at beginning of the period ............................................................ Effect of foreign exchange rate changes ................................................................................. Cash and cash equivalents at end of period........................................................................

160,555 110,258 1,541 833 6,597 279,784 (2,610) (59,542) 47,638 (24,275) 312 241,307 (3,379) (351,483) (294,032) (57,908) (991) (750) 326 (708,217) 180,529 17,652 638,985 (189,402) (41,414) 606,350 139,440 140,221 (205) 279,456

94,576 84,006 3,337 956 5,379 188,254 (23) (33,723) (34,567) 8,765 (79) 128,627 (1,570) (237,074) (34,202) (3,746) 279 2,289 (274,024) 2,056 (2,120) 62,039 (98,711) (13,944) (50,680) (196,077) 321,312 332 125,567

F-4

Unaudited Condensed Group Statement of Changes in Equity for the Ten Months Ended 31 October 2011
Share capital US$000s Share premium account US$000s Merger reserve US$000s Other reserves US$000s Retained earnings US$000s Total equity US$000s

Group At 1 January 2010 ................................................................ Issue of share capital ............................................................ Share based payments for services ...................................... Other share based payments ................................................ Reserves transfer relating to loan notes ............................... Reserves transfer on exercise of options, awards and LTIP Net profit for the period ....................................................... Balance at 31 October 2010 ................................................. At 1 January 2011 ................................................................ Issue of share capital ............................................................ Deductible costs of share issues........................................... Other movements ................................................................. Share based payments for services ...................................... Other share based payments ................................................ Reserves transfer relating to loan notes ............................... Reserves transfer on exercise of options, awards and LTIP Exercise of warrants designated as financial liabilities........ Net profit for the period ....................................................... Balance at 31 October 2011...............................................

15,702 1,267 16,969 17,007 1,610 18,617

755,169 138,809 893,978 896,812 17,427 179,358 (215) 914,024 179,358

17,272 (129,895) 658,248 140,076 7,296 7,296 245 245 (2,050) 2,050 (1,978) 1,978 49,406 49,406 20,785 (76,461) 855,271 22,764 (77,868) 858,715 198,395 (215) (500) (500) 10,950 10,950 38 38 (2,194) 2,194 (6,508) 6,508 11,627 11,627 63,561 63,561 24,550 6,022 1,142,571

F-5

1.

Basis of accounting and presentation of financial information

The condensed Group interim financial statements comprised of Afren plc (Afren) and its subsidiaries (the Group) have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union, except that the condensed Group interim financial statements exclude the required disclosures pertaining to segment information. Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards as issued by the IASB, have been omitted or condensed. The condensed Group interim financial statements are unaudited. The information for the year ended 31 December 2010 does not constitute statutory accounts as defined in sections 435(1) and (2) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010 were published and copies of which were delivered to the Companies House. The report of the auditors on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain any statement under sections 498(2) or (3) of the Companies Act 2006. Accounting policies With the exception of the additional policy in relation to finance leases below, the same accounting policies, presentation and methods of computation have been followed in the condensed set of financial statements as applied in the preparation of the Groups audited financial statements for the year ended 31 December 2010. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Groups general policy on borrowing costs. Contingent rentals are recognized as expenses in the period in which they are incurred. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed Going concern The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed Group interim financial statements. 2. Profit per share
10 months ended 31 October 2011 2010

From continuing and discontinued operations Basic ............................................................................................................................................ Diluted ......................................................................................................................................... From continuing operations Basic ............................................................................................................................................ Diluted .........................................................................................................................................

6.3c 6.0c 6.6c 6.3c

5.5c 5.3c 5.5c 5.3c

F-6

The profit and weighted average number of ordinary shares used in the calculation of the profit per share are as follows: Profit for the period used in the calculation of the profit per share from continuing and discontinued operations (US$000s) ................................................................................ Effect of dilutive potential ordinary shares ............................................................................. Profit for the period used in the calculation of the diluted profit per share from continuing and discontinued operations (US$000s)...................................................... Loss for the period from discontinued operations(US$000s) ................................................ Profit used in the calculation of the basic and diluted profit per share from continuing activities (US$000s).......................................................................................................... 49,406 49,406 24 49,430

63,561 63,561 2,626 66,187

The weighted average number of ordinary shares for the purposes of diluted profit per share reconciles to the weighted average number of ordinary shares used in the calculation of basic profit per share as follows: Weighted average number of ordinary shares used in the calculation of basic profit per share ........................................................................................................................................... 1,007,103,166 901,961,455 Effect of dilutive potential ordinary shares: Share based payment schemes ............................................................................................... 47,345,714 29,322,347 791,343 Warrants................................................................................................................................. 1,160,143 Weighted average number of ordinary shares used in the calculation of diluted profit 1,055,609,023 932,075,145 per share ........................................................................................................................... In 2010, 12 million potential ordinary shares were anti-dilutive and therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share. There were no excluded potential ordinary shares as at 31 October 2011. 3. Reconciliation of profit after tax to the normalised profit after tax
10 months ended 31 October 2011 2010 US$000s US$000s

Profit after tax from continuing activities ............................................................................... Change in unrealised (gains)/losses on derivative financial instruments* .............................. Cost of acquisition of Black Marlin ........................................................................................ Finance costs on settlement of borrowings ............................................................................. Share based payment charge ................................................................................................... Foreign exchange (gains)/ losses ............................................................................................ Fair value financial liabilities ................................................................................................. Share of (gain)/loss of associate and gain on investment in associate company..................... Normalised profit after tax from continuing operations ...................................................
* Excludes realised (gains)/losses on derivative financial instruments.

66,187 1,541 7,431 6,597 (727) 97 (17,500) 63,626

49,430 3,337 2,517 5,379 303 5,538 604 67,108

Normalised profit after tax is a non-IFRS measure of financial performance of the Group, which in managements view more accurately reflects the Groups underlying financial performance. This may not be comparable to similarly titled measures reported by other companies. 4. Taxation

The effective tax rate has risen during the period as a result of having largely utilised the available tax losses in prior year and production on the Ebok field commencing during the period. 5. Tangible and intangible oil and gas assets

The Group acquired 60% interest in Barda Rash PSC, in Kurdistan region of Iraq. The carrying value included in intangible oil and gas assets relating to Barda Rash license was US$414.0 million as at 31 October 2011. In addition, the Group acquired 74% interest in Tanga block, located onshore and offshore Tanzania. The carrying amount as at 31 October 2011 was US$4.9 million. The increase in tangible oil and gas assets during the period is due to expenditure on Ebok field development. F-7

6.

Obligations under finance lease

The Group has a seven year lease of a Mobile Offshore Production Unit (MOPU) and a Floating Storage Offloading Vessel (FSO) from Mercator Offshore (Nigeria) Limited. The capex day rate payable is accounted for as a finance lease and was originally recorded based on the present value of the lease. At 31 October, 2011 the value of the lease of US$120.6 million and US$19.3 million, respectively, has been reported in the balance sheet in non-current and current liabilities respectively. Interest on the finance lease included in the income statement during the period was US$4.8 million. 7. Borrowings

On 27 January 2011, Afren offered US$450 million aggregate principal amount of its 11.5% senior secured notes due 2016 (the Notes) and on 11 February 2011, Afren announced an offering of an additional US$50 million of its 11.5% senior secured notes due 2016. The Notes are guaranteed on a senior basis by certain subsidiaries of Afren plc and on a subordinate basis by Afren Resources Limited. Interest will be paid semi-annually and bear a coupon rate of 11.5%. The interest charged for the year is calculated by applying the 11.5% to the total proceeds. Interest amounting to US$42.7 million (before capitalisation of some of the interest to oil and gas assets under development) has been charged to the Income statement for the period to 31 October 2011. Total expenses of the offering incurred amounted to US$22.1 million which are being amortised over the life the Notes. Part of the proceeds of the offering were used to settle borrowings amounting to US$175.6 million (net of issue costs) and accrued interest of US$1.3 million. Also payable was an early redemption fee on the previously existing Sojitz notes, amounting to US$2.5 million. On 3 August 2011, Afren entered into a $50 million facilities agreement (the Socar facility) with Socar Trading S.A. The Socar facility has a term of the earlier of (i) 23 months from the date of the agreement (i.e., 3 July 2013) or (ii) 90 days from the date that Afrens Ebok Crude Oil Purchase Contract with Socar terminates (the later of 4 September 2012 or the cumulative lifting of 18.5 mmbbl of crude oil from the EBok field). The Socar facility has an interest rate of LIBOR plus 4.5%. 8. Deferred consideration

US$193.5 million (US$200 million, undiscounted) relating to the acquisition of the 60% participating interest in the Barda Rash PSC, Kurdistan is due in February 2012 and therefore reported as deferred consideration in the balance sheet. 9. Assets held for sale

A loss of US$2.6 million (2010: US$0.2 million) has been disclosed in the period as arising from discontinued operations. This loss relates to the seismic business of Black Marlin Energy Holdings Limited (Black Marlin) which was acquired by Afren as part of its acquisition of the issued share capital of Black Marlin in 2010. The trade and assets of this business were identified as held for sale on acquisition as an active programme was in place at 31 December 2010 for the sale of the business. However, during the period under review it was decided by management that the business would no longer be sold but it that would be abandoned, with the assets of the business (largely marine and land seismic vehicles and equipment) either put into use by Afren in other parts of the Group or sold on a piecemeal basis. These assets have therefore been reclassified in the period out of assets held for sale and into property, plant and equipment. 10. Merger Reserve

The provisions of the Companies Act 2006 relating to merger relief (s612 and s613) have been applied to the equity raising through a cash box structure, resulting in the creation of a merger reserve. 11. Contingent liabilities

There has been no material change to the contingencies reported in the annual report for the year ended 31 December 2010. F-8

12.

Related parties

The following table provides the total amount of transactions which have been entered into with related parties during the ten months ended 31 October 2011 and 2010: Trading transactions
Sales of goods/services Ten months Ten months ended ended 31 October 31 October 2011 2010 US$000s US$000s Purchase of goods/services Ten months Ten months ended ended 31 October 31 October 2011 2010 US$000s US$000s Amounts owed from/(to) related parties As at 31 October 2011 US$000s As at 31 December 2010 US$000s

St. John Advisors Ltd ................................... 243 234 STJ Advisors LLP.......................................... 1150 Tzell Travel Group ........................................ 323 17 511 First Hydrocarbon Nigeria Limited ............... 4,855 (4,624) St. John Advisors Ltd is the contractor company for the consulting services of John St. John, a Non-executive Director. St. John Advisors also receive a monthly retainer of 15,000 for consulting advice. This contract is for 12 months from 27 June 2008 and automatically continues thereafter unless terminated by either party. A separate contract was engaged in 2010 with STJ Advisors LLP for consulting services in relation to the Notes which completed on 27 January 2011. Tzell Travel Group operates as a franchise. The franchisee utilised by Afren for some of its travel needs is a close family member of the Chief Executive Officer and Tzell Travel Group is therefore considered a related party. Afren uses several travel agents as there is a significant travel element to its operations and Tzell competes on an even basis with these. Tzell provided approximately 7% (2010: 9%) of the travel arrangements by value. First Hydrocarbon Nigeria Limited (FHN) is an associate company of Afren plc. During the period the Group provided professional services to FHN and the fees receivable relating to these services amounted to US$5 million. The amounts outstanding are unsecured and are expected to be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts on the amounts owed by related parties. 13. Subsequent events

On 2 November 2011 Afren announced the completion of the Kurdistan acquisition and execution of a corporate credit facility for up to US$200 million in connection with the acquisition. Following the completion, US$57.9 million included in prepayments as at 31 October 2011, in respect of Ain Sifni PSC, has subsequently been reclassified to intangible oil and gas assets. In November 2011, Afren received governmental approval for development of the Barda Rash field in Kurdistan. On 1 December 2011 First Hydrocarbon Nigeria Limited (FHN) announced completion of a 45% interest in OML26, onshore Nigeria, for an estimated maximum investment of US$187.5 million.

F-9

Directors Report The Directors submit their Annual Report on the affairs of the Group together with the financial statements and audit report of Afren plc for the year ended 31 December 2010. PRINCIPAL ACTIVITIES The principal activities of the Group are oil and gas exploration, development and production in Africa. The subsidiary and associated undertakings principally affecting the profits or net assets of the Group in the year are listed in notes 14 and 15 to the consolidated financial statements. BUSINESS REVIEW AND CORPORATE GOVERNANCE STATEMENT The Company is required by the Companies Act to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2010 and of the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group (business review). The information that fulfils the requirements can be found within the Chairman and Chief Executives Statement, the Review of Operations and the Financial Review, which are incorporated into this report by reference. These sections also include details of expected future developments in the business of the Group and details of Key Performance Indicators that management use. The Corporate Governance Statement on pages 69 to 74 forms part of this Directors Report. Information about the use of financial instruments by the company and its subsidiaries is given in note 21 to the financial statements. Details of significant events since the balance sheet date are contained in note 34 to the financial statements. GOING CONCERN The Groups business activities, together with the factors likely to affect its future development, performance and position are set out in the Review of Operations. The financial position of the Group at the year end, its cash flows, liquidity position and borrowing facilities are described in the Financial Review. In addition note 21 to the financial statements includes the Groups objectives, policies and processes for managing its capital, its financial risk management objectives and details of its financial instruments and hedging activities; and note 3 describes its exposures to credit risk and liquidity risk. Following the successful bond issue in January 2011, the company has considerable financial resources. As a consequence, the Directors believe that the company is well placed to manage its business risks successfully despite the uncertain economic conditions that remain. The Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. RESULTS AND DIVIDENDS The Groups profit for the year was US$45.9 million (2009: US$16.8 million loss). recommended the payment of a dividend (2009: US$nil). THE DIRECTORS AND THEIR INTERESTS The Directors who served during the year and subsequently, together with their and their families beneficial interests in shares in the Company, were as follows:
Committees Audit and Risk Ordinary shares of 0.01 each At At At 25 March 31 December 31 December 2011 2010* 2009**

The Directors have not

Name

Nomination

Remuneration

Egbert Imomoh Chairman ..................................... Osman Shahenshah Chief Executive ..................... Constantine Ogunbiyi(i) Director............................ Shahid Ullah Chief Operating Officer ................... Darra Comyn(ii) Group Finance Director ............... F-10

3,672,246 4,181,515 1,295,676 3,268,961

3,672,246 4,181,515 1,295,676 3,268,961

3,672,246 4,181,515 1,295,676 3,081,461

Peter Bingham Non-Executive Director ................ Toby Hayward Senior Non-Executive Director..... Ennio Sganzerla Non-Executive Director .............. John St. John Non-Executive Director..................
* ** (i) (ii) Or resignation, if earlier. Or on appointment, if later. Chairman of Committee. Stepped down 04 January 2011. Appointed 24 March 2010.

205,000 24,000 50,922

205,000 24,000 50,922

205,000 24,000 50,922

Details of the Directors share options are provided in the Directors Remuneration Report. SUPPLIER PAYMENT POLICY The Companys policy, which is also applied by the Group, is to settle terms of payment with suppliers when agreeing the terms of each transaction, ensure that suppliers are made aware of the terms of the payment and abide by the terms of the payment. Trade creditors of the Group at 31 December 2010 were equivalent to 30 days purchases (2009: 34 days), based on the actual year end balance. CHARITABLE AND POLITICAL DONATIONS During the year the Group made charitable donations of US$581,665, the majority of which related to African-focused charities and institutions (2009: US$133,863). No political donations were made in either 2010 or 2009. CAPITAL STRUCTURE Details of the authorised and issued share capital, together with details of the movements in the Companys issued share capital during the year are shown in note 27. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. The ordinary shares reflect 100% of the total issued nominal value of all share capital. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Companys shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note 30. No person has any special rights of control over the Companys share capital and all issued shares are fully paid. Details of significant shareholdings are set out below. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Combined Code, the Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Main Board Terms of Reference, copies of which are available on request, and the Corporate Governance Statement on page 69-74. The Company currently has authority to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of ordinary shares of the Company up to a maximum number of ordinary shares of 89,040,503. This authority shall expire on 6th June 2011. In respect of the Companys assets in Ghana, Block 10A in Kenya, the Seychelles and Ethiopia our partners may have a right of first refusal to acquire the Companys interest if a competitor directly or indirectly took control of the Company. In relation to the Ebok asset, our partner Oriental would have a similar right of first refusal to acquire our interest upon a direct or indirect change of control. In addition, under the terms on which the Senior Secured Notes of US$500 million, upon a change of control each holder of the notes has the right to require Afren to repurchase all or any part of its holding. F-11

There are a number of agreements that take effect, alter or terminate upon a change of control of the company such as commercial contracts, bank loan agreements, property lease arrangements and employees share plans. None of these is considered to be significant in terms of their likely impact on the business of the Group as a whole. Furthermore, the Directors are not aware of any agreements between the company and its directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid. SUBSTANTIAL SHAREHOLDINGS As of 29 March 2011 (being the latest practicable date prior to publication of the Annual Report), interests notified to the Company in accordance with Chapter 5 of the Disclosure and Transparency Rules comprised:
%

AXA SA ....................................................................................................................................................................... Vidacos Nominees ........................................................................................................................................................ JPMorgan Asset Management Holdings Inc ................................................................................................................. BlackRock Inc .............................................................................................................................................................. HSBC Client Holdings UK Limited ............................................................................................................................. GLG Partners LP .......................................................................................................................................................... Investec Asset Management Limited ............................................................................................................................ Percentages are based on the issued share capital at the date of notification. ACQUISITION OF THE COMPANYS OWN SHARES

9.98 8.18 5.00 4.98 4.93 4.88 4.50

At the end of the year, the Directors had authority, under the shareholders resolutions of 29 April 2010, to purchase through the market 89,040,503 of the Companys ordinary shares at prices ranging between one penny and be the higher of (i) the amount equal to 105% of the average of the closing middle market quotations for an ordinary share (as derived from the London Stock Exchange Daily Official List) for the five business days immediately preceding the day on which the ordinary share is purchased and (ii) the amount stipulated by article 5(1) of the Buy-back and Stabilisation Regulations 2003 (in each case exclusive of expenses); per share. This authority expires on 6 June 2011. AUDITORS Each of the persons who is a Director at the date of approval of this Annual Report confirms that: so far as the Director is aware, there is no relevant audit information of which the Companys auditors are unaware; and the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Companys auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappointment them will be proposed at the forthcoming Annual General Meeting. ANNUAL GENERAL MEETING At the Annual General Meeting of the Company, resolutions will be proposed to receive these accounts and the Directors and auditors reports and to re-elect the Directors who are retiring at the Annual General Meeting, in accordance with the Companys Articles of Association. Resolutions to reappoint Deloitte LLP as the Companys auditors, to authorise the Directors to fix Deloitte LLPs remuneration as auditors, to authorise the amendment and implementation of revised rules of the Companys employee share incentive plans, to authorise the establishment and operation of an employee benefit trust for the benefit of employees, to operate in conjunction with the Companys employee share incentive plans, to grant the Directors authority to allot ordinary shares, to buy back the Companys ordinary shares and to allow a general meeting to be held on not less than 14 days notice will also be proposed. For a more detailed explanation of these and other amendments, please refer to the Notes on Resolutions set out in the Notice of Annual General Meeting. A copy of the draft trust Deed for establishing the employee benefit trust and the proposed rules of the Companys employee share incentive plans, that reflect these amendments will be available for inspection during normal business hours (Saturdays, Sundays and public holidays excepted) at the registered office of the F-12

Company (Kinnaird House, 1 Pall Mall East, London SW1Y 5AU) and the offices of White & Case, 5 Old Broad Street, London EC2N 1DW up until the close of the meeting. On behalf of the Board Osman Shahenshah Chief Executive 29 March 2011

F-13

Corporate Governance Statement The Directors support high standards of corporate governance. As a UK listed company, Afren plc is required to state whether it has complied with the provisions in Section 1 of the 2008 Combined Code on Corporate Governance (Combined Code) throughout the year and, where the provisions have not been complied with, to provide an explanation. Afren is also required to explain how it has applied the principles in Section 1 of the Combined Code. COMBINED CODE COMPLIANCE This statement explains how the Directors applied the principles of the Combined Code during the year ended 31 December 2010. The Directors consider that the Company complied in full with the provisions set out in Section 1 of the Combined Code for the whole of the year ended 31 December 2010. INDEPENDENCE The Board considers the independence of each of the Non-Executive Directors upon appointment, annually and at any other time where the circumstances of a Director changes to warrant reconsideration. Following a review of Board composition the Company has reassessed the independence of all the Non-Executive Directors and regards all of the current Non-Executive Directors to be independent within the meaning of independent as defined in the Combined Code. When the Company listed on the AIM market, the Non-Executive Directors were eligible for share option awards. Since admission to the Official List of the United Kingdom Listing Authority no share options have been granted to any NonExecutive Director and the Share Option Scheme Rules were amended in November 2009 to prohibit the award of share options to Non-Executive Directors. Peter Bingham and John St John are the only independent Non-Executive Directors who have unexercised options. We take the view that this does not impact the independence of the Non-Executive Directors. For more information see the Directors Remuneration Report. The Board has a policy that it uses to determine the independence of its Directors. The policy provides that the test of independence is whether the Director is independent of management and any business or other relationship that could materially interfere with the exercise of objective and unfettered or independent judgment by the director or the directors ability to act in the best interests of the shareholders. Where a director is considered by the board to be independent, but is affected by circumstances that may give rise to a perception that the director is not independent the board has undertaken to explain the reasons why it has reached its conclusion. The Board considers relationships with management, major shareholders, associated companies and other parties with whom the Group transacts business against predetermined materiality thresholds, all of which are set out in the policy. Tested against that policy, the Board considers that each of the Directors have retained independence of character and judgment and have not formed associations with management or others that might compromise their ability to exercise independent judgment or act in the best interests of the company. Some of the Directors hold or previously held positions in companies with which we have commercial relationships. Those positions and companies are set out below in this report. The Board has assessed all of the relationships between the company and companies in which the Directors hold or held positions and has concluded that in all cases, the relationships do not interfere with the Directors exercise of objective, unfettered or independent judgment or their ability to act in the best interests of our business. In the case of Mr. John St John, the Board has considered the fact that he is a shareholder in St. John Advisors Ltd and a partner in STJ Advisors LLP, companies with which Afren has had commercial dealings. St John Advisors Ltd and STJ Advisers LLP operate in the financial advisory sector and it is Mr. St Johns breadth of current expertise, experience, knowledge and connections gained while providing capital markets advice to companies seeking access to the markets that brings significant value to the Board. Prior to this and before the appointment of Mr. St John the Board assessed the relationships between Afren and St John Advisors Ltd and STJ Advisers LLP and remains satisfied that Mr. St John is able to apply objective, unfettered and independent judgment and act in the best interests of the company notwithstanding his role with St John Advisors Ltd and STJ Advisers LLP. In addition, commercial dealings with St John Advisors and STJ Advisers have been and to the extent they continue in the future will be approved by the independent Non-Executive Directors. Mr. St. John and the Executive Directors absent themselves fully from these deliberations. Transactions during the year that amounted to related party transactions under the International reporting Standards (IFRS) are outlined in note 35 to the financial statements. The Company does not consider the level of fees paid to St. John Advisors Ltd and STJ Advisers LLP to be material to either business. All the transactions with Directors including Mr. St John qualify under the exemption for smaller related party transactions in respect of the Related Party Rules of the UKLA Listing Authority. F-14

BOARD COMPOSITION The Board currently has eight members. Nine directors served on the Board in the 2010 financial year. Of these, four, excluding the Chairman, are Non-Executive Directors, who the board consider to be independent. The Board considers that there is an appropriate balance between Executive and Non-Executive Directors, with a view to governing the business effectively and promoting shareholder interests. The Board considers that the Executive and Non-Executive Directors have a range of skills, knowledge and experience necessary to enable them to govern the business effectively. The Non-Executive Directors contribute international operational experience; understanding of the sectors in which we operate; knowledge of international capital markets and an understanding of the health, safety, environmental, political and community challenges we face. The Directors are listed below.
Year appointed Year of vacation of office Executive Director NonExecutive Director

Board member

Position

Egbert Imomoh ...................................................... Osman Shahenshah ................................................ Toby Hayward(1) .................................................... Peter Bingham ....................................................... John St. John ......................................................... Ennio Sganzerla(2) .................................................. Shahid Ullah .......................................................... Darra Comyn ......................................................... Constantine Ogunbiyi ............................................
(1) (2)

Non-Executive Chairman Chief Executive Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Operating Officer Group Finance Director Executive Director

2005 2004 2009 2005 2007 2009 2008 2010 2008

X X X X X X 2011 X X X

Managing Director at Jeffries International, Afrens AIM Nomad. Mr Hayward left Jeffries International in June 2008. Member of Afrens International Advisory Board providing Non-Executive support to the Company until June 2009.

FUTURE BOARD CHANGES The Board is committed to ensuring the majority of Directors are independent and is actively seeking to recruit an additional independent Non-Executive Director with the relevant industry and geographical experience. The Board hopes to be able to make an announcement in this regard, subject to securing the right candidate. BOARD STRUCTURE The Board is responsible for providing leadership, setting the Groups strategic objectives and key policies, ensuring that appropriate resources are in place to enable the Group to meet its objectives, reviewing the Groups performance and overseeing the Groups internal control systems and is responsible to shareholders for the proper management of the Group. At the end of the period of this report, the Board comprised of a Non-Executive Chairman, three Executive Directors and four Non-Executive Directors. Darra Comyn joined the Board on 24 March 2010 as Executive Director responsible for leading and directing Afrens group-wide finance function and on 4 January 2011 Constantine Ogunbiyi stepped down as a Director of Afren plc to take up the position of CEO of First Hydrocarbon Nigeria. Afren benefits from an experienced Board with extensive African experience and relationships and a broad range of commercial, financial and other relevant experience. Brief biographies are set out on pages 60 to 61. The Nomination Committee periodically reviews the composition of the Board including the balance between Executive and Non-Executive Directors and considers succession planning for both Executive and Non-Executive Directors and the Groups senior management. It is also responsible for the process for new Board appointments and makes recommendations to the Board on the appointment of new Directors and is responsible for ensuring that appointments are made on merit and against objective criteria. In making appointments to the Board, the Nomination Committee considers the skills, experience and knowledge of the existing Directors and assesses which of the potential candidates would most benefit the Board. It considers the potential candidates knowledge and experience of Africa, the oil and gas industry in Africa, capital markets and the regulatory environment, and that, in the case of Non-Executive Director appointments they have sufficient time to devote to the role. The Chairman ensures that any new Directors are provided with a full induction on joining the Board. Non-Executive Directors are appointed for an initial term of three years, which may be extended by mutual agreement subject to satisfactory performance. The letters of appointment of each Non-Executive Director are available for inspection at the registered office of the Company. F-15

The Board meets on at least four occasions during the course of the year to review trading performance and budgets, funding, to set and monitor strategy, examine acquisition opportunities and report to shareholders. The Chief Executive holds informal meetings with the Chairman and Non-Executive Directors to discuss issues affecting the Group, such as target objectives, strategy, key performance indicators and remuneration matters. The Board has a formal schedule of matters specifically reserved to it for decisions and responsibility for developing and implementing the Groups strategic and financial objectives is delegated to the senior management of the Group. The roles of Chairman and Chief Executive are separate and the responsibilities of Chairman and Chief Executive are independently defined. It is the Chairmans responsibility to ensure that the principles and processes of the Board are maintained, including the provision of accurate, timely and clear information in relation to the Group and its business. The Chairman is also responsible for encouraging debate and constructive criticism, speaking and acting for the Board and representing the Board to shareholders, and presenting shareholders views to the Board. The Board considers that none of Mr Imomohs other commitments interfere with the discharge of his responsibilities to the Company. The Board is satisfied that he makes sufficient time available to serve the Group effectively. The Group does not have a Deputy Chairman, but has identified Mr Bingham to act as Chairman should the need arise at short notice. The Combined Code recommends that the Board should appoint one of its independent Non-Executive Directors to be the senior independent Director. The senior independent Director should be available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive or Chief Operating Officer has failed to resolve or where such contact is inappropriate. Mr Toby Hayward is the Boards existing senior independent Director. The Board has appointed an Audit and Risk Committee, a Remuneration Committee and a Nomination Committee, each of which have defined terms of reference which are summarised below. Terms of Reference of the respective committees are available on the Company website. Each Committee and each Director has the authority to seek independent professional advice where necessary to discharge their respective duties in each case at Afrens expense. In addition, each Director and Committee has access to the advice of the Company Secretaries, Ms Shirin Johri and Mr Elekwachi Ukwu. The Directors collectively have responsibility for the conduct of the Groups business and are expected, wherever possible, to attend all Board meetings, relevant Committee meetings and the Annual General Meeting (AGM). A table detailing the Directors attendance at each of the Companys scheduled Board and Committee meetings during 2010 is set out below. 2010 BOARD AND COMMITTEE MEMBERS ATTENDANCE The number of Board and Committee meetings held during 2010, together with details of each Directors attendance, is set out below:
Number of Board meetings held whilst a Board member

Number of Board meetings attended

Audit and Risk Committee

Remuneration Committee

Nomination Committee

Number of meetings* ........................................................ Egbert Imomoh .................................................................. Osman Shahenshah ............................................................ Toby Hayward ................................................................... Peter Bingham ................................................................... John St. John ..................................................................... Ennio Sganzerla ................................................................. Shahid Ullah ...................................................................... Darra Comyn ..................................................................... Constantine Ogunbiyi ........................................................
*

4 4 4 4 4 4 4 4 4 4

4 4 4 4 4 4 4 4 4 4

3 3 3 3 3

1 1 1

2 2 2

In addition to the four scheduled meetings, the Board also met on a quorate basis on ten occasions to deal with specific matters.

Board performance evaluation The performance of the Board is a fundamental component of the Groups success. The Board regularly reviews its own performance and historically this review has been conducted internally. The results of the most recent assessment were taken into account in the decision to recommend the search for prospective candidates for appointment as an additional NonF-16

Executive Director. The Board is satisfied that each Director continues to contribute effectively and to demonstrate commitment to his role. The Chairman reviews the performance of each Non-Executive Director and, with the input of the Non-Executive Directors, the performance of each Executive Director in respect of their boardroom as opposed to executive roles (which are evaluated as part of the Groups regular Performance Development Review process). The Chief Executives total performance is reviewed by the Chairman. During the year, the Chairman met with the Non-Executive Directors, without the Executive Directors present, to discuss Board issues. The Chairmans own evaluation was conducted by the Non-Executive directors led by the senior independent Director, taking into account the views of the Executive Directors. The senior independent Director discussed and agreed the conclusions with the Chairman. At the request of the Chairman, for the year ended 31 December 2010, Afren has retained Armstrong Bonham Carter LLP to conduct an external review of the Afren plc Board performance. The review will cover the performance of the Board as a whole, of the individual Directors and of the various committees of the Board. The review is scheduled to take place in May 2011 and the results will be presented to the Board in June at which time recommendations will be made and agreed by the Board. AUDIT AND RISK COMMITTEE The Audit and Risk Committee comprises Mr Peter Bingham (Chairman), Mr John St. John, Mr Ennio Sganzerla and Mr Toby Hayward. The Board has determined that Mr Toby Hayward who is a chartered accountant and Mr John St. John who has extensive experience in financial markets have recent and relevant financial experience through their previous and current roles. In addition, the other members of the Committee have a range of financial, commercial and other relevant experience. The Chairman of the Company, the Chief Executive, Group Finance Director and other senior executives attend meetings of the Committee by invitation. Deloitte LLP (Deloitte) is also invited to attend meetings of the Audit and Risk Committee. The Committee also meets privately with representatives from Deloitte at least once per annum (and as and when required) to discuss any matters which the auditors may wish to raise without Executive Directors being present. During the year the Committee met on three occasions at each of which there was full attendance. The Committees remit includes reviewing the internal control framework, the internal audit process, the financial reporting practices, the external audit process and recommending to the Board whether to reappoint the external auditor. It ensures the Board regularly assesses business risks and the risk management and mitigation strategies. In doing so, the Committee places reliance on reports from executive management, external audit and internal audit reviews. In monitoring the financial reporting practices the Audit and Risk Committee reviewed the accounting policies, areas of judgement, the going concern assumption and compliance with accounting standards, the Disclosure and Transparency rules and the Combined Code. During the year the Committee reviewed, prior to publication, the half year and annual financial statements and other major statemetns affecting the Group concerning price sensitive information. The Audit and Risk Committee has approved a policy on considering whether to employ the external auditors to supply services other than audit services, and closely monitors the level of audit and non-audit services the external auditors provide to the Group. Non-audit services are normally limited to assignments that are closely related to the annual audit or where the work is of such a nature that a detailed understanding of the Group is necessary. The external auditors are specifically excluded from providing internal audit services, litigation support, remuneration advice and legal advice services. Every other piece of non-audit work is assessed separately and is awarded depending on which professional services firm is considered best suited to perform the work. In addition any non-audit work with a total fee greater than 25% of the annual audit fee must be approved by the Chairman of the Audit and Risk Committee prior to the appointment being made. The Board is satisfied that this policy is conducive to the maintenance of auditor independence and objectivity. During the year a significant amount of non-audit related work was performed by the external auditors in relation to the acquisition of Black Marlin, work that would ordinarily be performed by external auditors for companies involved in such projects. The Audit and Risk Committee is satisfied that the carrying out of this work would not impair the independence of the external auditors. A breakdown of the fees paid to the external auditors in respect of audit and non-audit work is included in note 7 to the financial statements. The Audit and Risk Committee has recommended to the Board that the current auditors, Deloitte LLP be reappointed as external auditor. In making the recommendation it has taken into consideration the independence matters noted above and the past service of the auditors, who were first appointed in 2005 after a full tender process. The Committee has also considered the likelihood of a withdrawal of the auditor from the market and noted that there are no contractual obligations to restrict the choice of external auditor.

F-17

NOMINATION COMMITTEE The Nomination Committee currently comprises Mr Egbert Imomoh (Chairman), Mr Ennio Sganzerla and Mr Toby Hayward. The Nomination Committee meets at least once a year and more frequently if required and is responsible for reviewing and recommending to the Board suitable candidates for appointment as Directors of the Company. It regularly reviews the structure, size and composition (including the skills, knowledge and experience) required on the Board. There is a formal, rigorous and transparent procedure, which is based on merit and against objective criteria, for the appointment of new directors to the Board. Darra Comyn was identified as a potential candidate by internal sources and subsequently recommended to the Board by the Nomination Committee on the basis of his significant international experience as a finance practitioner, gained over 24 years in various senior positions including roles with international companies with emerging markets focus. The whole Board subsequently discussed the recommendation before his appointment was confirmed. REMUNERATION COMMITTEE The Remuneration Committee currently comprises Mr John St. John (Chairman), Mr Ennio Sganzerla and Mr Peter Bingham. The Remuneration Committee is responsible for: making recommendations to the Board on Afrens overall framework for remuneration and its cost and in consultation with the Chairman and Chief Executive determining remuneration packages of each Executive Director; reviewing the scale and structure of Executive Directors remuneration and the terms of their service or employment contracts, including share-based schemes, other employee incentive schemes adopted by Afren from time to time and pension contributions. Executive Directors of the Company are not permitted to participate in discussions or decisions of the Committee regarding their own remuneration; and ensuring that payments made on termination are fair to the individual and Afren.

The remuneration of the Non-Executive Directors is determined by the Chairman and the other Executive Directors outside the framework of the Remuneration Committee. The Directors Remuneration report can be found on pages 75 to 82. INTERNAL CONTROLS The Board has applied principle C.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with revised guidance on internal control published in October 2005 (the Turnbull Guidance). The Board is responsible for the Groups system of internal control and for reviewing its effectiveness on an ongoing basis. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. In compliance with provision C.2.1 of the Combined Code, the Board regularly reviews the effectiveness of the Groups system of internal control. The Boards monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. As well as the ongoing regular reviews of the Groups system of internal control, the Board has also performed a specific assessment for the purpose of this annual report. This assessment considers all significant aspects of internal control arising during the period covered by the report, including relevant internal audit work undertaken. The Audit Committee assists the Board in discharging its review responsibilities. Internal audit Internal audit and compliance monitoring work is carried out by the Groups Director of Business Process, supported by independent specialist consultants as required. The reporting line is to the Group Finance Director, however reports of work undertaken are also provided to the Chairman of the Audit Committee and any requests from the Audit Committee of specific review areas are included in the work programme and the Chairman of the Audit Committee has direct access to the Groups Director of Business Process. The Board and the Audit Committee has considered the need for a

F-18

formal internal audit department but considers the current structure to be most suitable at this point in time. This will be reviewed on an annual basis. Control framework and activities The Board has put in place a management structure with defined lines of responsibility and clear delegation of authority. Key elements of the overall control environment are the various committees, including the Executive Committee, which meets at least bi-monthly and is responsible for all strategic and operational activities on a day to day basis. The Group has developed a formal structured business planning process which operates on an annual cycle. The Board approves the consolidated annual budget, and performance against budget is monitored and reported to the Board. The Groups risk assessment process is described on pages 42 to 43. Significant risks, their potential impact on the Groups financial position, and actions taken to manage those risks were reviewed regularly during the year by the Audit and Risk Committee and senior executives of the Company. UK Bribery Act 2010 The UK Bribery Act 2010 (Act) received royal assent on 8 April 2010. The UK Ministry of Justice is working on additional guidance aimed at making the new legislation practical and comprehensive for businesses. When the guidance is published it will be followed by a three month notice period before implementation of the Act. The Company is currently awaiting the issue of the anticipated guidance prior to finalising our policies and procedures in this area. Assessment During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. As described in the Corporate and Social Responsibility Report on page 49, security arrangements were reviewed at our operations in Nigeria following the incident in November 2010. The Board remains satisfied with the arrangements by which staff may, in confidence and if they wish via an external reporting line, raise concerns about possible improprieties in relation to financial reporting or other matters. RELATIONSHIPS WITH SHAREHOLDERS The Board represents the shareholders and is accountable to them for creating and delivering value through the effective governance of the business. The Board remains fully committed to maintaining regular communication with its shareholders. The Board has developed a strategy for engaging and communicating with shareholders, key aspects of which are outlined below. There is regular dialogue with major institutional shareholders and meetings are offered regularly following significant announcements. Press releases have been issued throughout the year and the Company maintains a website (www.afren.com) on which all press releases are posted and which also contains major corporate presentations and the reports and accounts. Additionally, this Annual Report, which is sent to all registered shareholders, contains extensive information about the Groups activities. Enquiries from individual shareholders on matters relating to their shareholdings and the business of the Group are welcomed. Shareholders are also encouraged to attend the Annual General Meeting (AGM) to discuss the progress of the Group and are encouraged to make their views known to us and to raise directly any matters of concern. The CEO, CFO and Investor Relations Team maintain a dialogue with institutional shareholders on strategy, performance, plans and objectives through a programme of regular meetings. The Company reports formally to shareholders twice a year, when its half-year and full-year results are announced. The CEO and CFO give presentations on the full-year results to institutional investors, analysts and the media. The Groups Investor Relations department, with offices in London, acts as a focal point for contact with investors throughout the year. The Chairman meets regularly with institutional investors to hear their views and discuss issues of mutual importance and communicates the views of investors to the Board as a whole. The Senior Independent Director is also available to shareholders on their request. All Non-Executive Directors, are available to meet with major shareholders if requested. The Companys website provides access to current financial and business information about the Group.

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CONFLICT OF INTERESTS The Company amended its Articles of Association in June 2008 to deal with, amongst other things, the provisions on conflicts of interest in the Companies Act 2006 which came into force in October 2008. Following this the Company has put in place procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation of such conflict matters by the Board. In deciding whether to authorise a conflict or potential conflict the Directors must have regard to their general duties under the Companies Act 2006. The procedure operates to ensure the disclosure of conflicts, and for the consideration and if appropriate, the authorisation of them by nonconflicted Directors. The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board. The Nomination Committee supports the Board in this process, both by reviewing requests from Directors for authorisations of situations of actual or potential conflict and making recommendations to the Board and by reviewing any situations of actual or potential conflict that have been previously authorised by the Board, and making recommendations regarding whether the authorisation remains appropriate. INSURANCE COVER The Company maintains Directors and Officers liability insurance cover, the level of which is reviewed annually. ELECTION AND RE-ELECTION The Board is committed to transparency in determining Board Membership. All new Directors are required by the Companys Articles of Association to be elected by shareholders at the first Annual General Meeting (AGM) after their appointment. Subsequently, Directors are subject to re-election by shareholders every three years. The Directors seeking reelection at the 2010 AGM are Osman Shahenshah and Shahid Ullah. In accordance with the UK Corporate Governance Code, annual re-election of all Directors will commence at the AGM in 2012. COMPANY SECRETARIES Ms Shirin Johri is the Group Company Secretary. Ms Johri has been called to the New York Bar. The Group Company Secretary is responsible for developing and maintaining the information systems and processes that enable the Board to fulfil its role. The Group Company Secretary is also responsible to the Board for ensuring that Board procedures are complied with and advising the Board on governance matters. Ms Shirin Johri is supported by Mr Elekwachi Ukwu who is the Joint Company Secretary. Mr. Ukwu is a solicitor. All Directors have access to the Company Secretaries. The Board has the power to appoint and remove the Company Secretaries. CODE OF BUSINESS CONDUCT At Afren, we uphold the highest ethical standards for the conduct of our business activities. We operate with integrity and honesty throughout the organisation and with all our external stakeholders, namely: governments, business partners, shareholders, contractors and local communities. In March 2009 the Board approved a Code of Business Conduct to formalise Afrens commitment to high ethical standards and to reinforce prompt and consistent action in the maintenance of these standards. Our Code of Business Conduct sets out the standards of business ethics that we expect all employees to adhere to. We are committed to ensuring that our business is conducted ethically, honestly and to high standards. The Code applies to Directors and all employees, regardless of their position or location. Consultants, contractors and business partners are also expected to act in accordance with the Code. The Code of Business Conduct can be found on our website at www.afren.com. In addition to Afrens existing policies and procedures an independent, external reporting line has been introduced which allows employees in any country to report any concerns regarding fraud or other unethical practices in confidence. The service is provided by Safecall who report to a senior management team who are responsible for determining the best course of action to be taken. SHARE DEALING CODE The Company has a share dealing code (Code) which covers dealings by Directors, Persons Discharging Managerial Responsibilities (PDMR) and relevant employees. This Code complies with the provisions set out in the Model Code contained in Annex 1 to Listing Rule 9 of the UK Listing Authority Listing Rules. The Code restricts dealings in shares and other relevant securities by PDMRs and employees during designated prohibited periods and at any time that they are in possession of unpublished price-sensitive information.

F-20

MARKET DISCLOSURE We are committed to maintaining the highest standards of disclosure ensuring that all investors and potential investors have the same access to relevant information in an accessible and timely manner to assist them in making informed decisions. Copies of announcements to the market, investor presentations, the Annual Report and other relevant information are published on our website.

F-21

Directors Remuneration Report INTRODUCTION This report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to the Directors remuneration in the Combined Code. As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be put to shareholders for approval. The Act requires the auditors to report to the Companys members on certain parts of the Directors remuneration report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. The Report has therefore been divided into separate sections for audited and unaudited information. INFORMATION NOT SUBJECT TO AUDIT REMUNERATION COMMITTEE The members of the Remuneration Committee are Mr John St. John (Chairman), Mr Peter Bingham and Mr Ennio Sganzerla. All are Non-Executive Directors. The Remuneration Committees responsibilities are set out in its terms of reference which are available in the Corporate Governance section of the Companys website. These include: setting and managing a remuneration strategy which will attract, motivate and retain a top quality executive team ensuring outstanding levels of achievement; determining the terms of employment and remuneration for the Chief Executive, Executive Directors and the Executive Team and ensuring that they reflect their individual performance and achievement of Company objectives; setting and maintaining performance parameters which incorporate mechanisms to encourage consistent and sustainable levels of Company performance including growth, shareholder value, risk management and profitability; approval of the design and targets of share incentive plans requiring shareholder approval.

No Director plays a part in any discussion about his or her own remuneration. Executive Directors are entitled to accept appointments outside the Company providing that the Chairmans permission is sought and fees in excess of 10,000 from all such appointments are accounted for to the Company, except where specific approval is gained from the Board. The Committee met two times during the year for which each member was present. Although not a member of the Committee, Dr. Osman Shahenshah was invited to attend both of the Committee meetings during the year but he was not involved in discussions relating to his own remuneration. Background to Afrens Remuneration Strategy Afren is a relatively young company with a phenomenal growth record. It moved from an AIM listing to a full FTSE listing in late 2009 and achieved membership of the FTSE 250 during 2010. The Company has an ambitious strategy of growth, shareholder return and profitability. The Committee believes that in order to encourage and support this exceptional performance it needs to reward Directors appropriately for their significant contribution to the business with upper quartile salary positioning and a powerful equity incentive programme linked to shareholder value to enhance the overall value of the business. Over the last few years there have been a number of statements from shareholder bodies and institutional investors clarifying their expectations for directors remuneration. This culminated in a revised UK Corporate Governance Code. As a result of this the Committee, supported by independent external professional remuneration advisors MM & K Limited (MM&K), undertook an overall review of the Companys remuneration policies and practices during 2010. MM&K is not F-22

retained to provide advice to any other part of the Company. A subsidiary of MM&K, Higher Talent Limited, which specialises in the recruitment of HR and Reward professionals, was appointed and received a fee in connection with the recruitment by the Company of HR staff. The review was instigated following the AGM in 2010 to affirm the Committees commitment to improve the clarity and structure of the Companys remuneration policies. The results of the review including a revised Remuneration Policy have been discussed and agreed with major shareholders and will be placed before shareholders in General Meeting in 2011. The main parts of the policy review will be rolled out during 2011. Afrens remuneration philosophy is to ensure that its remuneration policy is fully aligned with its long term business strategy, its business objectives, its risk appetite and its values whilst recognising the interests of all relevant stakeholders. The revised policy clearly links equity, bonus and salary awards to individual and Company performance.
Strategy Policy Package

To provide a remuneration package that: Helps to attract, retain and motivate. Is aligned to shareholders interests. Is competitive in the oil and gas industry. Encourages exceptional performance. Is fair and transparent. Can be applied consistently across the Group.

Base salaries set at upper quartile levels. Reward exceptional performance with upper quartile bonus and equity rewards. Balance remuneration between short and long term reward.

Short Term: Base salary Annual performance bonus Long Term: Share Option Scheme Performance Share Plan

Benefits: Pension Scheme Life cover Family PHI and Dental cover Critical Illness and Income Protection insurance In assessing the Directors performance, the Remuneration Committee takes into account the general performance of the Company and the prevailing economic environment. The five main elements of the remuneration package for Executive Directors are as follows: Base salary Annual bonus Benefits in kind Pension contribution Share and option incentives or other equity instruments

The Companys policy is that a substantial proportion of the remuneration of the Executive Directors and senior management team should be performance related to support the long term growth of the Company and ensure the Executive Directors focus strongly on long term value creation. Base salary progression, annual performance bonus and the long term incentive plan are all based on either individual or Company performance or both. BASE SALARY The underlying remuneration policy applicable to all employees is to position base salaries at or around the upper quartile for comparable positions in similar companies within the oil and gas industry. The Company uses the Deloitte Executive Survey and Deloitte Beyond the Board Survey as well as the Mercer UK Oil and Gas Exploration and Production survey in order to benchmark appropriate remuneration levels. This practice has been established for a number of years and the Committee continues to believe that this is the correct strategy for Afren at the present time. Directors salaries, detailed below for 2010, are below median and will be increased to levels more in line with competitive requirements for 2011.

F-23

Afren 2010 Salary

FTSE 250 Median

FTSE 250 U/Q

Chief Executive ......................................................................................................... Finance Director ........................................................................................................ Chief Operating Officer ............................................................................................. Other Director ............................................................................................................
* Paid in US$.

462,500 290,000 357,600* 260,000

600,000 360,000 321,000 301,500

700,000 404.000 408,500 332,900

Source: Deloitte Executive Survey 2010.

PERFORMANCE BONUS SCHEME The Bonus Scheme has been revised to incorporate both individual and company objectives. Bonus targets are based on individual performance as measured by the Companys Performance Management Programme which is completed annually in December, as well as the achievement of challenging corporate targets to ensure a clear link between performance and reward for all employees. The maximum potential bonus for Directors is 100% of base salary at the time of award of which 80% relates to corporate performance and 20% relates to personal performance targets. For 2010, no formal key performance indicators were put in place to measure corporate performance and as such the Committee considered the overall performance of the Company including growth, shareholder value, profitability and risk management. In summary 2010 proved to be a pivotal year for the Company with a number of extraordinary achievements on the part of the Executive Team and the business: Operationally, the Company continued to outperform pre start-up production expectations at the Okoro field and made significant progress towards first oil at Ebok; Strategically, through associate First Hydrocarbon Nigeria (FHN), it realised a significant acquisition in OML26, representing a defining moment in its Nigerian growth strategy. Additionally, it acquired significant acreage in East Africa, providing both geographic and E & P diversification, through the acquisition of Black Marlin Energy. Shareholder value was maximised with a share price appreciation in 2010 of 73%, significantly outperforming the FTSE 250 and the Main Board E & P group. Proven and probable reserves and resources were increased to a record new high of 136mmboe, representing a reserves replacement of approximately 580% over a three year period. Recorded first full year post tax profit.

As a result of this performance, the Remuneration Committee assessed that in 2010 the achievement of Company objectives justified an award of the maximum bonus of 100% of base salary for the Chief Executive, the Chief Operating Officer and the Group Finance Director. For 2011 the maximum performance bonus award will be 100% of base salary for the Chief Executive, Chief Operating Officer and Group Finance Director if both personal and corporate performance targets are met. For 2011, corporate performance will be measured in accordance with a number of key performance indicators: Reserves and resources replacement Production targets Delivery of our exploration programme Delivery of our development programme EHSS performance F-24

Financial performance Total shareholder return

In consultation with the Remuneration Committee, the personal performance targets for Board Directors, other than the Chief Executive, are set by the Chief Executive and the personal targets for the Chief Executive are set by the Chairman. The basis upon which the bonus is calculated is the same for all employees, including Board Directors, although the weighting towards Company performance is higher at the senior levels and towards personal performance at more junior levels. BENEFITS IN KIND The Executive Directors receive certain benefits in kind, principally private medical insurance, club membership and critical illness cover. PENSION CONTRIBUTION UK-based Executive Directors are members of the Company pension scheme. The scheme is a defined contribution scheme and the Company contributes 10% of salary subject to the participant contributing at least 5% of their salary. The US-based Executive Director receives a Company contribution equal to 10% of their salary and bonus subject to the participant contributing at least 5% of their salary and bonus and subject to statutory limits on contributions. AFREN EQUITY SCHEMES The Remuneration Committee believes that the ability of employees to acquire a meaningful equity stake in the Company is an essential element of Afrens overall remuneration policy. To that end in 2005 the Company adopted a share option scheme and in 2008 a performance share plan (PSP) in connection with which options and performance share awards have been granted to a wide range of employees. Afren intends to continue to operate both of these schemes, although it is proposed that the share option scheme will be gradually phased out as a general reward scheme and will in future be used mainly as a recruitment tool for senior staff. The 2005 Share Option Scheme The share option scheme was adopted before the companys shares were admitted to the Official List of the London Stock Exchange plc. The share option scheme provides for the grant of unapproved options (ie options which are not approved by HMRC and so do not confer tax advantages on the option holders) to employees, including Directors, selected by the grantor. It is proposed that the share option scheme should be amended to bring the rules up to date and, to the extent permitted within the relevant legislation, to improve tax efficiency by allowing for the grant of HMRC approved options. Details of the proposed amendments are included in the Notice of Annual General Meeting. Copies of the amended rules of the scheme will be available for inspection by shareholders as set out in the AGM notice. Awards will not exceed 200% of base salary except in exceptional circumstances to recruit a top executive. Only the Group Finance Director received a grant of options under the share option scheme in 2010 on his appointment as a Director. No other awards were granted to Directors during the year. Details of share options granted to Directors are included on page 81. The 2008 Performance Share Plan The Performance Share Plan (PSP) was introduced in 2008 before the Companys shares were admitted to the Official List of the London Stock Exchange plc. Under the PSP, eligible employees, including Directors, who have been selected to participate, receive an award of shares in the Company. Share awards may be made annually and the maximum value of an award for any Director may not exceed 200% of base annual salary, except that the Remuneration Committee may decide to increase this limit to 300% in exceptional circumstances. Ordinarily, an award, normally in the form of a conditional share award or a nominal share option, may vest three years after the award date subject to the Companys Total Shareholder Return (TSR) performance relative to the TSR of a selected peer group of companies. An award may vest in full only if Afrens position in the peer group is at or above the F-25

75th percentile. 30% of an award vests for median performance and nothing vests if Afrens TSR is below the median. There is pro rata vesting for performance between the median and upper quartile. During 2010, the Remuneration Committee reviewed the performance measure linked to PSP awards and the composition of the peer group in relation to which the Companys performance is measured. The Remuneration Committee also considered introducing a new form of share-based long term incentive for Board Directors and key senior executives. Following its review, the Remuneration Committee has decided to retain the PSP, including the relative TSR performance measure to which the vesting of awards is linked. The revised peer group in relation to which the Companys TSR will be measured in respect of awards granted in 2010 and subsequently comprises the following companies (the preceding peer group is also shown below for the purposes of comparison): Revised peer group: Borders & Southern Petroleum Bowleven Cairn Energy Desire Petroleum EnQuest Falkland Oil and Gas Gulf Keystone Petroleum Gulfsands Petroleum Preceding peer group: Addax Bowleven Gulf Keystone Petroleum Gulfsands Petroleum Hardy Oil & Gas Hardy Oil & Gas Heritage Oil Plc Ithaca Energy JKX Oil & Gas Melrose Resources Petroceltic International Premier Oil Rockhopper Exploration Mart Resources Petroceltic International Roc Oil Company Serica Energy SOCO International Salamander Energy Serica Energy SOCO International Sterling Energy Tullow Oil Valiant Petroleum

Sterling Energy Stratic Energy Tullow Oil Vaalco Energy

Factors the Remuneration Committee took into account when selecting the revised peer group included: The industry within which the Company operates, specifically taking into account both the international nature of the Companys business; The UK listing environment the Company is now part of; and The market capitalisation, turnover and number of countries in which the Company operates.

In the view of the Remuneration Committee, it is important for the Companys performance to be recognised and for Directors to be rewarded for providing, when measured against the Companys peers, above median returns to shareholders. For the present, the Remuneration Committee believes that the current PSP, which measures Afrens TSR performance against the revised peer group, remains consistent with those aims. The Remuneration Committee will take into account the companys financial performance as well as relative TSR performance in determining the extent such PSP awards should vest. It is, however, proposed that the PSP should be amended to bring the rules up to date and, to the extent permitted within the relevant legislation, to improve tax efficiency. Details of the proposed amendments are included in the Notice of Annual General Meeting. Copies of the amended PSP rules will be available for inspection by shareholders as set out in the AGM notice. No PSP share awards were granted to Directors in 2010. Details of PSP share awards granted to Directors to date are included on page 82. Proposal to Establish an Employee Benefit Trust The Company is proposing to establish an employee benefit trust (EBT). This is a discretionary trust settled by the Company for the purposes of providing benefits to employees (including former employees) of the Company. It is common practice for companies to establish an EBT in connection with employees share schemes. Using funds provided or procured by the Company, the EBT acquires and holds shares pending release to participants in connection with one or more schemes. The Company proposes to establish the EBT to facilitate the operation of its employee share schemes by acquiring ordinary F-26

shares either by subscription or purchase in the market. The EBT may not at any time hold more than 5% of the issued ordinary share capital of the Company from time to time. A resolution to adopt the EBT will be included in the Notice of Annual General Meeting. A copy of the deed for establishing the EBT will be available for inspection by shareholders as set out in the AGM notice. DIRECTORS CONTRACTS It is the Companys policy that Executive Directors should have contracts of an indefinite term providing for a maximum of one years notice. The Directors have no entitlement to any bonus or other additional payment on severance of their contract. Each Director would be considered on an individual basis and any payment would be entirely at the Companys discretion. The details of the Directors contracts are summarised below:
Name of Director Date of contract Notice period

Egbert Imomoh .......................................................... Osman Shahenshah .................................................... Constantine Ogunbiyi ................................................ Shahid Ullah .............................................................. Darra Comyn ............................................................. NON-EXECUTIVE DIRECTORS

Non-executive Director and Chairman Chief Executive Officer Executive Director Chief Operating Officer Group Finance Director

1 January 2009 27 February 2009 12 June 2008 16 April 2008 29 October 2009

3 months 12 months 12 months 6 months 6 months

All Non-Executive Directors have specific terms of engagement and their remuneration is determined by the Board based on independent surveys of fees paid to non-executive directors of similar companies. The notice period for all NonExecutive Directors is three months. The Chairman, in recognition of his role as both Chairman of a main listed company and ambassador for the Company, is paid a basic fee of 140,000 p.a. The basic fee paid to each other Non-Executive Director is 47,000 p.a. except the senior Non-Executive Director who receives 50,000 p.a. The Non-Executive Directors do not participate in the share option scheme, although the awards from 2008 and earlier remain in place, and are not eligible to join the Companys pension scheme. TOTAL SHAREHOLDER RETURNS (TSR) The graph shows the relative performance of Afren plc against the Peer Group Average and the Ernst & Young Oil & Gas Index since Afrens IPO. The selected indices give the most appropriate benchmark for other similar-sized oil and gas companies and the Peer Group is used by the Company for the performance criterion for the 2008 & 2009 Performance Share Plan awards. The Peer Group comprises BowLeven, Gulfsands Petroleum, Gulf Keystone Petroleum, Hardy Oil & Gas, Mart Resources, Petroceltic International, ROC Oil Company, Serica Energy, SOCO International, Sterling Energy, Tullow Oil, Vaalco and Stratic Energy. AUDITED INFORMATION DIRECTORS EMOLUMENTS
Fees/basic salary US$000 Benefits in kind US$000 Pension contributions US$000 Annual bonus US$000 Total 2010 US$000 Total 2009 US$000

Name of Director

Executive Osman Shahenshah ....................................... Constantine Ogunbiyi ................................... Shahid Ullah ................................................. Darra Comyn* .............................................. Egbert Imomoh ............................................. Non-executive Egbert Imomoh** .........................................

717 403 564 414 2,098 299 F-27

15 6 19 5 45 18

72 27 25 41 162

717 349 563 449 2,078

1,521 785 1,168 909 4,383 317

1,127 663 1,058 27 2,875 181

Peter Bingham .............................................. John St. John ................................................ Toby Hayward .............................................. Ennio Sganzerla ............................................ Guy Pas .........................................................

73 73 78 73 596 2,694

18 63

162

2,078

73 73 78 73 614 4,997

62 62 33 33 29 400 3,275

* **

Darra Comyn was appointed to the Board on 24 March 2010. His bonus was based on 100% of his salary at the date of award (December 2010). Egbert Imomohs fee includes fees and other allowances received for work carried out with related entities and an allowance for the costs incurred working from home, totalling US$81,000 for the period.

Three of the Executive Directors were members of the Companys defined contribution scheme during 2010 (2009: two). DIRECTORS EQUITY INTERESTS Share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of the options held and granted during the year under the 2005 Share Option Scheme are as follows:
As at 1 January 2010 As at 31 December 2010 Share price at grant date

Name of Director

Granted

Exercised

Lapsed

Date granted

Exercise price

Exercisable from

Exercisable to

E Imomoh ............................................................ 400,000 500,000 500,000 600,000 250,000 250,000 250,000 750,000 C Ogunbiyi* ........................................................ 100,000 150,000 250,000 200,000 300,000 250,000 750,000 1,250,000 2,750,000 O Shahenshah ...................................................... 1,150,000 850,000 550,000 600,000 416,666 416,667 416,667 28.06.05 28.06.05 28.06.05 30.05.06 28.03.07 28.03.07 28.03.07 1,150,000 850,000 550,000 600,000 416,666 416,667 416,667 36p 36p 36p 63p 53.5p 53.5p 53.5p 20p 50p 100p 63p 80p 120p 180p 28.06.05 28.06.05 28.06.05 30.05.06 26.06.07 25.04.08 25.04.08 23.01.09 30.12.09 100,000 150,000 250,000 200,000 300,000 250,000 750,000 1,250,000 2,750,000 36p 36p 36p 63p 67.5p 144.5p 144.5p 20.25p 84.75p 20p 50p 100p 63p 70p 150p 190p 23.25p 84.75p 28.06.05 28.06.05 28.06.05 30.05.06 28.03.07 28.03.07 28.03.07 23.01.09 400,000 500,000 500,000 600,000 250,000 250,000 250,000 750,000 36p 36p 36p 63p 53.5p 53.5p 53.5p 20.25p 20p 50p 100p 63p 80p 120p 180p 23.25p

28.06.0501.03.07 28.06.0501.03.06 28.06.0501.03.07 30.05.0730.05.09 28.03.0728.03.10 28.03.0728.03.10 28.03.0728.03.10 23.01.1023.01.12 28.06.0501.03.07 28.06.0501.03.06 28.06.0501.03.07 30.05.0730.05.09 26.06.0826.06.10 25.04.0925.04.11 25.04.0925.04.11 23.01.1023.01.12 30.12.1030.12.12 28.06.0501.03.07 28.06.0501.03.06 28.06.0501.03.07 30.05.0730.05.09 28.03.0728.03.10 28.03.0728.03.10 28.03.0728.03.10

27.06.15 27.06.15 27.06.15 29.05.16 27.03.17 27.03.17 27.03.17 23.01.19 27.06.15 27.06.15 27.06.15 29.05.16 25.06.17 25.04.18 25.04.18 23.01.19 30.12.19 27.06.15 27.06.15 27.06.15 29.05.16 27.03.17 27.03.17 27.03.17

F-28

3,000,000 5,800,000 S Ullah ................................................................. 1,500,000 1,500,000 D Comyn ............................................................. 650,000 P Bingham ........................................................... 125,000 130,000 145,000 J St. John............................................................. Total .................................................................... 400,000 27,150,000

1,200,000 1,200,000

23.01.09 30.12.09 23.01.09 30.12.09 30.12.09 29.03.10 28.06.05 28.06.05 21.06.07 21.06.07

3,000,000 5,800,000 1,500,000 1,500,000 650,000 1,200,000 125,000 130,000 145,000 400,000 28,350,000

20.25p 84.75p 20.25p 84.75p 84.75p 103p 36p 36p 69p 69p

23.3p 84.8p 23.25p 84.75p 84.75p 103.00p 50p 100p 70p 70p

23.01.1023.01.12 30.12.1030.12.12 23.01.1023.01.12 30.12.1030.12.12 30.12.1030.12.12 29.03.1129.03.13 28.06.0501.03.06 28.06.0501.03.07 21.06.0721.06.08 21.06.0721.06.09

23.01.19 30.12.19 23.01.19 30.12.19 30.12.19 28.03.20 27.06.15 27.06.15 20.06.17 20.06.17

Seconded to FHN and stepped down as Director of Afren plc on 4 January 2011.

There have been no variations to the terms and conditions or performance criteria for the share options during the financial year. In relation to the grant of share options, John St. John and Peter Bingham were appointed Non-Executive Directors and awarded share options whilst the Company was AIM listed on the basis that their experience and support to the executive team in relation to technical and financial expertise would, and will continue, to add significant value to the business. Whilst they retain options granted whilst the Company was AIM listed, the rules have been amended such that no additional share options will be granted to Non-Executive Directors. No further options have been granted to any Non-Executive Director following admission to the Official List of the United Kingdom Listing Authority and the Share Option Scheme Rules were amended in November 2009 to prohibit the grant of share options to Non-Executive Directors. The options granted on 28 June 2005, 28 March 2007, 25 April 2008 and those granted to Peter Bingham on 21 June 2007 have no performance criteria attached to them. Those granted to John St. John on 21 June 2007 only vest if a closing share price for the Company of over 1.00 has been achieved for a three-month period. The options granted on 30 May 2006 will only vest if the share price has increased by 40% over the market price at date of grant for a period of ten days. The options granted on 23 January 2009 and 30 December 2009 will only vest if the share price has increased by 40% over the market price at date of grant for a period of three months. PERFORMANCE SHARE PLAN On 1 June 2008 and 19 June 2009, awards were granted to Afren Directors and employees under the Afren Performance Share Plan. Awards were granted to each eligible member of the scheme that will vest in full only if Afren achieves top quartile performance against its peers of oil and gas upstream companies over a three-year period, based on Total Shareholder Return (TSR). No part of an award will vest if Afren does not at least perform at the median level. At the median level, 30% of the awards will vest and there is a straight-line calculation between the median level and the top quartile. Awards to date under this scheme were as follows:
Date of vesting Market price at date of grant Maximum number of shares

Date of grant

O Shahenshah ........................................................................................ C Ogunbiyi ............................................................................................ S Ullah ................................................................................................... E Imomoh ..............................................................................................

01.06.2008 19.06.2009 01.06.2008 19.06.2009 19.06.2009 01.06.2008

01.06.2011 19.06.2012 01.06.2011 19.06.2012 19.06.2012 01.06.2011

1.66 0.43 1.66 0.43 0.43 1.66

361,446 1,526,012 240,964 1,017,341 1,322,600 271,084

The closing market price of the ordinary shares at 31 December 2010 was 147.6p and the range during the year was 79p to 147.6p.

F-29

SHARES ON JOINING On joining in April 2008, Shahid Ullah was granted 2,025,000 shares to be issued at nominal consideration subject to certain time constraints. Of these, 1,462,500 were issued during 2009 with 187,500 outstanding as at 31 December 2009. These final shares were all issued in January 2010. APPROVAL This report was approved by the Board of Directors on 29 March 2011 and signed on its behalf by: Mr John St. John Chairman, Remuneration Committee 29 March 2011

F-30

Statement Of Directors Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements under IFRS as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit and loss of the Company for that period. In preparing these financial statements, the Directors are required to: properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entitys financial position and financial performance; and make an assessment of the Companys ability to continue as a going concern.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Companys transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Companys website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors responsibility statement I confirm to the best of my knowledge: 1. The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and The management report, which is incorporated into the Directors Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2.

By order of the Board Osman Shahenshah Chief Executive Officer 29 March 2011

F-31

Independent Auditors Report To The Members Of Afren Plc We have audited the financial statements of Afren plc for the year ended 31 December 2010 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Equity and the related notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. This report is made solely to the Companys members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the Companys members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR As explained more fully in the Directors Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards (APBs) Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groups and the Parent Companys circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OPINION ON FINANCIAL STATEMENTS In our opinion: the financial statements give a true and fair view of the state of the Groups and of the Parent Companys affairs as at 31 December 2010 and of the Groups profit for the year then ended; the financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion: the part of the Directors Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following:

F-32

Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements and the part of the Directors Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review: the Directors statement contained within the Directors Report in relation to going concern; the part of the Corporate Governance Statement relating to the Companys compliance with the nine provisions of the June 2008 Combined Code specified for our review; and certain elements of the report to shareholders by the Board on Directors remuneration.

Bevan Whitehead (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, UK 29 March 2011

F-33

Group Income Statement For the year ended 31 December 2010

Notes 2010 US$000s 2009 US$000s

Revenue.................................................................................................................................. Cost of sales ............................................................................................................................ Gross profit ........................................................................................................................... Administrative expenses ......................................................................................................... Other operating (expenses)/income derivative financial instruments .......................................................................................... impairment (charge)/reversal of oil and gas assets ............................................................. Operating profit .................................................................................................................... Investment revenue ................................................................................................................. Finance costs........................................................................................................................... Other gains and (losses) foreign currency gains/(losses) ........................................................................................... fair value of financial liabilities and financial assets .......................................................... impairment reversal on available for sale investments ....................................................... Share of gain/(loss) of associates ............................................................................................ Profit from continuing operations before tax ..................................................................... Income tax expense................................................................................................................. Profit/(loss) from continuing operations after tax ................................................................... Discontinued operations Loss for the period from discontinued operations................................................................... Profit/(loss) for the period .................................................................................................... Profit/(loss) per share from continuing operations Basic ....................................................................................................................................... Diluted .................................................................................................................................... Profit/(loss) per share from continuing and discontinued operations Basic ....................................................................................................................................... Diluted ....................................................................................................................................

319,447 335,818 (190,451) (230,036) 128,996 105,782 (29,500) (27,215) (8,894) (1,614) 88,988 298 (11,320) 305 (8,100) 8,625 78,796 (32,923) 45,873 (614) 45,259 5.1c 4.9c 5.0c 4.8c (33,635) 859 45,791 626 (36,950) (2,770) (5,034) 97 (1,277) 483 (17,261) (16,778) (16,778) (2.6c) (2.6c) (2.6c) (2.6c)

21 6 7 9 10 21 15 28

23

11 11 11 11

F-34

Group Statement of Comprehensive Income For The Year Ended 31 December 2010
2010 US$000s 2009 US$000s

Profit/(loss) after tax ..................................................................................................................... Total comprehensive profit/(loss) attributable to equity holders of Afren plc ........................

45,259 45,259

(16,778) (16,778)

F-35

Balance sheets As at 31 December 2010

Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Notes Assets Non-current assets Intangible oil and gas assets ................................................................................. Property, plant and equipment Oil and gas assets ............................................................................................. Other ................................................................................................................. Prepayments ......................................................................................................... Investments in subsidiaries .................................................................................. Derivative financial instruments .......................................................................... Investments in associates ..................................................................................... Current assets Inventories ............................................................................................................ Trade and other receivables ................................................................................. Derivative financial instruments .......................................................................... Cash and cash equivalents .................................................................................... Assets held for sale ............................................................................................... Total assets .......................................................................................................... Liabilities Current liabilities Trade and other payables...................................................................................... Borrowings ........................................................................................................... Derivative financial instruments .......................................................................... Net current (liabilities)/assets ............................................................................ Non-current liabilities Provision for decommissioning............................................................................ Deferred tax liabilities .......................................................................................... Borrowings ........................................................................................................... Derivative financial instruments .......................................................................... Total liabilities .................................................................................................... Net assets ............................................................................................................. Equity Share capital ......................................................................................................... Share premium ..................................................................................................... Other reserves ....................................................................................................... Accumulated losses .............................................................................................. Total equity .........................................................................................................

12 13 13 18 14 21 15

443,761 759,167 6,919 1,983 11,227 1,223,057 39,055 41,343 140,221 220,619 2,812 1,446,488

184,161 486,672 6,996 3,383 2,153 604 683,969 34,564 55,614 4,523 321,312 416,013 1,099,982

2,387 202,238 204,625 723,642 5,258 728,900 933,525

2,711 54,128 604 57,443 485,415 203,117 688,532 745,975

16 18 21 19 23

20 21 21

(216,037) (89,254) (4,927) (310,218) (86,787) (35,119) (63,470) (178,467) (499) (277,555) (587,773) 858,715 17,007 896,812 22,764 (77,868) 858,715

(134,739) (117,634) (5,240) (257,613) 158,400 (21,836) (12,460) (149,446) (379) (184,121) (441,734) 658,248 15,702 755,169 17,272 (129,895) 658,248

(75,804) (75,804) 653,096 (75,804) 857,721 17,007 896,812 25,198 (81,296) 857,721

(61,226) (61,226) 627,306 (61,226) 684,749 15,702 755,169 19,706 (105,828) 684,749

22 25 21 21

27 27 32 33

The financial statements of Afren plc, registered number 05304498 were approved by the Board of Directors and authorised for issue on 29 March 2011. They were signed on its behalf by: Darra Comyn Group Finance Director 29 March 2011

F-36

Cash Flow Statements For the year ended 31 December 2010

Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Notes

Operating profit/(loss) for the year ....................................................... Depreciation, depletion and amortisation ............................................. Derivative financial instruments ........................................................... Impairment of oil and gas assets ........................................................... Share-based payments charge ............................................................... Operating cash flows before movements in working capital ................ Cash used by operating activities held for sale ..................................... Decrease/(increase) in trade and other operating receivables ............... (Decrease)/increase in trade and other operating payables ................... Decrease/(increase) in inventorycrude oil ......................................... Currency translation adjustments .......................................................... Net cash generated/(used) in operating activities ............................. Purchases of property, plant and equipment: oil and gas assets............................................................................... other .................................................................................................. Exploration and evaluation expenditure ............................................... Advances to Group undertakings .......................................................... Investment in subsidiaries..................................................................... Increase in inventoriesspare parts ..................................................... Purchase of investments ....................................................................... Investment revenue ............................................................................... Completion payment on 2008 acquired subsidiaries............................. Acquisition of subsidiaries in 2010, net of cash acquired ..................... Net cash used in investing activities................................................... Issue of ordinary share capital .............................................................. Costs of share issues ............................................................................. Net proceeds from borrowings.............................................................. Repayment of borrowings..................................................................... Interest and financing fees paid ............................................................ Net cash (used) in/from financing activities ...................................... Net (decrease)/increase in cash and cash equivalents ........................... Cash and cash equivalents at beginning of year .................................... Effect of foreign exchange rate changes ............................................... Cash and cash equivalents at end of year ..............................................

88,988 93,979 6,482 1,614 8,333 199,396 (28) 16,046 (11,793) 5,895 (199) 209,317 (295,443) (3,209) (59,739) (10,386) (1,998) 298 2,289 (368,188) 5,191 (2,381) 100,217 (110,970) (14,493) (22,436) (181,307) 321,312 216 140,221

45,791 154,783 48,458 (859) 9,292 257,465 533 31,761 (11,588) 117 278,288 (97,810) (3,770) (90,365) (9,700) (1,815) 599 (6,198) (209,059) 326,969 (14,236) (148,447) (26,870) 137,416 206,645 117,719 (3,052) 321,312

(22,952) 1,355 6,945 (14,652) (10,358) 3,968 (10) (21,052) (1,031) (171,222) (7,799) 209 (179,843) 5,191 (2,381) 2,810 (198,085) 203,117 226 5,258

(28,407) 862 6,767 (20,778) (1,416) 16,744 76 (5,374) (1,274) (133,312) (4,060) (1,815) 521 (139,940) 326,969 (14,236) (49) 312,684 167,370 39,106 (3,359) 203,117

31

19

F-37

Statements of Changes in Equity For the year ended 31 December 2010

Share capital US$000s Share premium account US$000s Other reserves US$000s Accumulated losses US$000s Total equity US$000s

Group At 1 January 2009 .............................................................. Issue of share capital .......................................................... Deductible costs of share issues......................................... Share-based payments for services .................................... Other share-based payments .............................................. Reserves transfer relating to loan notes ............................. Reserves transfer on exercise of options, awards and LTIP ....................................................................................... Reserves transfer on exercise of warrants .......................... Other movements ............................................................... Net loss for the year ........................................................... Balance at 31 December 2009 ......................................... Issue of share capital .......................................................... Deductible costs of share issues......................................... Share-based payments for services .................................... Other share-based payments .............................................. Reserves transfer relating to loan notes ............................. Reserves transfer on exercise of options, awards and LTIP ....................................................................................... Exercise of warrants designated as financial liabilities...... Shares to be issued ............................................................. Net profit for the year ........................................................ Balance at 31 December 2010 .........................................

8,806 6,896 15,702 1,305 17,007

446,958 322,447 (14,236) 755,169 144,024 (2,381) 896,812

Share premium account US$000s

18,173 9,197 95 (2,312) (4,792) (2,770) (319) 17,272 9,359 313 (2,474) (2,206) 500 22,764

(122,991) 2,312 4,792 2,770 (16,778) (129,895) 2,474 2,206 2,088 45,259 (77,868)

350,946 329,343 (14,236) 9,197 95 (319) (16,778) 658,248 145,329 (2,381) 9,359 313 2,088 500 45,259 858,715

Share capital US$000s

Other reserves US$000s

Accumulated losses US$000s

Total equity US$000s

Company At 1 January 2009 .............................................................. Issue of share capital .......................................................... Deductible costs of share issues......................................... Share-based payments for services .................................... Other share-based payments .............................................. Reserves transfer relating to loan notes ............................. Reserves transfer on exercise of options, awards, warrants and LTIP ........................................................................ Other movements ............................................................... Net loss for the year ........................................................... Balance at 31 December 2009 ......................................... Issue of share capital .......................................................... Deductible costs of share issues......................................... Share-based payments for services .................................... Other share-based payments .............................................. Reserves transfer relating to loan notes ............................. Reserves transfer on exercise of options, awards, warrants and LTIP ........................................................................ Exercise of warrants designated as financial liabilities...... Shares to be issued ............................................................. Net profit for the year ........................................................ F-38

8,806 6,896 15,702 1,305

446,958 322,447 (14,236) 755,169 144,024 (2,381)

20,607 9,197 95 (2,312) (7,562) (319) 19,706 9,359 313 (2,474) (2,206) 500

(87,233) 2,312 7,562 (28,469) (105,828) 2,474 2,206 2,088 17,764

389,138 329,343 (14,236) 9,197 95 (319) (28,469) 684,749 145,329 (2,381) 9,359 313 2,088 500 17,764

Balance at 31 December 2010 .........................................

17,007

896,812

25,198

(81,296)

857,721

F-39

Notes to the Consolidated Financial Statements For The Year Ended 31 December 2010 1. GENERAL INFORMATION

Afren plc (the Company or the Group) is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on the inside back cover. The nature of the Groups operations and its principal activities are set out in note 4 and in the Chairman and Chief Executives Statement and Review of Operations on pages 14 and 26 These financial statements are presented in US dollars because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 2. Adoption of new and revised Standards In the current financial year, the Group has adopted International Financial Reporting Standard 3 Business combinations (revised 2008) and International Accounting Standard 27 Consolidated and Separate Financial Statements (revised 2008). The most significant changes to the Groups previous accounting policies for business combinations are as follows: acquisition related costs which previously would have been included in the cost of a business combination are included in administrative expenses as they are incurred; any pre-existing equity interest in the entity acquired is re-measured to fair value at the date of obtaining control, with any resulting gain or loss recognised in profit or loss; any changes in the Groups ownership interest subsequent to the date of obtaining control are recognised directly in equity with no adjustment to goodwill; and any changes to the cost of an acquisition, including contingent consideration, resulting from events after the date of acquisition are recognised in profit or loss. Previously, such changes would have resulted in an adjustment to goodwill.

At the date of authorisation of these financial statements, the following Standards, amendments and Interpretations which have not been applied in these financial statements were in issue but are not yet effective (and in some cases had not yet been adopted by the EU): IFRS 9 .............................................. Financial Instruments IAS 24 (amended) ............................ Related Party Disclosures IAS 32 (amended) ............................ Classification of Rights Issues IFRIC 14 (amended) ........................ Prepayment of a Minimum Funding Requirement IFRIC 19 .......................................... Extinguishing Financial Liabilities with Equity Instruments Improvements to IFRSs (May 2010) The adoption of IFRS 9 will impact both the measurement and disclosure of financial instruments. No decision will be made by the Group on early adoption until all phases of the standard are complete. The Directors anticipate that the adoption of the other Standards and Interpretations in future periods will have no material impact on the financial position of the Group. 2. ACCOUNTING POLICIES

Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have also been prepared in accordance with IFRS adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments and oil inventory which is subject to certain commodity swap arrangements that have been measured at fair value. F-40

Going concern The financial statements have been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting takes into consideration the Groups current and forecast financing position, additional details of which are provided in the Going Concern section of the Directors Report. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the 31 December each year. Control is achieved where the Company has the power to govern the financial and operational policies of an entity so as to gain benefit from its activities. Entities over which the Company exercises joint control are accounted for using proportional consolidation, under which the Group records its share of revenue, expenditure, assets and liabilities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of the subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. As a consolidated Group income statement is published, a separate profit and loss account for the Parent Company has not been published in accordance with section 408 of the Companies Act 2006. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised. Where a business combination is achieved in stages, the Groups previously-held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3(2008) are recognised at their fair value at the acquisition date, except that: deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; liabilities or equity instruments related to the replacement by the Group of an acquirees share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year. F-41

Goodwill arising in a business combination is recognised as an asset at the date that control is acquired. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirers previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Management generally assigns fair values to intangible exploration and evaluation assets to equal the excess of the purchase price consideration over and above the other assets and liabilities acquired, when this represents the most reliable indication of fair value. As a consequence, no goodwill arises. Property, plant and equipmentother Property, plant and equipment are stated at cost less depreciation and any provision for impairment. Depreciation is provided at rates calculated to write off the cost of the tangible fixed assets, less anticipated disposal proceeds, on a straight-line basis over their estimated useful economic life as follows: Leasehold improvements .................................................................. over life of lease Fixtures and equipment..................................................................... over three years Computer hardware and software ..................................................... over three years Gas plant ........................................................................................... over six and a quarter years Oil and gas assets and intangible exploration and evaluation assets The Group follows the successful efforts method of accounting for intangible exploration and evaluation (E&E) costs. All licence acquisition, exploration and evaluation costs are initially capitalised as intangible fixed assets in cost centres by field or exploration area, as appropriate, pending determination of commerciality of the relevant property. Directly attributable administration costs are capitalised insofar as they relate to specific exploration activities. Pre-licence costs and general exploration costs not specific to any particular licence or prospect are expensed as incurred. If prospects are deemed to be impaired (unsuccessful) on completion of the evaluation, the associated costs are charged to the income statement. If the field is determined to be commercially viable, the attributable costs are transferred to property, plant and equipment in single field cost centres. These costs are then depreciated on a unit of production basis. All field development costs are capitalised as property, plant and equipment. Property, plant and equipment related to production activities are amortised in accordance with the Groups depletion and amortisation accounting policy. Revenues Revenue represents the sales value, net of VAT and royalties paid in kind or where the financial obligation does not fall directly to Afren, of the Groups share of oil liftings in the year together with gas and tariff income and interest income. Oil and gas revenue is recognised when goods are delivered and title has passed. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount. Commercial reserves Commercial reserves are proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as a proven and probable reserves and a 50% statistical probability that it will be less. Depletion and amortisationoil and gas assets All expenditure carried within each field is amortised from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field-by-field basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. Where there has been a change in economic conditions that indicates a possible impairment in a discovery field, the recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future cash flows based on managements expectations of future oil and gas prices and future costs. F-42

Any impairment identified is charged to the income statement as additional depletion and amortisation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been charged since the impairment. Decommissioning Provision for decommissioning is recognised in full when the related facilities are installed. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related property, plant and equipment. The amount recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the decommissioning is included as a finance cost. Impairment Non-current assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such triggering events are defined in IFRS 6 in respect of E&E assets and include the point at which determination is made as to whether commercial reserves exist. Where there has been an indication of a possible impairment, management assesses the recoverability of the carrying value of the asset by comparison with the estimated discounted future net cash flows based on managements expectation of future production, oil prices and costs. Any identified impairment is charged to the income statement. Investment in subsidiaries Investment in subsidiaries held by the Company as fixed assets are stated at cost less any provision for impairment. Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of consolidated financial statements, the results and financial position of each Group company are expressed in US dollars which is the functional currency of the Company and the presentational currency for the consolidated financial statements of the Group. In preparing the financial statements of the individual companies, transactions in currencies other than the entitys functional currency (foreign currencies) are recorded at the rate of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising are included in the profit and loss for the period. For the purposes of presenting consolidated financial statements, the assets and liabilities of each Group company are translated into US dollars at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences (if any) arising are recognised in other comprehensive income and accumulated in equity. Such translation differences are recognised as income or as expense in the period in which the operation is disposed of. At present the Group has no subsidiaries with functional currencies other than US dollars. Operating leases Rentals under operating leases are charged to the income statement on a straight-line basis over the period of the relevant lease. Taxation The tax expense represents the sum of tax currently payable and deferred tax.

F-43

The tax currently payable is based on taxable profit for the year. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the rates of tax expected to apply in the period when the liability is settled or the asset realised. Share-based payments The Group makes equity-settled share-based payments to certain employees, Directors and other third parties. Equity-settled share-based schemes are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant, measured by use of an appropriate valuation model. The expected life used in the model has been adjusted, based on managements best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the period to exercise, based on the Groups estimate of shares that will eventually vest. The Company is liable for Employers National Insurance on the difference between the market value at date of exercise and exercise price. This expense is accrued by reference to the share price of the Company at the balance sheet date. Pensions Payments to a defined contribution pension scheme are charged as an expense as they fall due. Inventories Inventories (spare parts) are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. The cash flows associated with the purchase of spare parts are classified in investment activities with the oil and gas assets. Net realisable value represents the estimated selling price less costs to be incurred in marketing, selling and distribution. Inventories (oil and butane inventories) are stated at the lower of cost and net realisable value other than certain oil inventory in Cte dIvoire, which is settled via a reduction in the amount recoverable in respect of realised gas sales from the Lion Gas Plant. The inventory subject to this swap is recorded at its fair value. Finance costs and debt Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Financial costs of debt are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition of the liability and are amortised and charged to the income statement as finance costs over the term of the debt. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Financial Instruments Financial assets and financial liabilities are recognised on the Groups balance sheet when the Group becomes party to the contractual provisions of the instrument. F-44

Derivative financial instruments The Group has entered into swaps and call options to economically protect against exposures to variability in the price of a proportion of Okoro and Cte dIvoire crude oil production for 2008 to 2012. Derivative financial instruments are stated at fair value. The gains and losses arising out of changes in fair value of these derivative financial instruments together with settlements in the period are accounted for in other operating income/(expense) in the income statement in the period in which they are incurred. Available for sale investments Available for sale investments are initially measured at cost, including transaction costs. Gains and losses arising from changes in fair value of available for sale investments are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Trade receivables Trade receivables are measured at initial recognition at their fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Trade payables Trade payables are stated at amortised cost. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs. Investment in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated using the equity method of accounting except when classified as held for sale. Investments in associates are carried in the balance sheet at cost as adjusted by post acquisition changes in the Groups share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Groups interest in that associate (which includes any long-term interests that, in substance, form part of the Groups net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations to make or has made payments on behalf of the associate. Any excess of the cost of acquisition over the Groups share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Groups share of the fair values of the identifiable net assets of the associate at the date of acquisition above the cost of acquisition (i.e. discount on acquisition) is credited in profit or loss in the period of acquisition. Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Groups interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred, in which case appropriate provision is made for impairment.

F-45

Convertible bonds and loan notes Convertible bonds and loan notes are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible bonds or loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note. Non-current assets held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset(or disposal group) is available for immediate sale in its present condition and the sale is expected to be completed within one year of the classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Groups accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements, key assumptions and other key sources of estimation uncertainty at the balance sheet date that may have a significant effect on the amounts recognised in the financial statements. Oil and gas assets Management is required to assess the oil and gas assets for indicators of impairment. Note 13 discloses the carrying value of tangible oil and gas assets. As part of this assessment, management has carried out an impairment test (ceiling test) on the tangible oil and gas assets (Okoro Setu, Ebok and Cte dIvoire assets). This test compares the carrying value of the assets at the balance sheet date with the expected discounted cash flows from each project. For the discounted cash flows to be calculated, management has used a production profile based on its best estimate of proven and probable reserves of the assets and a range of assumptions, including an internal oil price profile benchmarked to mean analysts consensus and a 10% discount rate which, taking into account other assumptions used in the calculation, management considers to be reflective of the risks. Intangible exploration and evaluation assets Management is required to assess impairment in respect of intangible exploration and evaluation assets. Note 12 discloses the carrying value of such assets. The triggering events are defined in IFRS 6. In making the assessment, management is required to make judgements on the status of each project and the future plans towards finding commercial reserves. The nature of exploration and evaluation activity is such that only a proportion of projects are ultimately successful and some assets are likely to become impaired in future periods. Share-based payments Management is required to make assumptions in respect of the inputs used to calculate the fair values of share-based payment arrangements. Details of these can be found in note 30. F-46

Fair value of Black Marlin acquisition The assets and liabilities acquired following the completion of Black Marlin Energy Holdings Limited acquisition by the Company have been recorded at fair value at the completion date, as outlined further in note 31. The estimates of such fair values required significant judgement to be applied, particularly in respect of intangible exploration and evaluation assets. Management generally assigns fair values to intangible exploration and evaluation assets to equal the excess of the purchase price consideration over and above the other assets and liabilities acquired, when this represents the most reliable indication of fair value. As a consequence, no goodwill arises. The amounts are provisional, and may be revised within 12 months of the acquisition. Decommissioning The Group has decommissioning obligations in Nigeria and Cte dIvoire. The extent to which a provision is required depends on the legal requirements at the date of decommissioning, the costs and timing of work and the discount rate to be applied. The decommissioning provision will be updated each year to reflect Managements best estimates. Taxation The application of tax legislation in jurisdictions in which the Group operates can be uncertain and subject to interpretation. As disclosed in note 28, the Group has significant tax liabilities which may be subject to revision as the Groups tax filings are agreed with the relevant authorities in future periods. Financial risk management In respect of financial risk management, at the balance sheet date, the Groups principal financial assets are cash and cash equivalents, trade and other receivables and any derivative asset. The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due. The Group uses projected cash flows to monitor funding requirements for the Groups activities. Additional details in respect of the Groups financing facilities are in note 21. The Groups exposure to the risk of changes in market interest rates is mitigated by regular reviews of available fixed and variable rate debts and taking the most favourable for the Groups needs. The interest on borrowings from BNP Paribas, Sojitz and FCMB is based on LIBOR plus a margin and therefore the interest charged is affected by movement in LIBOR. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group. The Groups business is diversified in terms of both region and the number of counterparties and, other than transactions with major oil companies with high credit rating and government organisations in Cte dIvoire, the Group does not have significant exposure to any single counterparty or group of counterparties with similar characteristics. The credit risk on cash is limited because the majority is deposited with banks with good credit ratings assigned by international credit rating agencies or with governmental guarantee. The Groups total maximum exposure to credit risk as at 31 December 2010 was US$171.3 million (2009: US$ 369.6 million) made up of cash and bank balances and trade and other receivables (excluding prepayments).

F-47

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2010 4. OPERATING SEGMENTS

For management purposes, the Group currently operates in four geographical markets: Nigeria, Cte dIvoire, Other West Africa and Eastern Africa. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group.
Cte dIvoire US$000s Other West Africa US$000s Eastern Africa US$000s

2010

Nigeria US$000s

Unallocated US$000s

Consolidated US$000s

Sales revenue by origin ............................................... Operating profit/(loss) before derivative financial instruments.............................................................. Derivative financial instruments losses ...................... Segment result ............................................................ Investment revenue ..................................................... Finance costs............................................................... Other gains and lossesfair value of financial assets& liabilities ................................................................. Other gains and lossesforeign currency gains ......... Share of profit of associates ........................................ Profit from continuing operations before tax ......... Income tax expense..................................................... Profit from continuing operations after tax ........... Loss from discontinued operations ............................. Profit for the period .................................................. Segment assetsnon-current ..................................... Segment assetscurrent ............................................. Assets held for sale ..................................................... Segment liabilities ...................................................... Capital additionsoil and gas assets .......................... Capital additionsexploration and evaluation ........... Capital additionsother ............................................. Capital disposalother............................................... Depletion, depreciation and amortisation ................... Exploration costs write back/(write-off) .....................

286,546 128,053 (3,270) 124,783

32,568 (2,583) (5,624) (8,207)

(2,051) (2,051)

131 (248) (248)

202 (25,289) (25,289)

319,447 97,882 (8,894) 88,988 298 (11,320) (8,100) 305 8,625 78,796 (32,923) 45,873 (614) 45,259 1,223,057 220,619 2,812 (587,773) 362,998 261,214 3,399 (815) (93,979) (1,614)

805,105 153,270 172,251 15,818 (352,857) (110,545) 362,879 119 59,462 1,723 488 453 (815) (76,708) (15,668) 370

68,459 192,548 6,107 2,046 2,812 (5,090) (47,967) 7,559 192,470 270 (3) (1,984)
Cte dIvoire US$000s

3,675 24,397 (71,314) 2,188 (1,600)

2009

Nigeria US$000s

Other West Unallocated Consolidated Africa US$000s US$000s US$000s

Sales revenue by origin ................................................................... Operating gain/(loss) before derivative financial instruments ........ Derivative financial instruments gains............................................ Segment result ................................................................................ Investment revenue ......................................................................... Finance costs................................................................................... Other gains and lossesimpairment reversal on available for sale investment ................................................................................... Other gains and lossesfair value of financial assets and liabilities .................................................................................................... Other gains and lossesforeign currency losses ............................ Share of loss of an associate ........................................................... Profit before tax ............................................................................ Income tax expense......................................................................... Profit after tax ............................................................................... F-48

292,111 43,707 93,157 7,554 (15,346) (18,289) 77,811 (10,735)

3,576 3,576

(24,861) (24,861)

335,818 79,426 (33,635) 45,791 626 (36,950) 97 (5,034) (2,770) (1,277) 483 (17,261) (16,778)

2009

Nigeria US$000s

Cte dIvoire US$000s

Other West Unallocated Consolidated Africa US$000s US$000s US$000s

Segment assetsnon-current ..................................................... 448,785 168,796 Segment assetscurrent ............................................................. 158,764 27,940 Segment liabilities ...................................................................... (233,027) (139,795) Capital additionsoil and gas assets .......................................... 76,502 6,406 Capital additionsexploration and evaluation ........................... 59,135 1,447 Capital additionsother ............................................................. 2,352 123 Depletion, depreciation and amortisation ................................... (135,595) (18,226) Impairment reversal/(charge) on oil and gas assets .................... (2,705) Impairment reversal of available for sale investments ................ Included in revenues for Nigeria for the year ended 31 December 2010 US$292.1 million) which arose from the Groups largest customer.

62,884 3,504 683,969 21,373 207,936 416,013 (8,824) (60,088) (441,734) 82,908 6,683 67,265 1,333 3,808 (962) (154,783) 3,564 859 97 97 are US$286.5 million (2009:

Non-current assets held in the UK at 31 December 2010 totalled US$2.4 million (2009: US$3.3 million). Noncurrent assets held in Other West Africa at 31 December 2010 included US$20.3 million (2009: US$16.0 million) relating to Keta Block, Ghana, US$30.1 million (2009: US$29.2 million) relating to La Noumbi permit in Congo (Brazzaville) and US$18.1 million (2009: US$17.6 million) relating to JDZ Block One in So Tom & Prncipe. Non-current assets held in East Africa at 31 December 2010 included US$62.1 million (2009: US$nil) related to Block L17/L18, Block 1 and Block 10A in Kenya, US$58.4 million (2009: US$nil relating to the Ethiopian Blocks 2&6 and 7&8). US$35.6 million (2009: US$nil) related to the Madsgascar Block 1101 and US$36.2 million (2009: US$nil) relating to Seychelles Block A,B,C. 5. REVENUE
2010 US$000s 2009 US$000s

Oil revenue ..................................................................................................................................... Gas revenue .................................................................................................................................... Other revenue .................................................................................................................................

298,484 20,631 332 319,447

311,842 23,976 335,818

Investment revenue is shown in note 9. 6. IMPAIRMENT OF OIL AND GAS ASSETS

2010 US$000s 2009 US$000s

Intangible oil and gas assets (written off)/written back ..................................................................

(1,614) (1,614)

859 859

Impairment of oil and gas assets is largely attributable to a US$1.8 million charge (2009: US$2.1 million) in respect of the Tie Tie NE well in the La Noumbi permit, offset by a net write-back of US$0.2 million on previously written-off costs on other licences. In 2009, US$7.8 million was written-back relating to insurance proceeds receivable in respect of the Cuda well drilled in 2008. The write-back in 2009 was offset by a US$2.5 million write-off relating to the Ogedeh licence, US$2.1 million write-off relating to Gabon licences and US$2.1 million write-off relating to the Tie Tie NE well in the La Noumbi permit referred to above. 7. OPERATING PROFIT/(LOSS) FOR THE YEAR The operating profit/(loss) for the year is stated after charging:
2010 US$000s 2009 US$000s

Staff costs (note 8) .......................................................................................................................... Depletion, depreciation and amortisation ....................................................................................... Property lease rentals ...................................................................................................................... FPSO lease rentals .......................................................................................................................... Boats, helicopters and other lease rentals ....................................................................................... F-49

38,239 93,979 2,191 25,643 16,759

29,414 154,783 1,745 29,170 10,690

An analysis of auditors remuneration is as follows: Fees payable to the Companys auditors for the audit of the Companys annual accounts ............ 312 259 Fees payable to the Companys auditors and their associates for other services to the Group: 156 The audit of the Companys subsidiaries pursuant to legislation................................................ 256 Total audit fees .............................................................................................................................. 568 415 Tax services ................................................................................................................................ 173 117 Corporate finance services .......................................................................................................... 1,174 2,129 Other services ............................................................................................................................. 129 159 Total non-audit fees ...................................................................................................................... 1,476 2,405 Corporate finance services primarily represent services provided in respect of the acquisition of Black Marlin (2009: move to the main market of the London Stock Exchange and concurrent equity raising), work that would ordinarily be performed by external auditors for companies involved in such projects and is in-line with the Companys policy on nonaudit services. A proportion of these costs, being that relating to the issue of shares following Black Marlin acquisition, has been charged to the share premium account. Other services primarily represent amounts in respect of the review of the Groups and Nigerian subsidiaries interim results. A proportion of the Groups staff costs shown above are recharged to the Groups joint venture partners and a proportion is capitalised into the cost of intangible and tangible oil and gas assets under the Groups accounting policy for exploration, evaluation and oil and gas assets. The amount ultimately charged to the income statement was US$11.6 million (2009: US$13.1 million). Reconciliation of normalised profit/(loss) after tax to profit/(loss) after tax
2010 US$000s 2009 US$000s

Profit/(loss) after tax from continuing activities ............................................................................. Unrealised losses on derivative financial instruments* .................................................................. Cost of move to the main market of the London Stock Exchange .................................................. Cost of acquisition of Black Marlin ................................................................................................ Share-based payment charge .......................................................................................................... Foreign exchange (gains)/losses ..................................................................................................... Fair value financial liabilities ......................................................................................................... Share of (gain)/loss of associates ....................................................................................................

45,873 6,482 3,913 8,333 (305) 8,100 (8,625) 63,771

(16,778) 45,080 4,073 9,292 2,770 5,034 1,180 50,651

Excludes realised losses on derivative financial instruments of US$2.4 million (2009: US$11.4 million gain).

Normalised profit after tax is a non-IFRS measure of financial performance of the Company, which in managements view more accurately reflects the Companys underlying financial performance. This may not be comparable to similarly titled measures reported by other companies. 8. STAFF COSTS The average monthly number of employees (including Executive Directors) employed was as follows:
2010 2009

Administration ................................................................................................................................ Professional ....................................................................................................................................

31 188 219

41 131 172

Their aggregate remuneration comprised:

2010 US$000s 2009 US$000s

Wages and salaries .......................................................................................................................... Share based payments ..................................................................................................................... Social security costs ........................................................................................................................ Pension costs...................................................................................................................................

22,529 9,295 5,169 1,246 38,239

16,980 9,080 2,611 743 29,414

F-50

Details of Directors remuneration are provided in the part of the Directors Remuneration Report described as having been audited. 9. INVESTMENT REVENUE
2010 US$000s 2009 US$000s

Interest on bank deposits................................................................................................................. 10. FINANCE COSTS

298

626

2010 US$000s

2009 US$000s

Bank interest payable ...................................................................................................................... Borrowing costs amortisation and facility fees ............................................................................... Interest on loan notes ...................................................................................................................... Unwinding of discount on loan notes ............................................................................................. Unwinding of discount on decommissioning.................................................................................. Less: capitalised amounts ...............................................................................................................

10,521 9,042 1,138 2,787 1,468 24,956 (13,636) 11,320

21,270 11,941 1,822 2,625 1,050 38,708 (1,758) 36,950

The Ebok field offshore Nigeria transferred to development in the fourth quarter of 2009 and since then a proportion of the borrowing costs have been capitalised using a weighted average rate of approximately 4.6% (2009: 6.1%). Further, the Okoro infill wells drilling commenced in the fourth quarter 2010 and therefore borrowing costs incurred during the period relating to the Okoro project were capitalised using a weighted average rate of approximately 3.2% (2009: nil). 11. PROFIT/(LOSS) PER ORDINARY SHARE
Year ended 31 December 2010 2009

From continuing and discontinued operations Basic..................................................................................................................................................... 5.0c (2.6)c Diluted ................................................................................................................................................. 4.8c (2.6)c From continuing operations Basic..................................................................................................................................................... 5.1c (2.6)c Diluted ................................................................................................................................................. 4.9c (2.6)c The profit/(loss) and weighted average number of ordinary shares used in the calculation of the profit/(loss) per share are as follows: Profit/(loss) for the period used in the calculation of basic profit/(loss) per share from continuing 45,259 (16,778) and discontinued operations (US$000s) ...................................................................................... Effect of dilutive potential ordinary shares (US$000s)....................................................................... Profit/(loss) used in the calculation of diluted profit/(loss) per share from continuing and 45,259 (16,778) discontinued activities (US$000s) ................................................................................................ Loss for the period from discontinued operations (US$000s) ............................................................ 614 Profit/(loss) used in the calculation of basic and diluted profit/(loss) per share from continuing 45,873 (16,778) activities (US$000s)........................................................................................................................ The weighted average number of ordinary shares for the purposes of diluted profit/(loss) per share reconciles to the weighted average number of ordinary shares used in the calculation of basic profit/(loss) per share as follows: Weighted average number of ordinary shares used in the calculation of basic profit/(loss) per share . 908,821,987 637,328,455 Effect of dilutive potential ordinary shares: Share based schemes awards ................................................................................................................ 33,609,396 Warrants ............................................................................................................................................... 898,464 Weighted average number of ordinary shares used in the calculation of diluted profit/(loss) per share 943,329,847 637,328,455 ......................................................................................................................................................... 9.9 million potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share in 2010. In 2009 all potential ordinary shares were antidilutive because of the loss in that year. F-51

12.

INTANGIBLE EXPLORATION AND EVALUATION ASSETS

Costs of oil and gas explorationpending determination

Group US$000s

At 1 January 2009 ................................................................................................................................................ Additions ............................................................................................................................................................. Transfer to tangible oil and gas assets ................................................................................................................. Amounts written off* ........................................................................................................................................... At 1 January 2010 ................................................................................................................................................ Additions ............................................................................................................................................................. Acquisition of subsidiaries (see note 31) ............................................................................................................. Amounts written off ............................................................................................................................................. At 31 December 2010 .........................................................................................................................................
* Excluding the US$7.8 million net write back of prior year impairment charges on Keta Block

213,933 67,265 (90,316) (6,721) 184,161 74,274 186,940 (1,614) 443,761

During the year the Company acquired Black Marlins East African business as described in note 31. The allocated fair value of the oil and gas exploration assets acquired was US$186.9 million. The Groups carrying value at 31 December 2010 also includes US$104.2 million (2009: US$102.5 million) in respect of CI-01 field in Cte dlvoire, US$30.1 million (2009: US$29.2 million) relating to the La Noumbi permit in Congo (Brazzaville), US$18.1 million (2009: US$17.6 million) in respect of JDZ Block One of the NigeriaSo Tom & Prncipe Joint Development Zone (JDZ Block One), US$27.8 million (2009: US$14.3 million) in respect of OPL 310 field in Nigeria , US$20.3 million (2009: US$16.0 million) in respect of Keta Block in Ghana and US$36.4 million (2009: US$nil) in respect of Okwok field in Nigeria. 13. PROPERTY, PLANT AND EQUIPMENT
Production US$000s Development US$000s Gas plant US$000s Total US$000s

GROUP Oil and gas assets Cost At 1 January 2009 .................................................................................. Additions ............................................................................................... Transfers from intangible oil and gas assets .......................................... At 1 January 2010 .................................................................................. Additions ............................................................................................... At 31 December 2010 ............................................................................ Accumulated Depreciation At 1 January 2009 .................................................................................. Charge for the year ................................................................................ At 1 January 2010 .................................................................................. Charge for the year ................................................................................ At 31 December 2010 ............................................................................ Carrying amount At 31 December 2009 ............................................................................ At 31 December 2010 ...........................................................................

466,492 14,510 481,002 33,935 514,937 27,614 147,753 175,367 86,060 261,427 305,635 253,510

6,044 68,319 90,316 164,679 329,063 493,742 6,044 6,044 6,044 158,635 487,698

27,877 79 27,956 27,956 1,111 4,443 5,554 4,443 9,997 22,402 17,959
Computer hardware and software US$000s

500,413 82,908 90,316 673,637 362,998 1,036,635 34,769 152,196 186,965 90,503 277,468 486,672 759,167

Leasehold improvements US$000s

Fixtures and equipment US$000s

Total US$000s

GROUP Other property, plant and equipment Cost At 1 January 2009 .................................................................................. Additions ............................................................................................... Disposal ................................................................................................. F-52

3,008 1,678

2,809 1,046 (60)

2,727 1,084

8,544 3,808 (60)

At 1 January 2010 .................................................................................. Additions ............................................................................................... Additionsacquisition of subsidiary .................................................... Disposal ................................................................................................. At 31 December 2010 ............................................................................ Accumulated depreciation At 1 January 2009 .................................................................................. Charge for the year ................................................................................ Disposal ................................................................................................. At 1 January 2010 .................................................................................. Charge for the year ................................................................................ Disposal ................................................................................................. At 31 December 2010 ............................................................................ Carrying amount At 31 December 2009 ............................................................................ At 31 December 2010 ...........................................................................

4,686 238 94 (448) 4,570 1,124 837 1,961 938 (448) 2,451 2,725 2,119

3,795 858 100 (221) 4,532 841 722 (22) 1,541 1,000 (221) 2,320 2,254 2,212

3,811 2,109 (146) 5,774 766 1,028 1,794 1,538 (146) 3,186 2,017 2,588
Computer hardware and software US$000s

12,292 3,205 194 (815) 14,876 2,731 2,587 (22) 5,296 3,476 (815) 7,957 6,996 6,919

Leasehold improvements US$000s

Fixtures and equipment US$000s

Total US$000s

COMPANY Other property, plant and equipment Cost At 1 January 2009 .................................................................................. Additions ............................................................................................... At 1 January 2010 .................................................................................. Additions ............................................................................................... At 31 December 2010 ............................................................................ Accumulated depreciation At 1 January 2009 .................................................................................. Charge for the year ................................................................................ At 1 January 2010 .................................................................................. Charge for the year ................................................................................ At 31 December 2010 ............................................................................ Carrying amount At 31 December 2009 ............................................................................ At 31 December 2010 ...........................................................................

1,107 285 1,392 81 1,473 649 93 742 216 958 650 515

1,049 113 1,162 128 1,290 496 158 654 161 815 508 475

1,797 876 2,673 822 3,495 509 611 1,120 978 2,098 1,553 1,397

3,953 1,274 5,227 1,031 6,258 1,654 862 2,516 1,355 3,871 2,711 2,387

F-53

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2010 14. INVESTMENTS
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Subsidiaries Shares at cost in subsidiary undertakings ..............................................

202,238

54,128

During the year the company acquired all the issued share capital of Black Marlin Energy Holdings Limited as described in note 31. The remaining movement relates to additional investment in Afrens US subsidiary, Afren USA inc. A list of the significant investments in subsidiaries and associated undertakings, including the name, proportion of ownership interest, country of operation and country of registration, is given below:
Name Directly held Afren CI (UK) Limited ................................................. Principal activity % Country of operation Country of registration England & Wales Bahamas England & Wales USA, Delaware British Virgin Islands Norway Nigeria Nigeria England & Wales Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Cayman Cayman Cte dlvoire British Virgin Islands Kenya British Virgin Islands British Virgin Islands British Virgin Islands Bahamas Nigeria

Holding company Afren Congo Limited .................................................... Oil and gas exploration, development and production Afren Energy International plc...................................... Holding of loan notes Afren USA inc. .............................................................. Service company Black Marlin Energy Holdings limited ......................... Holding company Indirectly held Afren JDZ One Limited ................................................ Dangote Energy Equity Resources Limited .................. Oil and gas exploration, development and production Afren Energy Resources Limited .................................. Oil and gas exploration, development and production Afren Okoro Limited ..................................................... Holding company Afren Global Energy Resources Limited ...................... Oil and gas exploration, development and production Afren Investments Oil & Gas (Nigeria) Limited .......... Oil and gas exploration, development and production Afren Energy Services Limited ..................................... Service company Afren Exploration and Production Nigeria Alpha Oil and gas exploration, development and Limited ..................................................................... production Oil and gas exploration, development and Afren Exploration and ProductionNigeria Beta Limited ..................................................................... production Afren Nigeria Holdings (Nigeria) Limited ................... Holding company Afren CI One Corporation............................................. Oil and gas exploration, development and production Afren Cote Dlvoire Limited ......................................... Oil and gas exploration, development and production Lion GPL SA ................................................................. Oil and gas exploration, development and production Black Marlin Energy Limited ....................................... Holding company East African Exploration (K) Limited .......................... Oil and gas exploration, development and production East African Exploration (Seychelles) Limited ............ Oil and gas exploration, development and production East African Exploration (Madagascar) Limited .......... Oil and gas exploration, development and production East African Exploration (Ethiopia) Limited ................ Oil and gas exploration, development and production Afren Energy Ghana Limited ........................................ Oil and gas exploration, development and production Afren Resources Limited .............................................. Oil and gas exploration, development and production

100 100 100 100 100 100 49(i) 100 100 50(i) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

UK Congo UK USA Dubai Norway Nigeria Nigeria UK Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Cte dlvoire Cte dlvoire Cte dlvoire Dubai Kenya Seychelles Madagascar Ethiopia Ghana Nigeria

F-54

(i)

Accounted for via proportional consolidation as the Group exercises joint control over its operations.

15.

INVESTMENTS IN ASSOCIATES
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

At the beginning of the year ................................................................ Additions during the year ...................................................................... Share of associates gain/(loss) after tax* ............................................... At the end of the year ..........................................................................
*

604 1,998 8,625 11,227

1,881 (1,277) 604

604 (604)

1,881 (1,277) 604

Group figure includes one-off gain of $9.9million (2009: nil) and share of associates losses of $1.3million (2009: $1.3million loss)

Aggregated amounts related to associates, representing Afrens interest, were as follows:

Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Total assets ............................................................................................ 14,268 765 1,178 765 Total liabilities ....................................................................................... (2,802) (108) 939 (108) Revenues ................................................................................................ (1,277) (604) (1,277) Gain/(loss) after tax ............................................................................... 8,625 The group holds a 45% interest in First Hydrocarbon Nigeria Limited (FHN) and acquired shares amounting to US$2.0 million during the year. As at 31 December 2010 Afren plc held 226,421,354 ordinary shares in Gasol plc representing 20.9% of its issued share capital. The closing price on the 31 December 2010 was 2.33p per share. The fair value of the shares as at 31 December 2010 was US$3.6 million compared with a book value of US$0.8 million. The Company and the Group share of the unrecognised losses of Gasol plc was US$0.4 million as at 31 December 2010. The financial information accounted for using the equity method as at 31 December 2010 has been taken from the unaudited management information of FHN and Gasol plc as at that date. Gasol plcs year end is 31 March. As at 31 December 2010 FHN had a commitment amounting to $132.7 million in respect of outstanding completion payment on acquisition of OML26, onshore Nigeria. 16. INVENTORIES
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Oil and gas inventory ............................................................................. Spare parts .............................................................................................

14,204 24,851 39,055

20,099 14,465 34,564

Spare parts are stated net of a provision of US$3.0 million (2009: US$1.2 million) to write down the inventory to recoverable amount. 17. INTEREST IN JOINT VENTURES

The Group has a 49% share of Dangote Energy Equity Resources Limited (DEER), a jointly controlled entity which is involved in operations in JDZ Block One. The Group has a 50% interest in Afren Global Energy Resources Limited (AGER), a jointly controlled entity. AGER holds the Production Sharing Contracts for OPLs 907 and 917. The Groups share of DEERs and AGERs assets, liabilities, income and expenses of the jointly controlled entities at 31 December 2010 and 2009 and for the years then ended, which are included in the consolidated financial statements, are as follows:

F-55

2010 50% share in AGER US$000s 49% share in DEER US$000s 50% share in AGER US$000s

2009 49% share in DEER US$000s

Current assets ......................................................................................... Non-current assets ................................................................................. Current liabilities ................................................................................... Non-current liabilities ............................................................................ Administrative expenses ........................................................................ Bank interest received............................................................................ Loss/(profit) before and after income tax .......................................... 18. TRADE AND OTHER RECEIVABLES

1,316 4,690 6,006 (64) 5,942 56 56

1,189 18,076 19,265 (633) 18,632 9 (21) (12)

701 4,384 5,085 (21) 5,064 55 55

159 17,597 17,756 (385) 17,371 1 1

Group 2010 2009 US$000s US$000s

Company 2010 2009 US$000s US$000s

Trade and other debtors ......................................................................... Prepayments and accrued income .......................................................... VAT recoverable ................................................................................... Due from subsidiary undertakings* ....................................................... Due from joint ventures .........................................................................

29,708 10,219 1,416 41,343

14,449 40,147 1,018 55,614

12,088 1,995 1,402 695,767 12,390 723,642

982 1,297 1,018 467,796 14,322 485,415

The amount in the Company is shown net of a provision for doubtful debt of US$25.4 million (2009: US$25.4 million).

Prepayments and accrued income in respect of the Group includes a US$1.5 million (2009: US$10.6 million) accrued income on crude and gas sales and US$5.2 million (2009: US$5.5 million) in prepayment of operating costs relating to the Floating Production and Storage Offtake vessel (FPSO) for the Okoro field, of which US$2.0 million (2009: US$3.4 million) is disclosed as non-current prepayment in the balance sheet. There were no material past due not impaired receivables at either balance sheet date, nor any material bad debt provisions (other than as disclosed above in respect of intercompany balances). 19. CASH AND CASH EQUIVALENTS
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Cash and cash equivalents ..................................................................... 140,221 321,312 5,258 203,117 Cash and cash equivalents comprise cash held by the Group and Company in the form of short-term bank deposits with an original maturity of three months or less and earn interest at respective short-term deposit rates. The carrying amount of these assets approximates their fair value. Cash and cash equivalents at 31 December 2010 includes US$31.9 million (2009: US$5.4 million) that is restricted. This relates to short-term restrictions on project cash, pending completion of certain milestones and cash deposit for some of the letters of credit described in note 26. 20. TRADE AND OTHER PAYABLES
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Trade creditors ....................................................................................... Other creditors and joint venture partners.............................................. Accruals ................................................................................................. PAYE and social security ...................................................................... VAT payable.......................................................................................... Corporation tax payable ......................................................................... F-56

23,779 72,262 98,408 2,165 19,423

18,892 42,454 66,660 5,789 50 894

1,447 11,437 9,368 2,120

2,805 5,550 7,244 5,677

Due to subsidiary undertakings..............................................................

51,432 39,950 134,739 75,804 61,226 216,037 Group accruals include interest payable of US$3.5 million (2009: US$5.7 million) relating to the bank borrowings described in note 21, and US$0.3 million (2009: US$0.3 million) of coupon interest relating to loan notes described in note 24. 21. BORROWINGS AND OTHER FINANCIAL INSTRUMENTS

Borrowings
Group 2010 2009 Current Non-current Current Non-current US$000s US$000s US$000s US$000s

Loan notes (note 24) .............................................................................. Bank borrowings ....................................................................................

41,390 37,216 47,864 178,467 117,634 112,230 178,467 117,634 149,446 89,254 Bank borrowings at the year end included US$27.7 million (US$25.5 million net of financing arrangement costs), 2009: US$74.4 million (US$73.5 million net of financing arrangement costs), relating to the Okoro development facility from BNP Paribas. Interest on the loan is based on LIBOR plus a margin of 3.75% as at 31 December 2010. The facility is repayable in semi-annual instalments determined by borrowing base calculations linked to the certified reserves of the Okoro field. The loan is secured by the assets of the Okoro field. An agreement was reached with the bank in February 2011 whereby the full outstanding obligation was repaid. The acquisition of operations in Cte dlvoire was financed by a financing package arranged through BNP Paribas. The outstanding balance on the financing package at 31 December 2010 was US$71.2 million (US$69.8 million net of financing arrangement costs), 2009: US$111.8 million (US$108.5 million net of financing arrangement costs). Interest on the senior debt is based on LIBOR plus a margin of between 3.25% and 3.5% as at 31 December 2010. Interest on the subordinate debt is based on LIBOR plus a margin of 4.25%. The senior debt includes certain financial covenants which are assessed on a quarterly basis. Subsequent to the year end an agreement was reached with the banks in February 2011 whereby the full outstanding obligation was repaid. Borrowings also include a balance of US$33.3 million (US$32.4 million net of financing arrangement costs), 2009: US$50.0 million (US$47.9 million net of financing arrangement costs), relating to an unsecured loan facility from First City Monument Bank plc (FCMB). Interest on the loan is based on LIBOR plus a margin of 4.45%. Subsequent to the year end an agreement was reached with the bank in February 2011 whereby the full outstanding obligation was repaid. In March 2010 the Group entered into a bank facility agreement, for a maximum of five years, secured against the Ebok field reserves. The facility is repayable in semi-annual instalments determined by borrowing base calculations linked to the certified reserves of the Ebok field. The amount drawndown, including certain capitalised financing costs amounted to US$107.4 million (US$98.6 million net of financing arrangement costs) as at 31 December 2010. Interest on the loan is based on LIBOR plus a margin of 5.5% as at 31 December 2010. Derivative financial instruments
Group 2010 2009 Current Non-current Current Non-current US$000s US$000s US$000s US$000s

Financial assets ...................................................................................... Financial liabilities.................................................................................

4,523 2,153 (4,927) (499) (5,240) (379) (499) (717) 1,774 (4,927) In 2007 the Group entered into derivative financial instruments (swaps and call options) to economically protect against exposures to variability in the price of Okoro crude oil production for the period 2008 to 2010. During the first half of 2009 an additional derivative contract in respect of the Okoro crude was entered into for the period 2009 to 2011. The Group will receive a minimum amount if the market falls, but will receive a set discount from the market price if the oil price is above that minimum. The arrangement protects the Group against the risk of a significant fall in the price of crude oil by establishing a minimum price for the Okoro crude. During 2008 on acquisition of CI-11 field in Cte dlvoire, the Group entered into similar instruments to protect against variability in price of the CI-11 crude oil production for the period from F-57

2008 to 2012. The loss of US$8.9 million (2009: US$33.6 million loss) arising during the year as a result of the changes in fair value of these derivative financial instruments has been accounted for in the income statement net of cash realisations, as the criteria for hedge accounting were not met. In addition to the above commodity derivatives, the change in July 2008 of the functional currency of the holding company from pounds sterling to US dollar resulted in certain sterling denominated warrants being accounted for as derivatives from that date, as they are no longer convertible at a fixed price in that companys functional currency. The fair value of the warrants at 31 December 2010, recorded within other creditors, was US$11.2 million (2009: US$5.5 million) and the resultant loss during the year of US$8.1 million (2009: US$5.0 million loss) has been taken to the income statement. The following table details the Groups remaining contractual maturity for its non-derivative financial liabilities with agreed maturity periods. The table has been drawn based on the undiscounted cash flows of the financial liabilities based on the earliest date on which the Group can be required to pay.
Weighted average effective interest % Less than 1 month US$000s 3 months to 1 year US$000s

1-3 months US$000s

1-5 years US$000s

Total US$000s

31 December 2010 Non-interest bearing .......................................... Variable interest rate borrowings ................... Total ..............................................................

0% 4.6%

13,177 6,667 19,844

50,405 8,908 59,313

152,455 88,967 241,422

203,778 203,778

216,037 308,320 524,357

Weighted average effective interest %

Less than 1 month US$000s

1-3 months US$000s

3 months to 1 year US$000s

1-5 years US$000s

Total US$000s

31 December 2009 Non-interest bearing ...................................... 0% 66,677 5,573 62,489 134,739 9,323 117,745 168,954 302,689 Variable interest rate borrowings ................... 6,667 5.2% Total .............................................................. 14,896 180,234 168,954 437,428 73,344 The amounts reported in the balance sheet relating to the borrowings (excluding interest) mature as follows:
2010 US$000s 2009 US$000s

Due within one year ........................................................................................................................ Due within two to five years ........................................................................................................... All borrowings are in US dollars. Fair values

89,254 178,467 267,721

117,634 149,446 267,080

Set out below is a comparison by category of carrying amounts and fair values of all the Groups financial instruments:
Carrying amount 2010 2009 US$000s US$000s Fair value 2010 2009 US$000s US$000s

Financial assets Derivative financial instruments ............................................................ Cash and cash equivalents ..................................................................... Trade and other receivables ................................................................... Financial liabilities Derivative financial instruments ............................................................ Trade creditors ....................................................................................... Other creditors and accruals .................................................................. BorrowingsBNP Paribas .................................................................... BorrowingsFCMB ............................................................................. BorrowingsCote dlvoire ................................................................... F-58

140,221 31,124 171,345 5,426 23,779 170,670 25,533 32,400 69,795

6,676 321,312 41,634 369,622 5,619 18,892 110,208 73,464 47,900 108,499

140,221 31,124 171,345 5,426 23,779 170,670 26,111 32,365 67,374

6,676 321,312 41,634 369,622 5,619 18,892 110,008 72,239 47,985 106,403

BorrowingsEbok ................................................................................ Loan notes..............................................................................................

98,603 101,520 37,216 42,801 41,745 41,390 401,798 470,046 402,891 467,596 The fair values of the derivative financial instruments have been determined by reference to observable data in quoted markets at the balance sheet date and hence qualify as level 2 as defined in IFRS 7 (revised). The fair value of bank borrowings and loan notes have been determined by discounting future cash outflows relating to the borrowings and loan notes respectively. Sensitivity analysis Interest rate risk The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups bank borrowings. The Group has managed the interest rate risk by using a mix of fixed and variable rates on convertible bonds, loan notes and bank borrowings respectively. The following table demonstrates the sensitivity to changes in LIBOR rate, with all other variables held constant, of the Groups profit before tax.
Increase in Group profit US$000s Decrease in Group profit US$000s

2010

Increase

Decrease

Interest payable ............................................................................................

1%

(3,047)
Increase in Group profit US$000s

1%

3,047
Decrease in Group profit US$000s

2010

Increase

Decrease

Interest payable ...................................................................................... Oil price risk

1%

(3,574)

1%

3,574

The Groups exposure to the risk of changes in oil price relates primarily to the Groups derivative financial instruments. The terms of the derivative financial instruments are such that the Group will receive a minimum amount if the market falls, but will receive a set discount from the market price if the oil price is above that minimum. The effect on Group loss and equity of changes in the oil price on the fair value of the derivative financial instruments is shown below:
Positive/ (adverse) 2010 US$000s Positive/ (adverse) 2009 US$000s

Increase in oil price by 10% ........................................................................................................... Decrease in oil price by 10% .......................................................................................................... Foreign exchange risk The impact of a 10% change in the sterling to US dollar exchange rate is shown below:

(1,518) 2,669

(5,270) 6,728

Positive/ (adverse) 2010 US$000s

Positive/ (adverse) 2009 US$000s

Increase in exchange rate by 10% ................................................................................................... (1,994) 14,636 Decrease in exchange rate by 10% ................................................................................................. 1,994 (14,636) In 2010 the majority of foreign exchange risk was as a result of the outstanding warrants held by FCMB which are financial liabilities of the Group. In 2009 Sterling cash balances has the biggest impact. The impact of a 10% change in the Nigerian Naira to US dollar exchange rate would not be material in 2010 or in 2009. Capital management The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder value. The Groups funding needs are met through a combination of debt and equity. The Group monitors the net debt position on an ongoing basis. The Group includes within net debt, interest bearing loans and F-59

borrowings less cash and cash equivalents. Capital includes share capital, share premium, other reserves and accumulated losses. 22. PROVISION FOR DECOMMISSIONING
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

At 1 January ........................................................................................... 21,836 20,276 Additions during the year ...................................................................... 11,815 510 1,050 Unwinding of discount .......................................................................... 1,468 At 31 December .................................................................................... 21,836 35,119 The provision for decommissioning was recognised following the start of drilling at the Okoro field and following the acquisition of the CI-11 field in 2008. The provision represents the present value of the amounts that are expected to be incurred up to 2016. Additions during the year were made on commencement of drilling on the Ebok field and also the infill wells on the Okoro field. The provision was made using Afrens internal estimates that management believe form a reasonable basis for the expected future costs of decommissioning. 23. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

As described in note 31, the Company acquired all the issued share capital of Black Marlin Energy Holdings limited (Black Marlin) during the year. The seismic business operated by Black Marlin mainly used marine and land seismic equipment and vehicles. The trade and assets of this business were identified as held for sale on acquisition as an active programme is in place to have them sold.
Group 2010 2009 US$000s US$000s

Marine and land seismic equipment ............................................................................................... Operational vehicles .......................................................................................................................

2,500 312 2,812 The seismic business will cease once the assets shown above are sold and therefore its result for the period to 31 December 2010 has been disclosed as discontinued operations in the income statement. It recorded a loss of US$0.6 million during the period since acquisition. 24. LOAN NOTES
Group 2010 2009 US$000s US$000s

Liability component at 1 January .................................................................................................... Unwinding of discount ................................................................................................................... Coupon interest ............................................................................................................................... Interest paid .................................................................................................................................... Amortised issue costs ..................................................................................................................... At 31 December ............................................................................................................................. Reported in:

37,492 2,787 1,138 (1,151) 1,386 41,652

33,619 2,625 1,822 (1,960) 1,386 37,492

Group 2010 2009 US$000s US$000s

Interest payable in current liabilities ............................................................................................... Borrowingscurrent liabilities ...................................................................................................... Total liability component .............................................................................................................

262 41,390 41,652

276 37,216 37,492

F-60

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2010 On 9 October 2008 Afren entered into a strategic alliance with Sojitz, a Japanese investment and industrial conglomerate, to jointly pursue acquisition opportunities of scale in Africa. Sojitz invested US$45 million in the form of loan notes in Afren which become convertible bonds at the time of entering into or announcing joint acquisitions. The loan notes bear a coupon based on LIBOR plus a margin of 2%. The net proceeds from the issue of the loan notes were split between a liability component and an equity component at the date of issue. The liability component of the loan notes was US$41.4 million as at 31 December 2010 (2009: US$37.2 million). The interest charged for the year is calculated by applying an effective interest rate of 8.7% (2009: 10.3%) to the liability component. The loan notes were originally repayable in full in October 2011, although subsequent to the balance sheet date, an agreement was reached and the full outstanding balance of US$45 million on the notes was repaid in February 2011. 25. DEFERRED TAXATION (GROUP) Deferred tax liability
2010 US$000s 2009 US$000s

Property, plant and equipment ........................................................................................................ Intangible oil and gas assets............................................................................................................ Other temporary differences ...........................................................................................................

32,513 39,817 (8,860) 63,470

18,186 (5,726) 12,460

Analysis of movement during the year

At 1 January 2010 US$000s Charge for the year US$000s Acquisition of subsidiaries US$000s At 31 December 2010 US$000s

Property, plant and equipment ..................................................................... Intangible oil and gas assets......................................................................... Other temporary differences ........................................................................

18,186 14,327 32,513 39,817 39,817 (5,726) (3,134) (8,860) 11,193 39,817 63,470 12,460 At the balance sheet date the Group and Company also had tax losses (primarily arising in the UK) of US$105.3 million (2009: US$97.2 million) and US$54.2 million (2009: US$77.1 million) respectively, in respect of which a deferred tax asset has not been recognised as there is insufficient evidence of future taxable profits against which these tax losses could be recovered. Such losses can be carried forward indefinitely. The Group and Company had temporary differences of US$25.2 million (2009: US$15.6 million) and US$10.9 million (2009: US$7.2 million) in respect of share-based payments, property, plant and equipment and pensions in respect of which deferred tax assets have not been recognised as there is insufficient evidence of future taxable profits against which these tax losses could be recovered. Deferred tax has not been recognised on undistributed earnings of subsidiaries as the Group has no intention to remit the earnings to the UK in the foreseeable future. The extent of the unrecognised deferred tax in respect of this is not material.

26.

CONTINGENT LIABILITIES
As at 31 December 2010 2009 US$000s US$000s

Performance bond issued by a bank in respect of OPL 907/917 .................................................... Standby letter of credit in respect of contractual agreements of the Okoro FPSO, Ebok MOPU/FSO .................................................................................................................................................... Performance bond issued by a bank in respect of Ethiopia exploration activities .......................... Performance bond issued by a bank in respect of Kenya exploration activities .............................

24,100

24,100

12,000 6,000 1,050 488 37,638 30,100 In March 2010 a standby letter of credit for US$6 million was issued by a bank in respect of the Ebok fields contractual arrangements. Following the acquisition of Black Marlin Energy Holdings Limited described on note 31, existing guarantees in respect of Ethiopia and Kenya exploration activities are also now the responsibility of the Group. F-61

As part of the contractual arrangements on the Ofa field in Nigeria, Afren may be liable to contribute up to a maximum of US$500,000 in respect of abandonment should certain events specified in the contract occur. Additional amounts may also be payable in relation to JDZ Block One if proved reserves are discovered and upon approval of a field development programme. The amount payable is based on the level of proven reserves and prevailing oil and gas prices and is subject to adjustment upon any subsequent amendments to such oil and gas reserves. 27. SHARE CAPITAL AND SHARE PREMIUM
2010 US$000s 2009 US$000s

(i) Authorised 1,200 million ordinary shares of 1p each (equivalent to approx $1.59 cents) (2009: 1,200 million)

19,111

19,111
Share premium US$000s

Equity share capital allotted and fully paid Number US$000s

(ii) Allotted equity share capital and share premium As at 1 January........................................................................................................... Issued during the year for cash .................................................................................. Non-cash shares issued** .......................................................................................... As at 31 December ...................................................................................................
Share premium figure is shown net of issue costs of US$2.4 million (2009: US$14.2 million). ** Non-cash shares issued were primarily in respect of the Black Marlin acquisition described in note 31.

889,065,354 5,107,414 76,776,096 970,948,864

15,702 81 1,224 17,007

755,169 2,729 138,914 896,812

28.

TAXATION
2010 US$000s 2009 US$000s

UK corporation tax ......................................................................................................................... Overseas corporation tax ................................................................................................................ Deferred tax .................................................................................................................................... The current tax can be reconciled to the overall tax charge as follows:

21,730 21,730 11,193 32,923

4,801 4,801 12,460 17,261

2010 US$000s

2009 US$000s

Pre-tax profit ................................................................................................................................... 78,796 483 Tax at the UK corporate tax rate of 28% (2009:28%) .................................................................... 22,063 135 Tax effect of items which are not deductible for tax ...................................................................... 15,687 9,149 Items not subject to tax ................................................................................................................... (18,832) (16,436) Tax effect of share of associate results ........................................................................................... (2,415) 357 Effect of different tax rates ............................................................................................................. 2,231 534 Recognised tax losses ..................................................................................................................... 5,985 13,348 Loss not recognised ........................................................................................................................ 8,204 10,174 Tax charge for the year ................................................................................................................... 17,261 32,923 The Groups tax charge for the year includes current and deferred tax in Nigeria of US$18.5 million (2009:US$0.8 million) and US$11.2 million (2009:US$12.5 million) respectively. The detailed mechanics of the Groups tax filing arrangements in Nigeria are subject to agreement with the local tax authorities and while the Group is satisfied that the 2010 and 2009 charge is its best estimate of its tax position, adjustments may be required once these discussions have been finalised.

F-62

29.

OPERATING LEASE AND CAPITAL COMMITMENTS

Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Minimum lease payments under operating leases recognised in income for the year .........................................................................................

44,593

41,605

1,128

1,004

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under noncancellable operating leases, which fall due as follows:
Group 2010 2009 US$000s US$000s Company 2010 2009 US$000s US$000s

Within one year...................................................................................... In the second to fifth years.....................................................................

97,168 91,749 1,153 1,276 102,516 781 2,762 29,100 194,265 1,934 4,038 126,268 Operating lease commitments include rentals of US$14.8 million (2009: US$29.5 million) within one year and US$22.2 million (2009: US$73.8 million) between two and five years for the FPSO that is used on the Okoro field production and US$12.7 million (2009: US$27.4 million) within one year, for the terminal, security boats and field transport rentals in respect of the Okoro field. During the year there was a reversion of interest on the Okoro Field from 95% to 50%, therefore operating leases commitments are based on the new economic interest. In addition, US$65.2 million (2009: US$30.6 million) within one year primarily relates to the lease of rig and field transport rentals in respect of the Ebok field. Other operating lease represents rentals payable by the Company and Group for certain of its office properties. Property leases are negotiated for an average term of three years and rentals are fixed for an average term of three years.
2010 US$000s 2009 US$000s

Capital commitmentsGroup Oil and gas assetsDevelopment .................................................................................................. Oil and gas assetsExploration and evaluation .............................................................................

231,691 58,952 124,594 5,637 64,589 356,285 Included in the capital commitments is $163.0 million relating to the FSO MOPU in respect of the Ebok field offshore Nigeria. 30. SHARE-BASED PAYMENTS

During the year the Group had in place four share-based payment arrangements for its employees and has also issued warrants to contractors. The charge in relation to these arrangements is shown below, with further details of each scheme following:
2010 US$000s 2009 US$000s

2005 Share Option Scheme............................................................................................................. Long Term Incentive Plan .............................................................................................................. Share Award Scheme ...................................................................................................................... Founders and other warrants ........................................................................................................... Excludes $0.2m warrants issued in respect of the Black Marlin acquisition. 2005 Share Option Scheme Equity-settled share award scheme

5,119 3,832 408 140 9,499

1,742 2,281 2,404 2,865 9,292

The Group operates a share option scheme for employees. The Groups policy is to award options to employees on appointment or completion of their probationary period and periodically thereafter. Options are issued at market price on the grant date and have vesting periods of up to three years. The options expire after 10 years if they remain unexercised and are forfeited if the employee leaves the Group before the options vest except at the discretion of the Board. Details of the share options outstanding are as follows: F-63

2010 Number of share options Weighted average exercise price

2009 Weighted average exercise price

Number of share options

Outstanding at beginning of year ................................................................ 55,687,999 Granted during year .............................................................................. 4,425,000 Exercised during year ........................................................................... (2,415,657) Lapsed during year ............................................................................... (1,093,000) 56,604,342

0.72 26,452,998 1.12 33,315,000 0.80 (2,283,333) 0.84 (1,796,666) 0.90 55,687,999

0.77 0.65 0.32 0.70 0.72

Exercisable at end of year .................................................................. 22,971,677 0.72 15,858,337 0.69 The weighted average remaining contractual life of the options outstanding at 31 December 2010 was 7.7 years (31 December 2009 8.5 years). The weighted average share price at the date of exercise for share options exercised during the year ended 31 December 2009 was 108p. In 2010 options were granted on 19, 26 and 29 January, 29 March, 23 April, 18 June, 1 September, 22 October, and 2 November. The aggregate of the estimated fair values of the options granted on those dates was $2.4 million. In 2009 options were granted on 23 January, 7 April, 1 July, 26 September, 26, 30 and 31 December. The aggregate of the estimated fair values of the options granted on those dates was $12.4 million. The options granted during the year have been valued by reference to the Barrier option valuation model, consistent with the prior year. The inputs into the Barrier model were as follows:
2010 2009

Weighted average share price (pence) ............................................................................................ 112.7 64.2 Weighted average exercise price (pence)........................................................................................ 112.3 112.2 Weighted average target price before eligibility to exercise (barrier) (pence) ................................ 157.2 91.7 Expected volatility .......................................................................................................................... 40% 50% Expected life (years) ....................................................................................................................... 3 3 Risk free rate ................................................................................................................................... 4.0% 4.0% Expected dividends ......................................................................................................................... The volatility of Afren shares was again reviwed following a further 12 months of share price data. The volatility was measured utilsing serveral formulae, including an Exponentially Weighted Moving Average model and a GARCH (Generalised Autoregressive Conditional Heteroscedasticity) model, and over several time periods. These gave a range of estimates for the share price volatility with a reduction from the previous year. Therefore the volatility assumption was reduced, but will remain under review going forwards. The Company and Group recognised total expenses related to equity settled share based payment transactions in the form of options in 2010 of US$3,681,000 and US$5,119,000 respectively, of which US$5,054,000 related to employees, including executive directors, of the Group (2009: US$1,298,000 and US$1,742,000 respectively, of which US$1,625,000 related to employees, including executive directors, of the Group). Long Term Incentive Plan Equity-settled share award scheme An alternative share plan was introduced during 2007 (with first grants made in June 2008) to give awards to Directors and staff subject to outperforming a comparator group of similarly focused oil and gas exploration and production companies in terms of shareholder return over a three-year period. The Afren Performance Share Plan awards a number of shares to Directors and staff based on a multiple of salary. However, these shares only vest after a three-year period and the full award is made only if Afren has performed in the top quartile when compared against a selected peer group of upstream oil and gas companies: Borders & Southern Petroleum plc, Bowleven, Cairn Energy, Desire Petroleum, Enquest, Falkland Oil & Gas, Gulf Keystone Petroleum, Gulfsands Petroleum, Hardy Oil & Gas, Heritage Oil, Ithaca Energy, JKX Oil & Gas, Melrose Resources, Petroceltic International, Premier Oil, Rockhopper Exploration, Salamander Energy, Serica Energy, Soco International, Sterling Energy, Tullow Oil and Valiant Petroleum. If Afren does not achieve at least median performance in the peer group, no shares will be awarded. At the median level, 30% of the shares will vest and there is a sliding scale between median and top quartile performance where only a percentage of the total award will vest. F-64

Awards are forfeited if the employee leaves the Group before the awards vest, except under certain circumstances e.g. redundancies, where the number of awards vesting will be prorated according to the length of time the employee has been employed during the three-year vesting period. Details of the share awards outstanding are as follows:
2010 Weighted average exercise price 2009 Weighted average exercise price

Number of share options

Number of share options

Outstanding at beginning of period........................................................ 16,766,515 0.01 2,752,562 0.01 Granted during the period ...................................................................... 4,895,609 0.01 15,552,824 0.01 Exercised in period ................................................................................ (6,677) 0.01 (26,188) 0.01 0.01 (1,512,683) 0.01 Forfeited during the period .................................................................... (344,626) Outstanding at end of period .............................................................. 0.01 16,766,515 0.01 21,310,821 Exercisable at end of period ................................................................ 0.01 6,677 0.01 62,081 The awards outstanding at the end of 31 December 2010 have a weighted average remaining contractual life of 2.3 years (at 31 December 2009 2.4 years) and an exercise price of 0.01 (at 30 June 2009 0.01). The aggregate of the fair value of the options granted during the year ended 31 December 2010 was US$5.2 million (year ended 31 December 2009: US$4.4 million). The fair values were calculated using a stochastic model. The inputs used for fair valuing awards granted during the two periods were as follows:
2010 2009

Weighted average share price (pence) ............................................................................................ 129.0 45.5 Weighted average exercise price (pence)........................................................................................ 1.0 1.0 Expected volatility .......................................................................................................................... 40% 50% Expected life (years) ....................................................................................................................... 3 3 Risk free rate ................................................................................................................................... 2.2% Expected dividends ......................................................................................................................... 0.0% 0.0% The volatility of Afren shares was calculated by looking at the available historic movements in Afrens return index as defined by Datastream (an index which tracks share price plus reinvested dividends on the ex-dividend date) over the period commensurate with the proportion of the performance period that had not elapsed by the date of grant. The results were adjusted to take out anomolous period of extreme volatilty which are not expected to be typical for future periods. The resulting estimate was slightly lower than prior periods. The Company and Group recognised total expenses related to the above equity settled share based payment transactions in the form of options in during the year ended 31 December 2010 of US$2,604,000 and US$3,832,000 respectively (2009: US$1,626,000 and US$2,281,000 respectively). Share Award Scheme Equity-settled share award scheme As part of the incentives to attract the Jefferies, Randall & Dewey technical team, a number of shares were awarded in 2008, subject to continuing employment in the most part, to the team. None of this team was eligible to an award under the Long Term Incentive Plan. The timing of the shares issued range from six months to three years over which the fair value was spread. Details of the awards outstanding during the year are as follows:

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2010 Number of share awards Weighted average exercise price

2009 Weighted average exercise price

Number of share awards

Outstanding at the beginning of the period .................................................. 982,656 0.01 2,969,563 Granted during the period ...................................................................... Exercised in the period .......................................................................... (585,080) 0.01 (1,902,357) Lapsed in the period............................................................................... 0.01 (84,550) Outstanding at the end of the period.................................................. 0.01 982,656 397,576 Exercisable at the end of the period ................................................... 0.01 The weighted average share price of awards exercised in the year to 31 December 2009 was 0.91.

0.01 0.01 0.01 0.01 0.01

The weighted average remaining contractual life of the options outstanding at 31 December 2009 was 0.4 years (31 December 2010 0.7 years). All awards have an exercise price of 0.01. In the year to 31 December 2008 awards were granted to 13 new employees on joining from Randall and Dewey. The aggregate of the fair value of the options granted during 2008 was $11 million. No awards were made in 2009 or 2010. As the exercise price for these awards is nominal and there are no market based vesting criteria, the awards granted were valued using the share prices on dates of grant which was 137p on a weighted average basis. The Company and Group recognised total expenses related to equity settled share based payment transactions in relation to the above awards in the year ended 31 December 2010 of US$351,000 and US$408,000 respectively (year ended 31 December 2009 US$861,000 and US$2,404,000 respectively). Other equity-settled share consideration (other warrants) From time to time, the Company will give consideration for services or assets in the form of warrants. Details of the warrants outstanding during the year are as follows:
2010 Weighted average exercise price 2009 Weighted average exercise price

Number of warrants

Number of warrants

Outstanding at beginning of year ........................................................... Granted during the year ......................................................................... Exercised during the year ...................................................................... Outstanding at end of year .................................................................. Exercisable at end of year ................................................................... The weighted average remaining contractual life of the options (2009: 2.6 years).

2,545,000 0.70 2,345,000 0.67 200,000 1.00 0.70 2,545,000 0.70 2,545,000 0.70 2,461,666 0.68 2,545,000 outstanding at 31 December 2010 was 1.6 years

The aggregate of the fair value of the warrants granted in 2010 was US$nil (2009: US$0.1 million). The warrants granted have been valued by reference to the Black Scholes option valuation model. The inputs into the Black Scholes model were as follows:
2010 2009

Weighted average share price (pence) ............................................................................................ Weighted average exercise price (pence)........................................................................................ Expected volatility .......................................................................................................................... Weighted average expected life (years) .......................................................................................... Risk free rate ................................................................................................................................... Expected dividends .........................................................................................................................

n/a n/a n/a n/a n/a n/a

84.8 100.0 50% 5 5.0% nil

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The Company and Group recognised total costs of US$140,000 (2009:US$95,000) related to equity settled share based transactions in the form of warrants in 2010. Other equity settled share consideration (warrantsFounders Scheme) As presented to the AGM in June 2007, a Founders Scheme has been introduced. Under this scheme the Founders of Afren undertook to invest a total of US$5.0 million equivalent in Afren shares prior to 30 September 2008 and were granted a total of 40 million warrants. The agreements were finalised and warrants granted in January 2009. The warrants had an exercise price of 1.60 per share but were only exercisable if the share price reached 2.50 for at least 30 days (an increase of 56% above the exercise price). The warrants expired in December 2009. The warrants were also subject to certain anti-dilution clauses which meant that they were re-priced following the private placement in May 2009 to 0.38 being the lower of the share price over the five days prior to the issue of the shares or the issue price of the new shares plus 20%. The performance target was similarly repriced to 56% above the warrant price.
2009 Weighted average exercise price

Number of share options

Outstanding at beginning of period............................................................................................... Granted during the period ............................................................................................................. Exercised during the period .......................................................................................................... Outstanding at end of period ......................................................................................................... Exercisable at end of period.......................................................................................................... The weighted average share price of awards exercised in 2009 was 81 pence.

40,000,000 (40,000,000)

1.60 0.38

The aggregate of the fair value of the warrants granted in 2009 was US$2.77 million and the Group and Company recognised total expenses related to equity-settled share-based payments in relation to the above awards of US$2.77 million. The warrants granted under the Founders Scheme were valued by reference to the Barrier Option Valuation Model, and probability weighted to reflect the 50% likelihood (being the Directors estimate at the time of grant) of a repricing event occurring prior to the end of the life of the options due to a subsequent equity-raising event. The other inputs into the Barrier model at grant date (i.e. before May 2009 repricing) were as follows:
2009

Weighted average share price (pence) ................................................................................................................ 26 Weighted average exercise price (pence)............................................................................................................ 160 Weighted average target price before eligibility to exercise (barrier) (pence) .................................................... 250 Expected volatility .............................................................................................................................................. 90% Weighted average expected life (years) .............................................................................................................. 0.96 Risk free rate ....................................................................................................................................................... 1% Expected dividends ............................................................................................................................................. The volatility of Afren shares was reviewed as part of the option valuation exercise and the volatility adjusted for the valuation of the warrants granted under the Founders Scheme to reflect the one-year life of the warrants, and the relatively high volatility expected to continue over this time frame.

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Notes To The Consolidated Financial Statements For The Year Ended 31 December 2010 31. ACQUISITION OF SUBSIDIARIES

On 7 October 2010, the Company completed the acquisition of Black Marlin Energy Holdings Limited (Black Marlin) having received all necessary approvals. The acquisition comprised exploration acreage covering 12 assets in Kenya, Madagascar, Ethiopia and Seychelles. Afren issued 76,776,096 ordinary shares to holders of Black Marlin shares in return for 100% of the issued share capital. Afrens closing share price on completion was 114.5 pence. In addition, 1 million outstanding options to acquire Black Marlin shares were converted to acquire Afren shares on substantially equivalent terms and conditions. The book values of identifiable assets and liabilities acquired and their provisional fair value to the Group is as follows:
Provisional fair value to the Group US$000s

Book value US$000s

Fair value adjustments US$000s

Intangible oil and gas assets....................................................................................... Marine and land seismic equipment and operational vehicles ................................... Other property, plant and equipment ......................................................................... Trade and other receivables ....................................................................................... Cash and cash equivalents ......................................................................................... Trade and other payables ........................................................................................... Deferred tax liability .................................................................................................. Total consideration .................................................................................................. Total consideration .................................................................................................... Cash and cash equivalents acquired ........................................................................... Less non- cash consideration* ................................................................................... Cash inflow on acquisition ......................................................................................
* Non-cash consideration relates to shares and options issued as described above.

16,428 5,287 407 7,229 2,395 (7,527) 24,219

170,512 (2,475) (213) (288) (106) (11,521) (39,817) 116,092

186,940 2,812 194 6,941 2,289 (19,048) (39,817) 140,311 140,311 140,311 2,289 (140,311) 2,289

Technical evaluation and assessment of the oil and gas assets acquired is ongoing and therefore the fair values assigned are provisional pending the completion of the evaluation. The acquired business recorded a loss after taxation of US$30.8 million in the year ended 31 December 2010 of which US$29.4 million was made during the period from the beginning of the year to the acquisition date and a US$1.4 million loss was recorded after acquisition, which included US$0.6 million attributable to discontinued operations. The revenue for the year ended 31 December 2010 was US$7.1 million of which US$6.6 million arose from the discontinued operations. Acquisition related costs amounting to US$3.9 million have been recognised as an expense in the current year and are included in administrative expenses in the consolidated income statement. If the acquistion had completed on 1 January 2010, the total Group revenues would have been US$324.7 million of which US$319.5 million is from continuing activities. The total Group profit for the year would have been US$14.9 million and that from continuing activities US$28.6 million. This proforma information is for illustrative purposes only and is not necessarily an indication of the revenues and results of the Group that actually would have been achieved had the acquisition been completed on 1 January 2010, nor is it intended to be a projection of future results.

F-68

32.

OTHER RESERVES
Translation reserve US$000s Share-based payment reserve US$000s Other movements US$000s

Loan notes US$000s

Total US$000s

Group At 1 January 2009 .............................................................. Share based payments for services .................................... Other share-based payments .............................................. Transfer to accumulated losses .......................................... Other movements ............................................................... At 31 December 2009 ....................................................... Share based payments for services .................................... Other share-based payments .............................................. Transfer to accumulated losses .......................................... Shares to be issued ............................................................. At 31 December 2010 .......................................................

(831) (831) (831)

6,980 (2,312) 4,668 (2,474) 2,194

11,705 9,197 95 (7,562) 13,435 9,359 313 (2,206) 20,901

Share-based payment reserve US$000s

319 (319) 500 500

18,173 9,197 95 (9,874) (319) 17,272 9,359 313 (4,680) 500 22,764

Translation reserve US$000s

Loan notes US$000s

Other movements US$000s

Total US$000s

Company At 1 January 2009 .............................................................. Share based payments for services .................................... Other share-based payments .............................................. Transfer to accumulated losses .......................................... Other movements ............................................................... At 31 December 2009 ....................................................... Share based payments for services .................................... Other share-based payments .............................................. Transfer to accumulated losses .......................................... Shares to be issued ............................................................. At 31 December 2010 ....................................................... 33. PROFIT AND LOSS ACCOUNT

1,603 1,603 1,603

6,980 (2,312) 4,668 (2,474) 2,194

11,705 9,197 95 (7,562) 13,435 9,359 313 (2,206) 20,901

319 (319) 500 500

20,607 9,197 95 (9,874) (319) 19,706 9,359 313 (4,680) 500 25,198

Group 2010 2009 US$000s US$000s

Company 2010 2009 US$000s US$000s

At 1 January ........................................................................................... Profit/(loss) for the year ......................................................................... Exercise of warrants designated as financial liabilities.......................... Transfer from other reserves .................................................................. At 31 December .................................................................................... 34. POST BALANCE SHEET EVENTS

(129,895) 45,259 2,088 4,680 (77,868)

(122,991) (16,778) 9,874 (129,895)

(105,828) 17,764 2,088 4,680 (81,296)

(87,233) (28,469) 9,874 (105,828)

On 27 January 2011, Afren announced the successful pricing of its offering of U$$450 million aggregate principal amount of its 11.5% senior secured notes due 2016 (the Notes). The Notes will be guaranteed on a senior basis by certain subsidiaries of Afren plc and on a subordinate basis by Afren Resources Limited. Interest will be paid semi-annually. Part of the proceeds of the offering were used to settle borrowings amounting to US$169 million (net of issue costs) and accrued interest of US$2.4 million recorded in the balance sheet as at 31 December 2010. On 11 February 2011, Afren announced offering of an additional US$50 million of its 11.5% senior secured notes due 2016. On 24 March 2011, Afren announced acquisition of a 74% operated interest in Tanga Block, located onshore and offshore and will Tanzania, from Petrodel Resources Limited (&!#od;Petrodel). Afren reimbursed Petrodel a percentage of back costs (US$2.8 million) in relation to the block, will fund costs of seismic survey and supported by the seismic, carry F-69

Petrodel through the drilling of one shallow water exploration well subject to a cumulative cap on gross costs of US$40 million. In 2011 to date the political situation in Cte dIvoire deteriorated significantly which also resulted in disruption to the local financial system. At 31 December 2010, Afren had no material financial assets that were exposed, and its production assets have continued in operation without interruption to date. Afren is monitoring the situation closely, including the impact of the sanctions regime imposed by the EU. 35. RELATED PARTY TRANSACTIONS

The transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Amounts owed by and to such subsidiaries are disclosed in notes 18 and 20 respectively. Transactions between the Company and its subsidiaries were as follows:
Subsidiaries US$000s Joint ventures US$000s

2010

Net loan advances ........................................................................................................................... Investments .....................................................................................................................................

227,971 148,110
Subsidiaries US$000s

(1,932)
Joint ventures US$000s

2009

Net loan advances ........................................................................................................................... Investments ..................................................................................................................................... Remuneration of key management personnel

159,054 3,716

929

The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2010 US$000s 2009 US$000s

Short-term employee benefits* ....................................................................................................... Other long-term benefits ................................................................................................................. Share-based payment ......................................................................................................................

4,835 165 3,331 8,331

3,201 74 5,577 8,852

These amounts exclude amounts payable to Bert Cooper through Energy Investment Holdings Ltd as described further below.

Trading transactions
Purchase of goods/services Year ended Year ended 2010 2009 US$000s US$000s Amounts owed to related parties Year ended Year ended 2010 2009 US$000s US$000s

Energy Investment Holdings Ltd ........................................................... 465 3,092 (102) St. John Advisors .................................................................................. 479 1,083 28 Tzell Travel Group ................................................................................ 1,007 367 17 22 HArt of Africa ...................................................................................... 69 Energy Investment Holdings Ltd is the contractor company for the consulting services of Bert Cooper, a member of the International Advisory Board and Special Adviser to Afren plc. The payments relate to consultancy services provided during the year. St. John Advisors is the contractor company for the consulting services of John St. John for which they receive fees from the Company, a Non-Executive Director. St. John Advisors also receive a monthly retainer of 15,000 for consulting advice. This contract is for 12 months from 27 June 2008 and automatically continues thereafter unless terminated by either party. During the year a separate contract with STJ Advisors LLP, another contractor company related to John St John, was engaged for consulting services on the Senior Note offer which completed on 27 January 2011. John St.John received US$185,000 in fees during 2010 in relation to this contract.

F-70

Tzell Travel Group operates as a franchise. The franchisee utilised by Afren for some of its travel needs is a close family member of the Chief Executive Officer and Tzell Travel Group is therefore considered a related party. Afren uses several travel agents as there is a significant travel element to its operations and Tzell competes on an even basis with these. Tzell provided approximately 18% (2009: 14%) of the travel arrangements by value. HArt of Africa is a business specialising in the importation of African art. It is owned and run by a close family member of a Director of Afren appointed in 2008 and was engaged to source art for the Afren office in the UK. First Hydrocarbon Nigeria Limited (FHN) became an associate of Afren plc during the year. Constantine Ogunbiyi, former Executive Director of Afren has been seconded to FHN to serve in the capacity of Chief Executive Officer of FHN. FHN has an outstanding payable to Afren of US$2.25 million. Information on the investment in FHN is disclosed in notes 14 and 15.

F-71

Directors Report The Directors submit their Annual Report on the affairs of the Group together with the financial statements and audit report of Afren plc for the year ended 31 December 2009. PRINCIPAL ACTIVITIES The principal activities of the Group are oil and gas exploration, development and production in Africa. The subsidiary undertakings principally affecting the Groups financial statements are listed in note 14 to the consolidated financial statements. BUSINESS REVIEW AND CORPORATE GOVERNANCE STATEMENT The Company is required by the Companies Act to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2009 and of the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group (business review). The information that fulfils the requirements can be found within the Chairman and Chief Executives Statement, the Review of Operations and the Financial Review, which are incorporated into this report by reference. These sections also include details of expected future developments in the business of the Group and details of Key Performance Indicators that management use. The Corporate Governance Statement on pages 66 to 70 forms part of this Directors Report. PRINCIPAL RISKS AND UNCERTAINTIES The effective management of risk is essential to the success of Afren. The specific risks to Afren include those associated with the nature of the upstream oil and gas industry, those arising from political, social and infrastructure issues in the countries in which the Group operates and those which are internal to the organisation of the Company and its strategy. The Groups overall strategy to risk management is to employ suitably skilled personnel, implement appropriate policies and procedures and maintain a balanced portfolio of assets. During 2009 considerable focus was placed on reinforcing and formalising the system of business risk management which underpins Afrens assurance of high standards of corporate governance. This effort has culminated in the development of a business risk management system, a corporate framework for identifying, assessing, managing and reporting risks that threaten the delivery of corporate objectives. The Afren business risk management system has been structured so that it adheres to best practice as set out in international standard ISO 31000 and the UK governments Orange book. As part of the business risk management system the Company has drawn up a corporate risk register. Overseeing the process is the Audit Committee of the Board which is responsible for reviewing the corporate risk register and providing assurance that the required controls are in place and effective. During 2009 the Group also introduced a Code of Business Conduct which all employees and contractors are obliged to follow. Adhering to the Code reduces the risk to the Group from the activities of employees which may fail to meet the Groups standards. The following are the principal operational risks which the Company has identified as presenting the most serious challenge to achieving its business objectives: POLITICAL AND SOCIAL RISKS The Groups operations are based in countries where there are uncertainties arising from political instability, corruption, civil strife, poor infrastructure, inconsistent application of law and uncertain fiscal regimes. The executive and senior management have extensive experience in the oil and gas industry in West Africa amongst other regions. Combined with strong local management teams the Company maintains positive relationships with communities and governments. Combined with adherence to the Groups Code of Business Conduct this allows the Group to navigate these difficulties without sacrificing its ethical principles. The Group has a corporate responsibility programme, details of which are set out on page 46 of this report. This programme seeks to ensure that Afren meets it obligations to the local communities where it operates.

F-72

OPERATIONAL RISKS Development of oil and gas assets Inherent in oil exploration and production are risks associated with estimating the extent of the resource base and with the production profile of a field. In addition the cost of development may often vary significantly from expectation due to unexpected technical, engineering or regulatory considerations or cost escalation. The Group manages such risks by employing a suitably qualified staff with extensive experience in developments similar to those being undertaken. Independent reviews are carried out as required to support the Companys technical assessment. Projects are subject to rigorous budgetary control and a regular review of KPIs and project milestones. Oil price movements The revenue of the Group is subject to fluctuations in the oil and gas price. The Group has entered into hedging contracts for a portion of its future sales which will mitigate the effect of fluctuations for that portion. To the extent that the remainder is not hedged the Group is satisfied that the cost of such hedging outweighs the benefit to be obtained. Unexpected events The nature of the Groups business is such that there is a risk from unexpected events such as an environmental incident, accident or security problem which may disrupt operations. By ensuring there are robust environmental and health and safety policies and procedures in place, including crisis management plans, the Group can minimise the probability of occurrence and impact of such events. In addition the Group has comprehensive insurance cover which is reviewed annually to ensure it continues to meet the requirements of the Company. STRATEGY RISKS Staffing The Group is reliant on the skills and experience of its senior management to execute its strategy. The loss of key staff would pose a serious risk to the ability of the Company to operate profitably and grow. The Company seeks to recruit and retain suitably qualified staff with suitable remuneration, appraisal and development policies. Liquidity The Group uses a mix of operational cash flow, debt and equity financing to fund its developments. By managing the correct balance between these sources and with regular reviews of cash flow forecasts the Group seeks to ensure that it has the necessary funding to meet its requirements. Rate of growth The Company continues to grow rapidly. The Company regularly reviews its staffing levels, business processes and policies to ensure that they continue to be appropriate for the scale of business and its speed of growth as it evolves. GOING CONCERN The Groups business activities, together with the factors likely to affect its future development, performance and position are set out above. The financial position of the Group at the year end, its cash flows, liquidity position and borrowing facilities are described in the Financial Review. In addition note 21 to the financial statements includes the Groups objectives, policies and processes for managing its capital, its financial risk management objectives and details of its financial instruments and hedging activities; and note 3 describes its exposures to credit risk and liquidity risk. The Group typically uses its cash resources to fund its exploration and appraisal programme and administrative expenses. Expenditure on developing a field to production is typically also funded by debt facilities. At present the Group is funding the initial development of the Ebok field from its own resources and the Companys assessment is that this can be continued until Ebok produces first initial oil, after which it will contribute cash to the Group. Additional development of the Ebok field will be funded by cash contributed by the initial development and additional debt from the loan facility announced on 25 March 2010.

F-73

The Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. RESULTS AND DIVIDENDS The Groups loss for the year was US$16.8 million (2008: US$56.1 million). The Directors have not recommended the payment of a dividend (2008: US$nil). EVENTS SINCE THE BALANCE SHEET DATE On 28 January 2010 the Company announced that it had entered into a joint venture agreement with Oriental Energy Resources Limited and Energy Equity Resources Limited to acquire a 32.5% interest in OML 115 offshore Nigeria. The agreement requires the Company to pay approximately US$6 million in signature bonuses and other costs and to drill one exploration well at an estimated cost of US$30 million. On 28 January 2010 the Company announced that it had entered into an agreement with Mercator Offshore (Nigeria) Pte Limited to lease a Mobile Offshore Production Unit and a Floating Storage and Offtake vessel for the Ebok field. Under the agreement the Group will pay a rate of US$98,750 per day plus VAT and withholding tax for the seven-year term of the lease. On 1 March 2010 the operators of the La Noumbi exploration licence in Congo Brazzaville, Maurel et Prom, announced that the Tie-Tie-Ne-1 well had been plugged and abandoned after reaching its target depth. The well had shown hydrocarbon indications but these were not commercial. The cost of the well at 31 December 2009 of US$2.0 million has been expensed in these financial statements. On 17 March 2010 the Group announced that it had entered into a contract with Sedco Forex International Inc to rent the drilling rig GSF High Island VII for a minimum period of 180 days at a cost of US$84,000 per day. On 25 March 2010, Afren announced that it had finalised arrangements for an up to US$450 million reserves based lending (RBL) debt facility. The up to US$450 million of debt, secured against the Ebok field reserves, has a maturity of a maximum of five years, is repayable semi-annually and has a margin of between 4% to 5.5% over LIBOR. THE DIRECTORS AND THEIR INTERESTS The Directors who served the Company during the year and subsequently, together with their and their families beneficial interests in shares in the Company, were as follows:
Committees Audit and Risk Ordinary shares of 0.01 each At At At 29 March 31 December 31 December 2010 2009* 2008**

Name

Nomination

Remuneration

Egbert Imomoh Chairman .................................................. Osman Shahenshah Chief Executive ........................................ Constantine Ogunbiyi Director ..................................................... Shahid Ullah Chief Operating Officer ............................ Darra Comyn(iii) Group Finance Director ............................ Peter Bingham Non-executive Director............................. Toby Hayward(i) Senior Non-executive Director ................. Ennio Sganzerla(i) Non-executive Director............................. John St. John Non-executive Director.............................

3,672,246 4,181,515 1,295,676 3,268,961

3,672,246 4,181,515 1,295,676 3,081,461 205,000 50,922

772,458 1,412,001 205,000 375,000 n/a n/a 50,922

F-74

205,000

50,922

Guy Pas(ii) Non-executive Director.............................

* ** (i) (ii) Or resignation, if earlier Or on appointment, if later Appointed 26 June 2009 Stepped down 26 June 2009

n/a

2,000,000

2,000,000

(iii) Appointed 24 March 2010 Member of Audit and Risk Committee and of Remuneration Committee until 9 July 2009 Chairman of Committee

Joined Audit and Risk Committee in December 2009

Details of the Directors share options are provided in the Directors Remuneration Report. SUPPLIER PAYMENT POLICY The Companys policy, which is also applied by the Group, is to settle terms of payment with suppliers when agreeing the terms of each transaction, to ensure that the supplier is aware of the terms of the payment and to abide by the terms of the payment. Trade creditors of the Group at 31 December 2009 were equivalent to 34 days purchases (2008: 59 days), based on the actual year end balance. CHARITABLE AND POLITICAL DONATIONS During the year the Group made charitable donations of US$133,863, the majority of which related to African-focused charities and institutions (2008: US$156,159). No political donations were made in either 2009 or 2008. CAPITAL STRUCTURE Details of the authorised and issued share capital, together with details of the movements in the Companys issued share capital during the year are shown in note 27. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. The ordinary shares reflect 100% of the total issued nominal value of all share capital. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Companys shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note 30. No person has any special rights of control over the Companys share capital and all issued shares are fully paid. Details of significant shareholdings are set out on page 65. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Combined Code, the Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Main Board Terms of Reference, copies of which are available on request, and the Corporate Governance Statement on page 66-70. Under its Articles of Association, the Company has authority to issue 467,054,905 ordinary shares. SUBSTANTIAL INTERESTS As of 29 March 2010 (being the latest practicable date prior to publication of the Annual Report), interests notified to the Company in accordance with Chapter 5 of the Disclosure and Transparency Rules comprised:
%

Vidacos Nominees ................................................................................................................................................ F-75

9.058

BlackRock Inc ...................................................................................................................................................... AXA SA ............................................................................................................................................................... JPMorgan Asset Management Holdings Inc ......................................................................................................... HSBC Client Holdings UK Limited ..................................................................................................................... GLG Partners LP .................................................................................................................................................. Investec Asset Management Limited .................................................................................................................... Deutsche Bank AG ............................................................................................................................................... Percentages are based on the issued share capital at the date of notification. DIRECTORS REMUNERATION Details of the Directors remuneration are set out in the Directors Remuneration Report. SERVICE CONTRACTS

5.040 5.000 4.997 4.930 4.880 4.498 3.010

No Director has a service contract, consultancy agreement or other such arrangement with a notice period in excess of one year. AUDITORS Each of the persons who is a Director at the date of approval of this Annual Report confirms that: so far as the Director is aware, there is no relevant audit information of which the Companys auditors are unaware; and the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Companys auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. The auditors for the year ended 31 December 2009 were Deloitte LLP. Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappointment them will be proposed at the forthcoming Annual General Meeting. ANNUAL GENERAL MEETING At the Annual General Meeting of the Company, resolutions will be proposed to receive these accounts and the Directors and auditors reports and to re-elect the Directors who are retiring at the Annual General Meeting, in accordance with the Companys Articles of Association. Resolutions to reappoint Deloitte LLP as the Companys auditors, to authorise the Directors to fix Deloitte LLPs remuneration as auditors, to authorise the Directors to make political donations and to incur political expenditure, to grant the Directors authority to allot ordinary shares, to buy back the Companys ordinary shares and to allow a general meeting to be held on not less than 14 days notice will also be proposed. For a more detailed explanation of these and other amendments, please refer to the Notes on Resolutions set out in the Notice of Annual General Meeting. A copy of the current Articles of Association and the proposed new Articles of Association that reflect these amendments will be available for inspection during normal business hours (Saturdays, Sundays and public holidays excepted) at the registered office of the Company (Kinnaird House, 1 Pall Mall East, London SW1Y 5AU) and the offices of White & Case, 5 Old Broad Street, London EC2N 1DW up until the close of the meeting. On behalf of the Board Osman Shahenshah Chief Executive 29 March 2010

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Corporate Governance Statement The Directors support high standards of corporate governance. As a UK listed company, Afren plc is required to state whether it has complied with the provisions in Section 1 of the Combined Code on Corporate Governance (Combined Code) throughout the year and, where the provisions have not been complied with, to provide an explanation. Afren is also required to explain how it has applied the principles in Section 1 of the Combined Code. The Directors consider that the Company complied with the provisions set out in Section 1 of the Combined Code since admission to the Official List of the United Kingdom Listing Authority in December 2009. Throughout 2009 and up to the date of approval of this Annual Report, the Group has complied with the provisions of the Combined Code, save for the exceptions listed below. The Chairman on appointment as Chairman in December 2008 did not meet with the independence criteria set out in the Combined Code as he is a former Executive Director of the Company. The Board believes that the Chairman is in substance independent, being independent in character and judgement, however it recognises that at the time of his appointment as Chairman, he did not meet with the independence criteria set out in the Combined Code. The Board has considered this factor and remains satisfied that his role as Chairman of the Board is of considerable benefit to the Board given his wealth of knowledge and experience of the Group, of Africa and of the oil and gas industry. The Board consulted major shareholders in advance of his appointment as Chairman and the consensus was that his appointment as Chairman was focal to our strategy of utilising relationships of the Board and management to partner with indigenous companies, national oil companies and host governments, in growing an upstream portfolio of significant scale. Prior to 26 June 2009, the Nomination Committee was not comprised of a majority of Non-executive Directors. Prior to 9 July 2009, the Chairman was a member of the Audit and Risk Committee. Also prior to 9 July 2009 the Remuneration Committee comprised of two independent Non-executive Directors in addition to the Non-executive Chairman instead of three independent Non-executive Directors in addition to the Non-executive Chairman. At that time the Company was an AIM Company and the composition of the Board and its committees was considered to be appropriate in the circumstances for the short period while the Board was considering candidates to appoint as Non-executive Directors. The imbalance was rectified by the appointment of two additional Non-executive Directors in June 2009 and the resignation of the Chairman from the Audit and Risk Committee and the Remuneration Committee on 9 July 2009. The Board has appointed Mr Toby Hayward as the Senior Independent Director of Afren plc in accordance with the Combined Code. Mr Toby Hayward was a Managing Director in Jefferies International Limited. Jefferies International Limited was the Companys Nomad prior to the move to the main market. Mr Toby Hayward is available to shareholders who have concerns that cannot be addressed through the Chairman, CEO or COO. COMBINED CODE COMPLIANCE This statement explains how the Directors applied the principles of the Combined Code during the year ended 31 December 2009. INDEPENDENCE The Board is committed to ensuring a majority of Directors are independent. The Board considers periodically the independence of each of the Non-executive Directors (and at any other time where the circumstances of a Director changes to warrant the reconsideration). Where a Director is considered by the Board to be independent but is affected by circumstances that may give rise to the perception that he is not independent, the Board has explained or will explain its reasons for determining that the Director is independent. The Company regards all of the current Non-executive Directors to be independent within the meaning of independent as defined in the Combined Code. The Board notes the following in relation to three of its Directors. John St. John Between 1 January 2009 and 31 December 2009, Mr John St. John, through his consultancy company St. John Advisers Ltd, received payments totaling approximately US$1.1 million from the Group for providing consultancy services to the Company. Mr St. John was also historically granted options over ordinary shares in the Company, as disclosed in the Directors Remuneration Report. In the opinion of the Board, these historic option grants, and these payments by the Company to Mr St. John, do not affect the ability of Mr St. John to be independent in character and judgement so as to prevent being considered independent for the purposes of the Combined Code. The Board considers this matter on an annual basis and does not consider Mr St. Johns independence to be compromised. The Board considers Mr St. Johns financial acumen to be important to the discharge of the Boards responsibilities; accordingly his membership of the Board and Chairmanship of the Remuneration Committee is considered by the Board to be desirable and appropriate. For the purposes F-77

of the Combined Code, Mr St. John is considered by the Board to have recent and relevant financial experience. Furthermore, the Board is of the view that these historic option grants, and payments by the Company, do not interfere with his objective, unfettered or independent judgement or affect his ability to act in the best interests of the Company. Peter Bingham Mr Bingham has historically been granted options over ordinary shares in the Company, as disclosed on page 74. The Board considers this matter on an annual basis and does not consider Mr Binghams independence to be compromised. In the opinion of the Board, these historic option grants do not affect the ability of Mr Bingham to be independent in character and judgement so as to prevent him being considered independent for the purposes of the Combined Code. Furthermore, the Board is of the view that these historic option grants do not interfere with his objective, unfettered or independent judgement or affect his ability to act in the best interests of the Company. No further options have been granted to any Non-executive Director following admission to the Official List of the United Kingdom Listing Authority and the Share Option Scheme Rules have been amended to prohibit the award of share options to Non-executive Directors. BOARD COMPOSITION The Board currently has nine members. Of these, four, excluding the Chairman, are Non-executive Directors, who the board consider to be independent. The Board considers that there is an appropriate balance between Executive and Nonexecutive Directors, with a view to governing the business effectively and promoting shareholder interests. The Board considers that the Executive and Non-executive Directors have a range of skills, knowledge and experience necessary to enable them to effectively govern the business. The Non-executive Directors contribute international operational experience; understanding of the sectors in which we operate; knowledge of international capital markets and an understanding of the health, safety, environmental, political and community challenges we face. The Directors are listed below.
Year appointed Year of vacation of office Executive Director Nonexecutive Director

Board member

Egbert Imomoh ...................................................................................... Osman Shahenshah ................................................................................ Toby Hayward ....................................................................................... Peter Bingham ....................................................................................... John St. John ......................................................................................... Ennio Sganzerla ..................................................................................... Shahid Ullah .......................................................................................... Darra Comyn ......................................................................................... Constantine Ogunbiyi ............................................................................ Guido Pas ............................................................................................... BOARD STRUCTURE

2005 2004 2009 2005 2007 2009 2008 2010 2008 2005

X X X X X X X X X 2009 X

The Board is responsible for providing leadership, setting the Groups strategic objectives and key policies, ensuring that appropriate resources are in place to enable the Group to meet its objectives, reviewing the Groups performance and overseeing the Groups internal control systems and is responsible to shareholders for the proper management of the Group. At the end of the period of this report, the Board comprised of a Non-executive Chairman, three Executive Directors and four Non-executive Directors. During the year, in June, one Non-executive Director stepped down (Mr Guido Pas) and two Nonexecutive Directors (Mr Toby Hayward and Mr Ennio Sganzerla) joined the Board. Darra Comyn joined the Board on 24 March 2010 as Executive Director responsible for leading and directing Afrens group-wide finance function. Afren benefits from an experienced Board with extensive African experience and relationships and a broad range of commercial, financial and other relevant experience. Brief biographies are on pages 56 to 57. The Nomination Committee periodically reviews the composition of the Board including the balance between Executive and Non-executive Directors and considers succession planning for both Executive and Non-executive Directors and the Groups senior management. It is also responsible for the process for new Board appointments and makes recommendations to the Board on the appointment of new Directors and is responsible for ensuring that appointments are made on merit and against objective criteria. The Board periodically considers its performance and effectiveness. A performance evaluation of the Board, its committees and its individual members was conducted during 2009 by Mr Osman Shahenshah, with the assistance of senior management. The results were discussed with the Chairman and considered by the Board and were taken into account in the decision to recommend the election of the two Directors and re-election of the two F-78

retiring Directors at the forthcoming Annual General Meeting. The Board is satisfied that each Director continues to contribute effectively and to demonstrate commitment to his role. In making appointments to the Board, the Nomination Committee considers the skills, experience and knowledge of the existing Directors and assesses which of the potential candidates would most benefit the Board. It considers the potential candidates knowledge and experience of Africa, the oil and gas industry in Africa, capital markets and the regulatory environment, and that they have sufficient time to devote to the role. The Chairman ensures that any new Directors are provided with a full induction on joining the Board. Non-executive Directors are appointed for an initial term of three years, which may be extended by mutual agreement subject to satisfactory performance. The letters of appointment of each Nonexecutive Director are available for inspection at the registered office of the Company. The Board meets on at least four occasions during the course of the year to review trading performance and budgets, funding, to set and monitor strategy, examine acquisition opportunities and report to shareholders. The Chairman and Chief Executive hold informal meetings with the Non-executive Directors to discuss issues affecting the Group, such as target objectives, strategy, key performance indicators and remuneration matters. The Board has a formal schedule of matters specifically reserved to it for decisions and responsibility for developing and implementing the Groups strategic and financial objectives is delegated to the senior management of the Group. The roles of Chairman and Chief Executive are separate and the responsibilities of Chairman and Chief Executive are independently defined. It is the Chairmans responsibility to ensure that the principles and processes of the Board are maintained, including the provision of accurate, timely and clear information in relation to the Group and its business. The Chairman is also responsible for encouraging debate and constructive criticism, speaking and acting for the Board and representing the Board to shareholders, and presenting shareholders views to the Board. The Board considers that none of Mr Imomohs other commitments interfere with the discharge of his responsibilities to the Company. The Board is satisfied that he makes sufficient time available to serve the Group effectively. The Group does not have a Deputy Chairman, but has identified Mr Bingham to act as Chairman should the need arise at short notice. The Combined Code recommends that the Board should appoint one of its independent Non-executive Directors to be the senior independent Director. The senior independent Director should be available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive or Chief Operating Officer has failed to resolve or where such contact is inappropriate. Mr Toby Hayward is the Boards existing senior independent Director. The Board has appointed an Audit and Risk Committee, a Remuneration Committee and a Nomination Committee, each of which have defined terms of reference which are summarised below. Terms of Reference of the respective committees are available on request from the Company Secretary, Ms Shirin Johri. Each Committee and each Director has the authority to seek independent professional advice where necessary to discharge their respective duties in each case at Afrens expense. In addition, each Director and Committee has access to the advice of the Company Secretary, Ms Shirin Johri. The Directors collectively have responsibility for the conduct of the Groups business and are expected, wherever possible, to attend all Board meetings, relevant Committee meetings and the Annual General Meeting (AGM). The Board has regular scheduled meetings throughout the year and holds additional meetings as and when necessary. During 2009, the Board met a total of eight times. A table detailing the Directors attendance at each of the Companys Board and Committee meetings during 2009 is set out below. 2009 BOARD AND COMMITTEE MEMBERS ATTENDANCE The number of Board and Committee meetings held during 2009, together with details of each Directors attendance, is set out below:
Audit and Risk Committee Remuneration Committee Nomination Committee

Board

Number of meetings .............................................................................. Egbert Imomoh ...................................................................................... Osman Shahenshah ................................................................................ Toby Hayward(2) .................................................................................... Peter Bingham ....................................................................................... John St. John ......................................................................................... Ennio Sganzerla(4)(8) ............................................................................... F-79

8 8 8 3 7 5 3

7 2(1) 2(3) 7 6 8

9 1 9 9

1(5)

Shahid Ullah .......................................................................................... Constantine Ogunbiyi ............................................................................ Guido Pas(6) ............................................................................................

(1) (2) (3) (4) (5) (6) (7) (8)

8 8 4

4(7)

The composition of the Audit and Risk Committee was reviewed by the Board in July 2009 and Egbert Imomoh stepped down from the Committee at this time. Toby Hayward was appointed a Director of the Company on 26 June 2009. Toby Hayward joined the Audit and Risk Committee on 9 July 2009. Ennio Sganzerla was appointed a Director of the Company on 26 June 2009. Ennio Sganzerla joined the Remuneration Committee on 9 July 2009. Guido Pas stepped down from the Board on 26 June 2009. Guido Pas vacated his position on the Audit and Risk Committee upon his step-down from the Board on 26 June 2009. Ennio Sganzerla was appointed to the Audit and Risk Committee on 3 December 2009. There have been no meetings of the committee between the date of his appointment and the end of the period.

AUDIT AND RISK COMMITTEE Prior to the re-constitution of the Board Committees on 9 July 2009 the members of the Audit and Risk Committee were Mr Peter Bingham (Chairman), Mr John St. John and Mr Egbert Imomoh. Mr Guido Pas was a member of the Committee until he stepped down in June 2009. Mr Egbert Imomoh stepped down from the Committee in July 2009. The Audit and Risk Committee currently comprises Mr Peter Bingham (Chairman), Mr John St. John, Mr Ennio Sganzerla and Mr Toby Hayward. It meets at least three times a year at appropriate times in the reporting and audit cycle of Afren and more frequently if required. The purpose of the Audit and Risk Committee is to assist the Board in fulfilling its responsibilities of oversight and supervision of, among other things: the integrity of the financial statements of Afren including annual and interim reports, financial returns to regulators and announcements of a price- sensitive nature; the adequacy of Afrens internal controls and accountancy policies, including assessing consistency and clarity of disclosure as well as the operating and financial review and corporate governance statement; and the relationship with Afrens external auditor including appointment, remuneration, terms of engagement, assessing independence and objectivity and ultimately reviewing the findings and assessing the standard and effectiveness of the external audit.

The Audit and Risk Committee considers annually how the Groups internal audit requirements shall be satisfied and makes recommendations to the Board accordingly as well as on any area it deems needs improvement or action. The Groups external auditors are Deloitte LLP and the Audit and Risk Committee closely monitors the level of audit and non-audit services they provide to the Group. Non-audit services are normally limited to assignments that are closely related to the annual audit or where the work is of such a nature that a detailed understanding of the Group is necessary. A policy for the engagement of external auditors to supply non-audit services was implemented during the year formalising these arrangements. A breakdown of the fees paid to the external auditors in respect of audit and non-audit work is included in note 7 to the financial statements. In addition to processes put in place to ensure where necessary segregation of audit and non-audit roles, Deloitte LLP are required as part of the assurance process in relation to the audit, to confirm to the Committee that they have both the appropriate independence and objectivity to allow them to continue to serve the members of the Company. This confirmation was given and no matters of concern in relation to the above were identified by the Committee. The Audit and Risk Committee has recommended to the Board that Deloitte LLP is reappointed as external auditor. In making the recommendation it has taken into consideration the independence matters noted above and the past service of the auditors, who were first appointed in 2005 after a full tender process. The Committee has also considered the likelihood of a withdrawal of the auditor from the market and noted that there are no contractual obligations to restrict the choice of external auditor. For the purposes of the Combined Code, Mr Toby Hayward and Mr John St. John are considered by the Board to have recent and relevant financial experience. In addition, the other members of the Committee have a range of financial, commercial and other relevant experience. F-80

NOMINATION COMMITTEE Prior to the re-constitution of the Board Committees on 9 July 2009 the members of the Nomination Committee were Mr Egbert Imomoh (Chairman) and Mr Guido Pas. Mr Guido Pas was a member of the Committee until he stepped down in June 2009. The Nomination Committee currently comprises Mr Egbert Imomoh (Chairman), Mr Ennio Sganzerla and Mr Toby Hayward. The Nomination Committee meets at least once a year and more frequently if required and is responsible for reviewing and recommending to the Board suitable candidates for appointment as Directors of the Company. It regularly reviews the structure, size and composition (including the skills, knowledge and experience) required on the Board. Mr Ennio Sganzerla and Mr Toby Hayward were appointed to the Board following a comprehensive search process. Mr Ennio Sganzerla and Mr Toby Hayward were also interviewed by members of the Board. Both will stand for election, as is the case with all new Board appointments, at the Companys AGM this year. REMUNERATION COMMITTEE Prior to the re-constitution of the Board Committees on 9 July 2009 the members of the Remuneration Committee were Mr John St. John (Chairman), Mr Egbert Imomoh and Mr Peter Bingham. Mr Egbert Imomoh stepped down from the Committee in July 2009. The Remuneration Committee currently comprises Mr John St. John (Chairman), Mr Ennio Sganzerla and Mr Peter Bingham. The Remuneration Committee is responsible for: making recommendations to the Board on Afrens overall framework for remuneration and its cost and in consultation with the Chairman and Chief Executive determining remuneration packages of each Executive Director; reviewing the scale and structure of Executive Directors remuneration and the terms of their service or employment contracts, including share-based schemes, other employee incentive schemes adopted by Afren from time to time and pension contributions. Executive Directors of the Company are not permitted to participate in discussions or decisions of the Committee regarding their own remuneration; and ensuring that payments made on termination are fair to the individual and Afren.

The remuneration of the Non-executive Directors is determined by the Chairman and the other Executive Directors outside the framework of the Remuneration Committee. RELATIONSHIPS WITH SHAREHOLDERS The Board represents the shareholders and is accountable to them for creating and delivering value through the effective governance of the business. The Board remains fully committed to maintaining regular communication with its shareholders. The Board has developed a strategy for engaging and communicating with shareholders, key aspects of which are outlined below. There is regular dialogue with major institutional shareholders and meetings are offered regularly following significant announcements. Press releases have been issued throughout the year and the Company maintains a website (www.afren.com) on which all press releases are posted and which also contains major corporate presentations and the reports and accounts. Additionally, this Annual Report, which is sent to all registered shareholders, contains extensive information about the Groups activities. Enquiries from individual shareholders on matters relating to their shareholdings and the business of the Group are welcomed. Shareholders are also encouraged to attend the Annual General Meeting (AGM) to discuss the progress of the Group and are encouraged to make their views known to us and to raise directly any matters of concern. The Chief Executive and the Investor Relations Team meet regularly with institutional shareholders and investor representatives to discuss our strategy, operating and financial performance. CONFLICT OF INTERESTS The Company amended its Articles of Association in June 2008 to deal with, amongst other things, the provisions on conflicts of interest in the Companies Act 2006 which came into force in October 2008. Following this the Company has put in place procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation of such conflict matters by the Board. In deciding whether to authorise a conflict or potential conflict the Directors must have regard to their general duties under the Companies Act 2006. The procedure operates to ensure the disclosure of conflicts, and for the consideration and if appropriate, the authorisation of them by nonconflicted Directors. The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board. The Nomination Committee supports the Board in this process, both by reviewing requests from Directors for F-81

authorisations of situations of actual or potential conflict and making recommendations to the Board and by reviewing any situations of actual or potential conflict that have been previously authorised by the Board, and making recommendations regarding whether the authorisation remains appropriate. INSURANCE COVER The Company maintains Directors and Officers liability insurance cover, the level of which is reviewed annually. ELECTION AND RE-ELECTION The Board is committed to transparency in determining Board Membership. All new Directors are required by the Companys Articles of Association to be elected by shareholders at the first Annual General Meeting (AGM) after their appointment. Subsequently, Directors are subject to re-election by shareholders every three years. The Directors seeking reelection at the 2010 AGM are Constantine Ogunbiyi, Toby Hayward, John St. John, Ennio Sganzerla and Darra Comyn. COMPANY SECRETARIES Ms Shirin Johri is the Group Company Secretary. The Group Company Secretary is responsible for developing and maintaining the information systems and processes that enable the Board to fulfil its role. The Group Company Secretary is also responsible to the Board for ensuring that Board procedures are complied with and advising the Board on governance matters. All Directors have access to the Company Secretary. Ms Shirin Johri is supported by Mr Elekwachi Ukwu who is Deputy Company Secretary. The Board appoints and removes the Company Secretary. CODE OF BUSINESS CONDUCT At Afren, we uphold the highest ethical standards for the conduct of our business activities. We operate with integrity and honesty throughout the organisation and with all our external stakeholders, namely: governments, business partners, shareholders, contractors and local communities. In March 2009 the Board approved a Code of Business Conduct to formalise Afrens commitment to high ethical standards and to reinforce prompt and consistent action in the maintenance of these standards. Our Code of Business Conduct sets out the standards of business ethics that we expect all employees to adhere to. We are committed to ensuring that our business is conducted ethically, honestly and to high standards. The Code applies to Directors and all employees, regardless of their position or location. Consultants, contractors and business partners are also expected to act in accordance with the Code. The Code of Business Conduct can be found on our website at www.afren.com. INSIDE TRADING The Company has a share dealing code (Code) which covers dealings by Directors, Persons Demonstrating Managerial Responsibilities (PDMR) and relevant employees. This Code complies with the provisions set out in the Model Code contained in Annex 1 to Listing Rule 9 of the UK Listing Authority Listing Rules. The Code restricts dealings in shares and other relevant securities by PDMRs and employees during designated prohibited periods and at any time that they are in possession of unpublished price-sensitive information. MARKET DISCLOSURE We are committed to maintaining the highest standards of disclosure ensuring that all investors and potential investors have the same access to relevant information in an accessible and timely manner to assist them in making informed decisions. Copies of announcements to the market, investor presentations, the Annual Report and other relevant information are published on our website. INTERNAL CONTROLS The Board has applied principle C.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with revised guidance on internal control published in October 2005 (the Turnbull Guidance). The Board is responsible for the Groups system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. In compliance with provision C.2.1 of the Combined Code, the Board regularly reviews the effectiveness of the Groups system of internal control. The Boards F-82

monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purpose of this annual report. This assessment considers all significant aspects of internal control arising during the period covered by the report. The Audit Committee assists the Board in discharging its review responsibilities. During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate. The Board has responsibility for establishing and maintaining the Groups system of internal controls and reviewing their effectiveness. The procedures which include inter alia financial, operational and compliance matters and risk management are reviewed on an ongoing basis. The Board has approved the annual budget. Performance against budget is monitored and reported to the Board. The internal control system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has considered the need for an internal audit function but does not consider it necessary at the current time given the current size and complexity of Group.

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Directors Remuneration Report INTRODUCTION This report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to the Directors remuneration in the Combined Code. As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved. The Act requires the auditors to report to the Companys members on certain parts of the Directors remuneration report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. The report has therefore been divided into separate sections for audited and unaudited information. INFORMATION NOT SUBJECT TO AUDIT REMUNERATION COMMITTEE The members of the Remuneration Committee are Mr John St. John (Chairman), Mr Peter Bingham and Mr Ennio Sganzerla. All are Non-executive Directors. No Director plays a part in any discussion about his or her own remuneration. Executive remuneration packages are designed to attract, motivate and retain Directors of the calibre required to grow the business and enhance value to shareholders. The performance measurement of the Executive Directors and the determination of their annual remuneration package are undertaken by the Committee. Executive Directors are entitled to accept appointments outside the Company providing that the Chairmans permission is sought and fees in excess of 10,000 from all such appointments are accounted for to the Company, except where specific approval is gained from the Board. There are five main elements of the remuneration package for Executive Directors: Basic annual salary Benefits in kind Pension contribution Annual bonus payments Share option incentives or other equity instruments

The Companys policy is that a substantial proportion of the remuneration of the Executive Directors and senior management should be performance related. BASIC SALARY An Executive Directors annual salary is reviewed by the Remuneration Committee prior to the beginning of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee relies on objective research which gives up-to-date information on a comparable group of companies. Basic salaries are reviewed in December, with increases taking effect from 1 January. BENEFITS IN KIND The Executive Directors receive certain benefits in kind, principally private medical insurance, club membership and critical illness cover.

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PENSION CONTRIBUTION UK-based Executive Directors are members of the Company pension scheme. The scheme is a defined contribution scheme and the Company contributes 10% of salary subject to the participant contributing at least 5% of their salary. ANNUAL BONUS PAYMENTS A formal annual cash bonus scheme has been in place since 2006. During 2009 bonuses were awarded to all the Executive Directors serving throughout the relevant period. Details of the Executive Directors bonuses are on page 73. SHARE OPTIONS The Companys policy is to grant options or an alternative share-based incentive on appointment and at regular intervals thereafter. SHARE OPTIONS The 2005 Share Option Scheme was established to incentivise the Directors and staff, aid recruitment to the Company and enable Directors and employees to share in the benefit from the increased market capitalisation of the Company. The Remuneration Committee has responsibility for supervising the scheme and the grant of options under its terms. Options were awarded to the Executive Directors under this scheme as detailed on page 74. Long-term Incentive Plan An alternative share plan was introduced during 2008 to give awards to Directors and staff subject to outperforming a comparator group of similarly focused oil and gas exploration and production companies in terms of shareholder return over a three-year period. The Afren Performance Share Plan awards a number of shares to Directors and staff based on a multiple of salary. However, these shares only vest after a three-year period and the full award is made only if Afren has performed in the top quartile when compared against a selected peer group of upstream oil and gas companies with significant interests in Africa. This group is reviewed prior to each award, but for 2009 consisted of Addax, Bowleven, Gulf Keystone Petroleum, Gulfsands Petroleum, Hardy Oil & Gas, Mart Resources, Petroceltic International, Roc Oil Company, Serica Energy, Soco International, Sterling Energy, Stratic Energy, Tullow Oil and Vaalco Energy. If Afren does not achieve at least median performance in the peer group, no shares will be awarded. At the median level, 30% of the shares will vest and there is a sliding scale between median and top quartile performance where only a percentage of the total award will vest. Awards under this scheme were granted in June 2009 and will vest in June 2012 subject to meeting the performance criteria detailed above. Details of the awards by Director are included on page 75. DIRECTORS CONTRACTS It is the Companys policy that Executive Directors should have contracts of an indefinite term providing for a maximum of one years notice. The details of the Directors contracts are summarised below:
Name of Director Date of contract Notice period

Egbert Imomoh ................... Non-executive Director and Chairman Osman Shahenshah ............. Chief Executive Officer Constantine Ogunbiyi ......... Executive Director Shahid Ullah ....................... Chief Operating Officer Darra Comyn ...................... Group Finance Director NON-EXECUTIVE DIRECTORS

1 January 2009 27 February 2009 12 June 2008 16 April 2008 29 October 2009

3 months 12 months 12 months 6 months 6 months

All Non-executive Directors have specific terms of engagement and their remuneration is determined by the Board based on independent surveys of fees paid to non-executive directors of similar companies. The Chairman, in recognition of his role as both Chairman of a main listed Company and ambassador for the Company, is paid a basic fee of 140,000 p.a. The basic fee paid to each other Non-executive Director is 47,000 p.a. pro rata except the senior Non-executive Director who receives 50,000 p.a. The Non-executive Directors do not participate in the share option scheme, although the awards from 2008 and earlier remain in place, and are not eligible to join the Companys pension scheme.

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TOTAL SHAREHOLDER RETURNS TSR performance since IPO Afren vs. the market The graph shows the relative performance of Afren plc against the AIM Oil & Gas Index, the AIM All Share Index and the Ernst & Young Oil & Gas Index since Afrens IPO. The selected indices give the most appropriate benchmark for other similar-sized oil and gas companies. AUDITED INFORMATION DIRECTORS EMOLUMENTS
Fees/basic salary US$000 Benefits in kind US$000 Pension contributions US$000 Termination payments US$000 Annual bonus US$000 Total 2009 US$000 Total 2008 US$000

Name of Director

Executive Osman Shahenshah ....................... Constantine Ogunbiyi ................... Shahid Ullah ................................. Egbert Imomoh* ........................... Evert Jan Sibinga Mulder ............. Non-executive Egbert Imomoh* ........................... Peter Bingham .............................. John St. John ................................ Guy Pas ......................................... Toby Hayward** .......................... Ennio Sganzerla** ........................ Rilwanu Lukman ..........................

511 341 513 27 1,392 162 62 62 29 33 33 381 1,773

18 5 25 48 19 19 67

51 23 74 74

547 294 520 1,361 1,361

1,127 663 1,058 27 2,875 181 62 62 29 33 33 400 3,275

1,765 899 348 1,049 822 4,883 n/a 75 75 75 410 635 5,518

* **

Egbert Imomoh was paid as an Executive Director until the end of January 2009 and then as Non-executive Chairman. His Chairmans fee includes a housing allowance of US$41,000 for the period. Toby Hayward and Ennio Sganzerla were appointed on 26 June 2009.

Two of the Executive Directors were members of the Companys defined contribution scheme during 2009 (2008: three).

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DIRECTORS EQUITY INTERESTS Share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of the options held and granted during the year under the 2005 Share Option Scheme are as follows:
As at 1 January 2008 As at 31 December 2008 Share price at grant date

Name of Director

Granted

Exercised

Lapsed

Date granted

Exercise price

Exercisable from

Exercisable to

Egbert Imomoh ................................ 400,000 500,000 500,000 600,000 250,000 250,000 250,000 Constantine Ogunbiyi ..................... 100,000 150,000 250,000 200,000 300,000 250,000 750,000 Osman Shahenshah ......................... 1,150,000 850,000 550,000 600,000 416,666 416,667 416,667 Shahid Ullah ..................................... Peter Bingham ................................. 125,000 130,000 28.06.05 28.06.05 125,000 130,000 36p 36p 50p 100p 1,500,000 1,500,000 23.01.09 30.12.09 1,500,000 1,500,000 20.25p 84.75p 23.25p 84.75p 3,000,000 5,800,000 28.06.05 28.06.05 28.06.05 30.05.06 28.03.07 28.03.07 28.03.07 23.01.09 30.12.09 1,150,000 850,000 550,000 600,000 416,666 416,667 416,667 3,000,000 5,800,000 36p 36p 36p 63p 53.5p 53.5p 53.5p 20.25p 84.75p 20p 50p 100p 63p 80p 120p 180p 23.25p 84.75p 1,250,000 2,750,000 28.06.05 28.06.05 28.06.05 30.05.06 26.06.07 25.04.08 25.04.08 23.01.09 30.12.09 100,000 150,000 250,000 200,000 300,000 250,000 750,000 1,250,000 2,750,000 36p 36p 36p 63p 67.5p 144.5p 144.5p 20.25p 84.75p 20p 50p 100p 63p 70p 150p 190p 23.25p 84.75p 750,000 28.06.05 28.06.05 28.06.05 30.05.06 28.03.07 28.03.07 28.03.07 23.01.09 400,000 500,000 500,000 600,000 250,000 250,000 250,000 750,000 36p 36p 36p 63p 53.5p 53.5p 53.5p 20.25p 20p 50p 100p 63p 80p 120p 180p 23.25p

28.06.0501.03.07 28.06.0501.03.06 28.06.0501.03.07 30.05.0730.05.09 28.03.0728.03.10 28.03.0728.03.10 28.03.0728.03.10 23.01.1023.01.12 28.06.0501.03.07 28.06.0501.03.06 28.06.0501.03.07 30.05.0730.05.09 26.06.0826.06.10 25.04.0925.04.11 25.04.0925.04.11 23.01.1023.01.12 30.12.1030.12.12 28.06.0501.03.07 28.06.0501.03.06 28.06.0501.03.07 30.05.0730.05.09 28.03.0728.03.10 28.03.0728.03.10 28.03.0728.03.10 23.01.1023.01.12 30.12.1030.12.12 23.01.1023.01.12 30.12.1030.12.12 28.06.0501.03.06 28.06.0501.03.07

27.06.15 27.06.15 27.06.15 29.05.16 27.03.17 27.03.17 27.03.17 23.01.19 27.06.15 27.06.15 27.06.15 29.05.16 25.06.17 25.04.18 25.04.18 23.01.19 30.12.19 27.06.15 27.06.15 27.06.15 29.05.16 27.03.17 27.03.17 27.03.17 23.01.19 30.12.19 23.01.19 30.12.19 27.06.15 27.06.15

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145,000 Guy Pas* ................................................ 125,000 130,000 145,000 John St. John................................... Darra Comyn ................................... Total ................................................... * Stepped down June 2009. 400,000 10,350,000

16,550,000

(125,000) (145,000) (270,000)

21.06.07 28.06.05 28.06.05 21.06.07 21.06.07

145,000 130,000 400,000 26,630,000

69p 36p 36p 69p 69p

70p 50p 100p 70p 70p

21.06.0721.06.08 28.06.0501.03.06 28.06.0501.03.07 21.06.0721.06.08 21.06.0721.06.09

20.06.17 27.06.15 27.06.15 20.06.17 20.06.17

There have been no variations to the terms and conditions or performance criteria for the share options during the financial year. The options issued on 28 June 2005, 28 March 2007, 25 April 2008 and those issued to Peter Bingham and Guido Pas on 21 June 2007 have no performance criteria attached to them. Those issued to John St. John on 21 June 2007 only vest if a closing share price for the Company of over 1.00 has been achieved for a three-month period. The options issued on 30 May 2006 will only vest if the share price has increased by 40% over the market price at date of grant for a period of ten days. The options issued on 23 January 2009 and 30 December 2009 will only vest if the share price has increased by 40% over the market price at date of grant for a period of three months. Guy Pas exercised 125,000 options at 80.25p in October 2009 and 145,000 options at 94.5p in November 2009, making a nominal gain before tax of 30.25p per share and 24.5p per share respectively. LONG-TERM INCENTIVE PLAN On 1 June 2008, awards were made to Afren Directors and employees under the Afren Performance Share Plan. Shares were awarded to each member of the scheme that will vest in full only if Afren achieves top quartile performance against its peers of oil and gas upstream companies with significant interests in Africa over a three-year period, based on Total Shareholder Return (TSR). No shares will vest if Afren does not at least perform at the median level. At the median level, 30% of the shares will vest and there is a straight-line calculation between the median level and the top quartile. Awards to date under this scheme were as follows:
Date of award Date of vesting Market price at date of award Maximum number of shares

01.06.2008 01.06.2011 1.66 361,446 19.06.2009 19.06.2012 0.43 1,526,012 Constantine Ogunbiyi ............................................................................ 01.06.2008 01.06.2011 1.66 240,964 19.06.2009 19.06.2012 0.43 1,017,341 Shahid Ullah .......................................................................................... 19.06.2009 19.06.2012 0.43 1,322,600 Egbert Imomoh ...................................................................................... 01.06.2008 01.06.2011 1.66 271,084 The closing market price of the ordinary shares at 31 December 2009 was 85p and the range during the year was 13.5p to 98p. FOUNDERS SCHEME As presented to the AGM in June 2007, a Founders Scheme was introduced. Under this scheme the Founders of Afren undertook to invest a total of US$5.0 million equivalent in Afren shares prior to 30 September 2008 and were granted a total of 40 million warrants at an exercise price of 1.60 per share but only if the share price has reached 2.50 for at least 30 days (an increase of 56% above the exercise price). The shares were purchased at an average price of 1.28 and the agreements were finalised in January 2009. As highlighted last year, the warrant agreements included anti-dilution clauses and, following the shares issued in April 2009, there was a subsequent repricing of the warrants to an exercise price of 0.3795 and a target price of 56% higher than the revised exercise price (0.592). Following the subsequent increase in the share price, these warrants were exercised as part of the placing in December 2009. The shares are subject to a retention clause such that, other than for the settling of certain tax and dealing costs at exercise of the warrants, the Founders are required to hold the shares for a minimum of one year. Details of the exercises and gains in relation to Directors are presented below: F-88

Osman Shahenshah ................................................................................

Date of award

Exercise Date

Number of warrants

Revised strike price per share

Price on exercise per share

Gain on exercise per share

Osman Shahenshah ....................................... Constantine Ogunbiyi ................................... Shahid Ullah ................................................. Egbert Imomoh ............................................. SHARES ON JOINING

01.01.2009 01.01.2009 01.01.2009 01.01.2009

03.12.2009 12,000,000 03.12.2009 4,000,000 03.12.2009 4,000,000 03.12.2009 6,000,000

0.3795 0.3795 0.3795 0.3795

0.8100 0.8100 0.8100 0.8100

0.4305 0.4305 0.4305 0.4305

On joining in April 2008, Shahid Ullah was granted 2,025,000 shares to be issued at nominal consideration subject to certain time constraints. Of these, 1,462,500 were issued during 2009 with 187,500 outstanding as at 31 December 2009. These final shares were all issued in January 2010. APPROVAL This report was approved by the Board of Directors on 29 March 2010 and signed on its behalf by: Mr John St. John Chairman, Remuneration Committee 29 March 2010

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Statement Of Directors Responsibilities The Directors are responsible for preparing the Annual Report, Directors Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. The Directors are required by the IAS Regulation to prepare the Group financial statements under International Financial Reporting Standards (IFRS) as adopted by the European Union and have also elected to prepare the Parent Company financial statements in accordance with IFRS as adopted by the European Union. The financial statements are also required by law to be properly prepared in accordance with the Companies Act 2006 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Companys financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Boards Framework for the preparation and presentation of financial statements. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, Directors are also required to: properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entitys financial position and financial performance.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Companys website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors responsibility statement I confirm to the best of my knowledge: 1. the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the management report, which is incorporated into the Directors Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2.

By order of the Board Osman Shahenshah Chief Executive Officer 29 March 2010

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Independent Auditors Report To The Members Of Afren Plc We have audited the financial statements of Afren plc for the year ended 31 December 2009 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Equity and the related notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Companys members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As explained more fully in the Directors Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards (APBs) Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groups and the Parent Companys circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. OPINION ON FINANCIAL STATEMENTS In our opinion: the financial statements give a true and fair view of the state of the Groups and of the Parent Companys affairs as at 31 December 2009 and of the Groups loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion: the part of the Directors Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following: F-91

Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements and the part of the Directors Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review: the Directors statement contained within the Directors Report in relation to going concern; and the part of the Corporate Governance Statement relating to the Companys compliance with the nine provisions of the June 2008 Combined Code specified for our review.

David Paterson (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, UK 29 March 2010

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Group Income Statement For the year ended 31 December 2009

2009 US$000s Restated* 2008 US$000s

Notes

Revenue ..................................................................................................................... Cost of sales ............................................................................................................... Gross profit/(loss)..................................................................................................... Administrative expenses ............................................................................................ Other operating income/(expenses) derivative financial instruments ............................................................................. impairment reversal/(charge) on oil and gas assets................................................ Operating profit/(loss) ............................................................................................. Investment revenue .................................................................................................... Finance costs.............................................................................................................. Other gains and (losses) foreign currency losses .......................................................................................... fair value of financial liabilities and financial assets ............................................. impairment reversal/(charge) on available for sale investments ............................ Share of loss of an associate ...................................................................................... Profit/(loss) before tax ............................................................................................. Income tax expense.................................................................................................... Loss after tax ............................................................................................................ Loss per share Basic and diluted........................................................................................................
* See note 31.

335,818 (230,036) 105,782 (27,215) (33,635) 859 45,791 626 (36,950) (2,770) (5,034) 97 (1,277) 483 (17,261) (16,778) 2.6

42,501 (70,537) (28,036) (32,491) 54,682 (38,212) (44,057) 5,286 (25,760) (15,382) 26,607 (2,296) (55,602) (520) (56,122) 15.0

21 6 7 9 10 21 14 15 28

11

F-93

Group Statement Of Comprehensive Income For the year ended 31 December 2009
2009 US$000s Restated* 2008 US$000s

Loss after tax ................................................................................................................................. Redesignation of warrants as financial liabilities............................................................................ Revaluation of available for sale investments................................................................................. Exchange differences arising on consolidation ............................................................................... Total comprehensive loss attributable to equity holders of Afren plc......................................
* See note 31.

(16,778) (16,778)

(56,122) (27,106) (472) 2,188 (81,512)

F-94

Balance Sheets As at 31 December 2009

Group Restated 2008 US$000s Company 2007 US$000s 2009 US$000s 2008 US$000s

Notes Assets Non-current assets Intangible oil and gas assets ............................................................................ Property, plant and equipment oil and gas assets ......................................................................................... other ............................................................................................................. Prepayments .................................................................................................... Investments in subsidiaries ............................................................................. Derivative financial instruments ..................................................................... Available for sale investments ........................................................................ Investments in associates ................................................................................ Current assets Inventories ....................................................................................................... Trade and other receivables ............................................................................ Derivative financial instruments ..................................................................... Cash and cash equivalents ............................................................................... Total assets ..................................................................................................... Liabilities Current liabilities Trade and other payables................................................................................. Borrowings ...................................................................................................... Derivative financial instruments ..................................................................... Net current assets/(liabilities) ....................................................................... Non-current liabilities Deferred tax liabilities ..................................................................................... Provision for decommissioning....................................................................... Borrowings ...................................................................................................... Derivative financial instruments ..................................................................... Total liabilities ............................................................................................... Net assets ........................................................................................................ Equity Share capital .................................................................................................... Share premium ................................................................................................ Other reserves .................................................................................................. Accumulated losses ......................................................................................... Total equity .................................................................................................... * See note 31.

2009 US$000s

12 13 13 18 14 21 14 15

184,161 486,672 6,996 3,383 2,153 604 683,969 34,564 55,614 4,523 321,312 416,013 1,099,982

213,933 465,644 5,813 4,783 20,354 211 710,738 13,276 51,247 29,161 117,719 211,403 922,141

49,656 140,926 1,545 3,183 1,475 196,785 3,090 9,443 91,783 104,316 301,101

2,711 54,128 604 57,443 485,415 203,117 688,532 745,975

2,299 50,412 211 52,922 334,859 39,106 373,965 426,887

16 18 21 19

20 21 21

(134,739) (117,634) (5,240) (257,613) 158,400 (12,460) (21,836) (149,446) (379) (184,121) (441,734) 658,248 15,702 755,169 17,272 (129,895) 658,248

(145,755) (111,218) (256,973) (45,570) (20,276) (293,946) (314,222) (571,195) 350,946 8,806 446,958 18,173 (122,991) 350,946

(38,611) (1,408) (40,019) 64,297 (146,691) (4,575) (151,266) (191,285) 109,816 5,365 146,245 16,872 (58,666) 109,816

(61,226) (61,226) 627,306 (61,226) 684,749 15,702 755,169 19,706 (105,828) 684,749

(37,749) (37,749) 336,216 (37,749) 389,138 8,806 446,958 20,607 (87,233) 389,138

25 22 21 21

27 27 32 33

The financial statements of Afren plc, registered number 05304498 were approved by the Board of Directors and authorised for issue on 29 March 2010. They were signed on its behalf by: Osman Shahenshah Chief Executive 29 March 2010

F-95

Cash Flow Statements For the year ended 31 December 2009

Group Restated* 2008 2009 US$000s US$000s Company 2009 US$000s 2008 US$000s

Notes

Operating profit/(loss) for the year .................................................................... Depreciation, depletion and amortisation .......................................................... Derivative financial instruments ........................................................................ Impairment of oil and gas assets ........................................................................ Provision for inventoriesspare parts............................................................... Share-based payments charge ............................................................................ Operating cash flows before movements in working capital ............................. Decrease/(increase) in trade and other operating receivables ............................ Increase in trade and other operating payables .................................................. Increase in inventory (crude oil) ........................................................................ Currency translation adjustments ....................................................................... Net cash generated/(used) in operating activities .......................................... Purchases of property, plant and equipment: oil and gas assets............................................................................................ other ............................................................................................................... Exploration and evaluation expenditure ............................................................ Advances to Group undertakings ....................................................................... Investment in subsidiaries.................................................................................. Increase in inventoriesspare parts .................................................................. Purchase of investments .................................................................................... Investment revenue ............................................................................................ Completion payment on 2008 acquired subsidiaries.......................................... Acquisition of subsidiaries, net of cash acquired ............................................... Net cash used in investing activities................................................................ Issue of ordinary share capital ........................................................................... Costs of share issues .......................................................................................... Proceeds from borrowings ................................................................................. Borrowing costs ................................................................................................. Incentive paid on early conversion of bonds...................................................... Repayment of borrowings.................................................................................. Interest and financing fees paid ......................................................................... Net cash provided by financing activities....................................................... Net increase in cash and cash equivalents ......................................................... Cash and cash equivalents at beginning of year ................................................. Effect of foreign exchange rate changes ............................................................ Cash and cash equivalents at end of year ...........................................................
* See note 31.

30

45,791 154,783 48,458 (859) 9,292 257,465 533 31,761 (11,588) 117 278,288

(44,057) 30,030 (55,499) 38,212 1,206 10,819 (19,289) (25,149) 22,498 (5,608) 737 (26,811)

(28,407) 862 6,767 (20,778) (1,416) 16,744 76 (5,374)

(45,786) 632 6,691 (38,463) (7,550) 30,861 710 (14,442)

(97,810) (224,297) (1,274) (3,770) (5,115) (2,051) (90,365) (62,396) (133,312) (175,788) (4,060) (10,761) (9,700) (2,709) (1,815) (1,501) (1,815) (1,501) 599 5,349 521 4,529 (6,198) (168,749) 31 (209,059) (459,418) (139,940) (185,572) 326,969 238,313 326,969 238,313 (14,236) (7,663) (14,236) (7,663) 362,502 (11,597) (9,332) (9,332) (148,447) (29,032) (26,870) (16,282) (49) (7,399) 137,416 526,909 312,684 213,919 206,645 40,680 167,370 13,905 117,719 91,783 39,106 39,937 (3,359) (14,736) (3,052) (14,744) 321,312 117,719 203,117 39,106 19

In 2008 a material non-cash transaction occurred, being the early conversion of the Groups convertible bonds (see note 23).

F-96

Statements Of Changes In Equity For the year ended 31 December 2009

Share capital US$000s Share premium account US$000s Other reserves US$000s Accumulated losses US$000s Total equity US$000s

Group At 1 January 2008 .............................................................. Issue of share capital .......................................................... Issue of loan notes ............................................................. Deductible costs of share issues......................................... Redesignation of warrants as financial liabilities............... Conversion of bonds into shares ........................................ Share-based payments for services .................................... Other share-based payments .............................................. Reserves transfer relating to convertible bonds ................. Reserves transfer on exercise of options ............................ Revaluation of available for sale investments.................... Other movements ............................................................... Translation differences ...................................................... Net loss for the year (restatednote 31) ........................... Balance at 31 December 2008 ......................................... Issue of share capital .......................................................... Deductible costs of share issues......................................... Share-based payments for services .................................... Other share-based payments .............................................. Reserves transfer relating to loan notes ............................. Reserves transfer on exercise of options, awards and LTIP ....................................................................................... Reserves transfer on exercise of warrants .......................... Other movements ............................................................... Net loss for the year ........................................................... Balance at 31 December 2009 ......................................... Company At 1 January 2008 .............................................................. Issue of share capital .......................................................... Deductible costs of share issues......................................... Issue of loan notes, net of costs ......................................... Share-based payments for services .................................... Other share-based payments .............................................. Redesignation of warrants as financial liabilities............... Conversion of bonds into shares ........................................ Reserves transfer relating to convertible bonds ................. Reserves transfer on exercise of options ............................ Revaluation of available for sale investment ..................... Exchange differences ......................................................... Other movements ............................................................... Net loss for the year ........................................................... Balance at 31 December 2008 ......................................... Issue of share capital .......................................................... Deductible costs of share issues......................................... Share-based payments for services .................................... Reserves transfer on exercise of options, awards, warrants and LTIP ........................................................................ Reserves transfer relating to loan notes ............................. Other share-based payments .............................................. Other movements ............................................................... F-97

5,365 2,021 1,420 8,806 6,896 15,702 5,365 2,021 1,420 8,806 6,896

146,245 238,537 (7,663) 69,839 446,958 322,447 (14,236) 755,169 146,245 238,537 (7,663) 69,839 446,958 322,447 (14,236)

16,872 7,350 (3,395) (9,500) 10,701 118 (1,789) (3,849) (472) (51) 2,188 18,173 9,197 95 (2,312) (4,792) (2,770) (319) 17,272 19,340 7,350 10,701 118 (3,395) (9,500) (1,789) (3,849) (472) 2,154 (51) 20,607 9,197 (7,562) (2,312) 95 (319)

(58,666) (23,711) 9,500 1,789 3,849 370 (56,122) (122,991) 2,312 4,792 2,770 (16,778) (129,895) (32,188) (23,711) 9,500 1,789 3,849 370 (46,842) (87,233) 7,562 2,312

109,816 240,558 7,350 (7,663) (27,106) 71,259 10,701 118 (472) 319 2,188 (56,122) 350,946 329,343 (14,236) 9,197 95 (319) (16,778) 658,248 138,762 240,558 (7,663) 7,350 10,701 118 (27,106) 71,259 (472) 2,154 319 (46,842) 389,138 329,343 (14,236) 9,197 95 (319)

Net loss for the year ........................................................... Balance at 31 December 2009 .........................................

15,702

755,169

19,706

(28,469) (105,828)

(28,469) 684,749

F-98

Notes To The Consolidated Financial Statements For the year ended 31 December 2009 1. GENERAL INFORMATION

Afren plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on the inside back cover. The nature of the Groups operations and its principal activities are set out in note 4 and in the Chairman and Chief Executives Statement and Review of Operations on pages 14 to 43. These financial statements are presented in US dollars. Foreign operations are included in accordance with the policies set out in note 2. Adoption of new and revised Standards In the current financial year, the Group has adopted International Financial Reporting Standard 8 Operating Segments, International Accounting Standard 1 Presentation of Financial Statements (revised 2007) and International Accounting Standard 23 Borrowing Costs (March 2007). IFRS 8 requires disclosure of information about the Groups operating segments and replaces the requirement to determine primary and secondary reporting segments of the Group. Adoption of this Standard did not have any effect on the financial position or performance of the Group. The Group determined that the operating segments were the same as the geographical segments previously identified at 31 December 2008 under IAS 14 Segmental Reporting. IAS 1 (revised) separates owner and non-owner changes in equity. The statement of changes in equity includes only transactions with owners, with non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income; it presents all items of recognised income and expense, either in one single statement, or into two linked statements. The Group has elected to present two statements. In addition IAS 1 (revised) requires a statement of financial position as at the beginning of the earliest comparative period to be included in the primary statements when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. The finalisation of the provisional fair values in respect of the acquisition of the Groups Cte dIvoire interests described in Note 31 triggers this requirement. However only the notes impacted by this reallocation, being Note 4, Note 12 and Note 13, have been re-presented as at 31 December 2007. IAS 23 (March 2007) had no impact on the Group, as the Group already capitalised borrowing costs directly attributable to the construction of qualifying assets under its previous accounting policies. At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but are not yet effective: IFRS 1 (amended)/IAS 27 (amended) ......... IFRS 1 (amended)* ...................................... IFRS 2 (amended)* ...................................... IFRS 3 (revised 2008) .................................. IFRS 9* ........................................................ IAS 24 (revised 2009)* ................................ IAS 27 (revised 2008) .................................. IAS 28 (revised 2008) .................................. IAS 32 (amended)* ...................................... IFRIC 14 (amended) .................................... IFRIC 17 ...................................................... IFRIC 18 ...................................................... IFRIC 19* ....................................................
* Not yet endorsed by EU.

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Additional Exemptions for First-time Adopters Group Cash-settled Share-based Payment Transactions Business Combinations Financial Instruments Related Party Disclosures Consolidated and Separate Financial Statements Investment in Associates Classification of Rights Issues Prepayment of a Minimum Funding Requirement Distributions of Non-cash Assets to Owners Transfers of Assets from Customers Extinguishing Financial Liabilities with Equity Instruments

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial position of the Group except for treatment of acquisition of subsidiaries when IFRS 3, IAS 27 (revised 2008) and IAS 28 (revised 2008) come into effect for business combinations for which the acquisition date is on or after 1 January 2010.

F-99

2.

ACCOUNTING POLICIES

Functional and presentation currencies The Companys subsidiaries all have US dollar functional currencies. In July 2008, the sterling denominated convertible bond held in Afren plc converted into shares and following this, Afren management reviewed the functional currency of the holding company and concluded that it should be changed from pounds sterling to US dollars, aligning it with all the major subsidiaries in the Group. The majority of the Companys transactions, in value, and assets and liabilities are now in US dollars and hence it was appropriate to change the functional currency. Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments and oil inventory subject to certain commodity swap arrangements that have been measured at fair value. Going concern The financial statements have been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting takes into consideration the Groups current and forecast financing position, additional details of which are provided in the Going Concern section of the Directors Report. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the 31 December each year. Control is achieved where the Company has the power to govern the financial and operational policies of an entity so as to gain benefit from its activities. Entities over which the Company exercises joint control are accounted for using proportional consolidation, under which the Group records its share of revenue, expenditure, assets and liabilities. As a consolidated Group income statement is published, a separate profit and loss account for the Parent Company has not been published in accordance with section 408 of the Companies Act 2006. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisitions is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Property, plant and equipmentother Property, plant and equipment are stated at cost less depreciation and any provision for impairment. Depreciation is provided at rates calculated to write off the cost of the tangible fixed assets, less anticipated disposal proceeds, on a straight-line basis over their estimated useful economic life as follows: Leasehold improvements ........................................................................................... F-100 over life of lease

Fixtures and equipment.............................................................................................. Computer hardware and software .............................................................................. Gas plant .................................................................................................................... Exploration, evaluation and oil and gas assets

over three years over three years over six and a quarter years

The Group follows the successful efforts method of accounting for exploration and evaluation (E&E) costs. All licence acquisition, exploration and evaluation costs are initially capitalised as intangible fixed assets in cost centres by field or exploration area, as appropriate, pending determination of commerciality of the relevant property. Directly attributable administration costs are capitalised insofar as they relate to specific exploration activities. Pre-licence costs and general exploration costs not specific to any particular licence or prospect are expensed as incurred. If prospects are deemed to be impaired (unsuccessful) on completion of the evaluation, the associated costs are charged to the income statement. If the field is determined to be commercially viable, the attributable costs are transferred to property, plant and equipment in single field cost centres. These costs are then depreciated on a unit of production basis. All field development costs are capitalised as property, plant and equipment. Property, plant and equipment related to production activities are amortised in accordance with the Groups depletion and amortisation accounting policy. Revenues Revenue represents the sales value, net of VAT and royalties paid in kind or where the financial obligation does not fall directly to Afren, of the Groups share of oil liftings in the year together with gas and tariff income and interest income. Oil and gas revenue is recognised when goods are delivered and title has passed. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount. Commercial reserves Commercial reserves are proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as a proven and probable reserves and a 50% statistical probability that it will be less. Depletion and amortisationoil and gas assets All expenditure carried within each field is amortised from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field-by-field basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. Where there has been a change in economic conditions that indicates a possible impairment in a discovery field, the recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future cash flows based on managements expectations of future oil and gas prices and future costs. Any impairment identified is charged to the income statement as additional depletion and amortisation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been charged since the impairment. Decommissioning Provision for decommissioning is recognised in full when the related facilities are installed. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related property, plant and equipment. The amount recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the decommissioning is included as a finance cost. F-101

Impairment Non-current assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such triggering events are defined in IFRS 6 in respect of E&E assets and include the point at which determination is made as to whether commercial reserves exist. Where there has been an indication of a possible impairment, management assesses the recoverability of the carrying value of the asset by comparison with the estimated discounted future net cash flows based on managements expectation of future production, oil prices and costs. Any identified impairment is charged to the income statement. Investment in subsidiaries Investment in subsidiaries held by the Company as fixed assets are stated at cost less any provision for permanent diminution of value. Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency, which is the US dollar for the majority of the subsidiaries). For the purpose of consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, the presentational currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entitys functional currency (foreign currencies) are recorded at the rate of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Exchange differences arising are included in the profit and loss for the period. For the purposes of presenting consolidated financial statements, the assets and liabilities of each Group company are translated into US dollars at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are classified as equity and transferred to the Groups translation reserve. Such translation differences are recognised as income or as expense in the period in which the operation is disposed of. Operating leases Rentals under operating leases are charged to the income statement on a straight-line basis over the period of the relevant lease. Taxation The tax expense represents the sum of tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the rates of tax expected to apply in the period when the liability is settled or the asset realised. Share-based payments The Group makes equity-settled share-based payments to certain employees and other third parties. Equity-settled share-based schemes are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of F-102

grant, measured by use of an option valuation model. The expected life used in the model has been adjusted, based on managements best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the period to exercise, based on the Groups estimate of shares that will eventually vest. The Company is liable for Employers National Insurance on the difference between the market value at date of exercise and exercise price. This expense is accrued by reference to the share price of the Company at the balance sheet date. Pensions Payments to a defined contribution pension scheme are charged as an expense as they fall due. Inventories Inventories (spare parts) are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less costs to be incurred in marketing, selling and distribution. Inventories (oil and butane inventories) are stated at the lower of cost and net realisable value other than certain oil inventory in Cte dIvoire, which is settled via a reduction in the amount recoverable in respect of realised gas sales from the Lion Gas Plant. The inventory subject to this swap is recorded at its fair value. Finance costs and debt Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Financial costs of debt are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition of the liability and are amortised and charged to the income statement as finance costs over the term of the debt. Financial Instruments Financial assets and financial liabilities are recognised on the Groups balance sheet when the Group becomes party to the contractual provision of the instrument. Derivative financial instruments The Group has entered into swaps and call options to economically protect against exposures to variability in the price of a proportion of Okoro and Cte dIvoire crude oil production for 2008 to 2012. Derivative financial instruments are stated at fair value. The gains and losses arising out of changes in fair value of these derivative financial instruments together with settlements in the period are accounted for in other operating income/(expense) in the income statement in the period in which they are incurred. Available for sale investments Available for sale investments are initially measured at cost, including transaction costs. Gains and losses arising from changes in fair value of available for sale investments are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Trade receivables Trade receivables are measured at initial recognition at their fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired.

F-103

Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Trade payables Trade payables are stated at their fair value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs. Investment in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated using the equity method of accounting except when classified as held for sale. Investments in associates are carried in the balance sheet at cost as adjusted by post acquisition changes in the Groups share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Groups interest in that associate (which includes any long-term interests that, in substance, form part of the Groups net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Groups share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any deficiency of the cost of acquisition below the Groups share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the period of acquisition. Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Groups interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred, in which case appropriate provision is made for impairment. Convertible bonds Convertible bonds are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Groups accounting policies, which are described in note 2, management has made the following judgements that may have a significant effect on the amounts recognised in the financial statements.

F-104

Oil and gas assets Management is required to assess the oil and gas assets for indicators of impairment. Note 13 discloses the carrying value of tangible oil and gas assets. As part of this assessment, management has carried out an impairment test (ceiling test) on the tangible oil and gas assets (Okoro Setu, Ebok and Cte dIvoire assets). This test compares the carrying value of the assets at the balance sheet date with the expected discounted cash flows from each project. For the discounted cash flows to be calculated, management has used a production profile based on its best estimate of proven and probable reserves of the assets and a range of assumptions, including an internal oil price profile benchmarked to mean analysts consensus and a 10% discount rate which, taking into account other assumptions used in the calculation, management considers to be reflective of the risks. Intangible assets Management is required to assess impairment in respect of intangible exploration assets. Note 12 discloses the carrying value of such assets. The triggering events are defined in IFRS 6. In making the assessment, management is required to make judgements on the status of each project and the future plans towards finding commercial reserves. Share-based payments Management is required to make assumptions in respect of the inputs used to calculate the fair values of share-based payment arrangements. Details of these can be found in note 30. Fair value of Cte dIvoire acquisition The assets and liabilities in Cte dIvoire acquired during 2008 have been recorded at fair value at the completion date, as outlined further in note 31. The estimates of such fair values required significant judgement to be applied, particularly in respect of oil and gas assets, inventory and decommissioning provisions. During 2009 the Group made certain amendments to the provisional fair values adopted at acquisition, as further described in note 31. Decommissioning The Group has decommissioning obligations in Nigeria and Cte dIvoire. The extent to which a provision is required depends on the legal requirements at the date of decommissioning, the costs and timing of work and the discount rate to be applied. Financial risk management In respect of financial risk management, at the balance sheet date, the Groups principal financial assets are cash and cash equivalents, trade and other receivables and its derivative asset. The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due. The Group uses projected cash flows to monitor funding requirements for the Groups activities. Additional details in respect of the Groups financing facilities are in note 21. The Groups exposure to the risk of changes in market interest rates is mitigated by regular reviews of available fixed and variable rate debts and taking the most favourable for the Groups needs. The interest on borrowings from BNP Paribas, Sojitz and FCMB is based on LIBOR plus a margin and therefore the interest charged is affected by movement in LIBOR. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group. The Groups business is diversified in terms of both region and the number of counterparties and, other than transactions with major oil companies with high credit rating and government organisations in Cte dIvoire, the Group does not have significant exposure to any single counterparty or group of counterparties with similar characteristics. The credit risk on cash is limited because the majority is deposited with banks with good credit ratings assigned by international credit rating agencies or with governmental guarantee. The Groups total maximum exposure to credit risk as at 31 December 2009 was US$384 million made up of cash and bank balances, derivative financial instruments and trade and other receivables. F-105

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009 4. SEGMENTAL REPORTING

Operating segments For management purposes, the Group currently operates in three geographical markets: Nigeria, Cte dIvoire and Other West Africa. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group. The 2008 results were restated in certain respects, as described further in note 31.
Nigeria US$000s Cte dIvoire US$000s Other West Africa US$000s Unallocated US$000s Consolidated US$000s

2009

Sales revenue by origin ...................................................... Operating gain/(loss) before derivative financial instruments..................................................................... Derivative financial instruments losses ............................. Segment result ................................................................... Investment revenue ............................................................ Finance costs...................................................................... Other gains and lossesimpairment reversal on available for sale investment ......................................................... Other gains and lossesfair value of financial assets and liabilities ........................................................................ Other gains and lossesforeign currency losses ............... Share of loss of an associate .............................................. Profit before tax ............................................................... Income tax expense............................................................ Profit after tax .................................................................. Segment assetsnon-current ............................................ Segment assetscurrent .................................................... Segment liabilities ............................................................. Capital additionsoil and gas assets ................................. Capital additionsexploration and evaluation .................. Capital additionsother .................................................... Depletion, depreciation and amortisation .......................... Impairment reversal/(charge) on oil and gas assets ........... Impairment reversal of available for sale investments .......

292,111 93,157 (15,346) 77,811

43,707 7,554 (18,289) (10,735)

3,576 3,576

(24,861) (24,861)

335,818 79,426 (33,635) 45,791 626 (36,950) 97 (5,034) (2,770) (1,277) 483 (17,261) (16,778) 683,969 416,013 (441,734) 82,908 67,265 3,808 (154,783) 859 97
Consolidated US$000s

448,785 158,764 (233,027) 76,502 59,135 2,352 (135,595) (2,705)

Nigeria US$000s

168,796 27,940 (139,795) 6,406 1,447 123 (18,226)

Cte dIvoire US$000s

62,884 21,373 (8,824) 6,683 3,564

Other West Africa US$000s

3,504 207,936 (60,088) 1,333 (962) 97

Unallocated US$000s

2008

Sales revenue by origin ...................................................... Operating loss before derivative financial instruments ...... Derivative financial instruments gains............................... Segment result ................................................................... Impairment charge on available for sale investment.......... Investment revenue ............................................................ Finance costs...................................................................... Other gains and lossesfair value of financial liabilities.. Other gains and lossesforeign currency losses ............... Loss before tax ................................................................. Income tax expense............................................................ Loss after tax .................................................................... Segment assetsnon-current ............................................ Segment assetscurrent .................................................... Segment liabilities ............................................................. Capital additionsoil and gas assets .................................

37,117 (33,458) 13,338 (20,120)

5,384 (7,445) 41,344 33,899

(29,013) (29,013)

(28,823) (28,823)

451,955 87,208 (351,655) 280,076 F-106

195,469 42,242 (160,628) 107

60,576 20,323 (18,008)

2,738 61,630 (40,904)

42,501 (98,739) 54,682 (44,057) (2,296) 5,286 (25,760) 26,607 (15,382) (55,602) (520) (56,122) 710,738 211,403 (571,195) 280,183

Capital additionsoil and gas assets (acquisition of subsidiaries) ................................................................... Capital additionsexploration and evaluation .................. Capital additionsexploration and evaluation (acquisition of subsidiaries) ............................................................... Capital additionsother .................................................... Depletion, depreciation and amortisation .......................... Impairment on oil and gas assets ....................................... Impairment of available for sale investments ....................

51,866 2,703 (25,295) (9,222)

Nigeria US$000s

79,304 387 100,626 561 (4,092)

Cte dIvoire US$000s

43,566 (28,990)
Other West Africa US$000s

2,293 (643) (2,296)

Unallocated US$000s

79,304 95,819 100,626 5,557 (30,030) (38,212) (2,296)

Consolidated US$000s

2007

Segment assetsnon-current ............................................ 148,433 45,999 2,353 196,785 Segment assetscurrent .................................................... 61,752 63 42,501 104,316 Segment liabilities ............................................................. (108,780) (2,516) (79,989) (191,285) Capital additionsoil and gas assets ................................. 92,450 92,450 Capital additionsexploration and evaluation .................. 9,944 12,002 21,946 Capital additionsother .................................................... 484 4 728 1,216 Depreciation....................................................................... (298) (675) (973) Impairment on oil and gas assets ....................................... (7,128) (4,909) (12,037) Included in revenues for Nigeria for the year ended 31 December 2009 are US$292.1 million (2008: US$37.2 million) which arose from the Groups largest customer. Non-current assets held in UK at 31 December 2009 totalled US$3.3 million (2008: US$2.3 million and 2007: US$4.7 million). Non-current assets held in Other West Africa at 31 December 2009 included US$16.0 million (2008: US$13.2 million and 2007: US$nil) relating to Keta Block, Ghana, US$29.2 million (2008: US$28.9 million and 2007: US$28.0 million) relating to La Noumbi permit in Congo (Brazzaville) and US$17.6 million (2008: US$17.2 million and 2007: US$16.6 million) relating to JDZ Block One in So Tom & Prncipe. 5. REVENUE
2009 US$000s 2008 US$000s

Oil revenue ..................................................................................................................................... Gas revenue .................................................................................................................................... Investment revenue is shown in note 9. 6. IMPAIRMENT REVERSAL/(CHARGE) ON OIL AND GAS ASSETS

311,842 23,976 335,818

38,576 3,925 42,501

2009 US$000s

2008 US$000s

Impairment of tangible oil and gas assets ....................................................................................... Exploration costs written back/(written off) ...................................................................................

(6,044) 859 (32,168) (38,212) 859 Impairment of oil and gas assets is largely attributable to a US$7.8 million net write-back (2008: US$23.8 million write-off) relating to Keta Block in Ghana, US$2.5 million write-off relating to the Ogedeh licence which was exited during the year, US$2.1 million relating to the Gabon licences and US$2.1 million (2008: US$nil) in respect of the Tie Tie NE well in La Noumbi permit. The Keta write-back arises from agreed insurance proceeds receivable in respect of the Cuda well drilled in 2008. In 2008, the write-off also included US$6.0 million relating to Eremor Block in Nigeria, US$1.9 million relating to the Themis Marin licence in Gabon and US$3.3 million relating to the Iris Marin licence in Gabon. 7. OPERATING PROFIT/(LOSS) The profit/(loss) for the year is stated after charging:
2009 US$000s 2008 US$000s

Staff costs (note 8) .......................................................................................................................... F-107

29,414

28,343

Depletion, depreciation and amortisation (restatedsee note 31) ................................................. Property lease rentals ...................................................................................................................... FPSO lease rentals .......................................................................................................................... Boats, helicopters and other lease rentals ....................................................................................... Provision for inventoriesspares ................................................................................................... An analysis of auditors remuneration is as follows: Fees payable to the Companys auditors for the audit of the Companys annual accounts* .......... Fees payable to the Companys auditors and their associates for other services to the Group: Audit of the Companys subsidiaries pursuant to legislation ...................................................... Total audit fees .............................................................................................................................. Tax services ................................................................................................................................ Corporate finance services .......................................................................................................... Other services ............................................................................................................................. Total non-audit fees ......................................................................................................................
*

154,783 1,745 29,170 10,690 259 156 415 117 2,129 159 2,405

30,030 1,843 16,747 5,158 1,206 295 173 468 250 97 174 521

The 2008 amount shown above includes an additional US$165,000 which was agreed subsequent to the finalisation of the 2008 Annual Report and charged during 2009.

Corporate finance services primarily represents services provided in respect of the move to the main market of the London Stock Exchange and concurrent equity raising (2008: due diligence work performed in connection with corporate transaction activities of the Group). A proportion of these costs, being that relating to the equity raising, has been charged to the share premium account. Other services primarily represent amounts in respect of the review of the Groups and Nigerian subsidiaries interim results. A proportion of the Groups staff costs shown above are recharged to the Groups joint venture partners and a proportion is capitalised into the cost of intangible and tangible oil and gas assets under the Groups accounting policy for exploration, evaluation and oil and gas assets. The amount ultimately charged to the income statement was US$13.1 million (2008: US$18.3 million). Reconciliation of normalised profit/(loss) after tax to the loss after tax
2009 2008

Loss after tax .................................................................................................................................. Unrealised losses/(gains) on derivative financial instruments ........................................................ Cost of move to the main market of the London Stock Exchange .................................................. Share-based payment charge .......................................................................................................... Foreign exchange losses ................................................................................................................. Fair value financial liabilities ......................................................................................................... Incentive on early conversion of bonds .......................................................................................... Share of loss of an associate ........................................................................................................... Normalised profit/(loss) after tax ................................................................................................ 8. STAFF COSTS

(16,778) 45,080 4,073 9,292 2,770 5,034 1,180 50,651

(56,122) (51,095) 10,819 15,382 (26,607) 9,332 2,296 (95,995)

The average monthly number of employees (including Executive Directors) employed was as follows:
2009 2008

Administration ................................................................................................................................ Professional .................................................................................................................................... Their aggregate remuneration comprised:

41 131 172

16 76 92

2009 US$000s

2008 US$000s

Wages and salaries .......................................................................................................................... Share-based payments..................................................................................................................... Social security costs ........................................................................................................................ Pension costs...................................................................................................................................

16,980 9,080 2,611 743 29,414

16,036 10,670 892 745 28,343

F-108

Details of Directors remuneration are provided in the part of the Directors Remuneration Report described as having been audited. 9. INVESTMENT REVENUE
2009 US$000s 2008 US$000s

Interest on bank deposits................................................................................................................. 10. FINANCE COSTS

626
2009 US$000s

5,286
2008 US$000s

Convertible bond interest payable .................................................................................................. Incentive on early conversion of bonds .......................................................................................... Bank interest payable ...................................................................................................................... Borrowing costs amortisation and facility fees charges .................................................................. Interest on loan notes ...................................................................................................................... Unwinding of discount on loan notes ............................................................................................. Unwinding of discount on decommissioning..................................................................................

5,512 9,332 21,270 19,750 11,941 6,905 1,822 414 2,625 422 350 1,050 38,708 42,685 Less: capitalised interest ................................................................................................................. (1,758) (16,925) 25,760 36,950 During the fourth quarter, the Ebok field offshore Nigeria transferred to development and a proportion of borrowing costs since that date have been capitalised using a weighted average rate of approximately 6.1%. In 2008, all the interest charged relating to the Okoro field development financing facility up to First Oil, plus a share thereafter during completion of the drilling programme was capitalised. In addition, a proportion of the FCMB loan interest and the convertible bond interest was capitalised. In 2008 the effective interest rate used for the interest capitalisation was 11.1% and 15.2% in respect of the FCMB loan and the convertible bond respectively. The Okoro loan interest is based on LIBOR plus a margin of between 4.5% and 5.75%. Upon conversion of the bond, interest expense was capitalised based on rates of between 12.2% and 13.7%. In July 2008, an agreement was reached for early conversion of the 41.25 million Senior Unsecured Bonds resulting in a one-off conversion incentive of US$9.3 million being paid to the holders of the convertible bonds. 11. LOSS PER ORDINARY SHARE

The calculation of basic loss per share is based on the loss for the period after taxation and the weighted average number of shares in issue for the period. As there is a loss in all periods, there is no difference between the basic and diluted earnings per share.
Year ended 31 December 2009 2008

Basic and diluted................................................................................................................. Loss for the period after taxation (US$000s) .................................................................... Weighted average number of shares in issue in the period .................................................

2.6 16,778 637,328,455

15.0 56,122 373,370,052

F-109

Notes To The Consolidated Financial Statements For the year ended 31 December 2009 12. INTANGIBLE OIL AND GAS ASSETS

Costs of explorationpending determination

Group US$000s

At 1 January 2007 ................................................................................................................................................ Additions ............................................................................................................................................................. Transfer to tangible oil and gas assets ................................................................................................................. Amounts written off ............................................................................................................................................. At 1 January 2008 ................................................................................................................................................ Additions ............................................................................................................................................................. Acquisition of subsidiaries (restatedsee note 31) ............................................................................................. Amounts written off ............................................................................................................................................. At 1 January 2009 ................................................................................................................................................ Additions ............................................................................................................................................................. Transfer to tangible oil and gas assets ................................................................................................................. Amounts written off* ........................................................................................................................................... At 31 December 2009 .........................................................................................................................................
* Excluding the US$7.8 million net write-back of prior-year impairment charges on Keta Block (note 6).

87,846 21,946 (48,476) (11,660) 49,656 95,819 100,626 (32,168) 213,933 67,265 (90,316) (6,721) 184,161

The Groups carrying value at 31 December 2009 includes US$102.5 million (2008: US$100.6 million and 2007: US$nil) in respect of CI-01 field in Cte dlvoire, US$29.2 million (2008: US$28.9 million and 2007: US$28.0 million) relating to the La Noumbi permit in Congo (Brazzaville), US$17.6 million (2008: US$17.2 million and 2007: US$16.8 million) in respect of JDZ Block One of the NigeriaSo Tom & Prncipe Joint Development Zone (JDZ Block One), US$14.3 million (2008: US$nil) in respect of OPL 310 field in Nigeria and US$16.0 million (2008: US$13.2 million and 2007: US$ nil) in respect of Keta Block in Ghana. Additions in the year includes $43.3 million (2008: $47.0 million and 2007: US$nil) spent on the Ebok field before the transfer to tangible oil and gas assets at a total carrying value of $90.3 million and US$10 million transferred from prepayments and accrued income (see note 18). Additional amounts are payable in relation to JDZ Block One if proved reserves are discovered and upon approval of a field development programme. The amount payable is based on the level of proven reserves and prevailing oil and gas prices and is subject to adjustment upon any subsequent amendments to such oil and gas reserves. 13. PROPERTY, PLANT AND EQUIPMENT
Production US$000s Development US$000s Gas plant US$000s Total US$000s

GROUP Oil and gas assets Cost At 1 January 2007 .................................................................................. Transfer from intangible oil and gas assets ............................................ Additions ............................................................................................... At 1 January 2008 .................................................................................. Additions ............................................................................................... Acquisition of subsidiaries (restatedsee note 31) ............................... Transfers ................................................................................................ At 1 January 2009 .................................................................................. Additions ............................................................................................... Transfers from intangible oil and gas assets .......................................... At 31 December 2009 ............................................................................ Depletion, depreciation and amortisation At 1 January 2008 .................................................................................. F-110

125,221 51,534 289,737 466,492 14,510 481,002

48,476 92,450 140,926 154,855 (289,737) 6,044 68,319 90,316 164,679

107 27,770 27,877 79 27,956

48,476 92,450 140,926 280,183 79,304 500,413 82,908 90,316 673,637

Charge for the year (restatedsee note 31)........................................... Impairment charge ................................................................................. At 1 January 2009 .................................................................................. Charge for the year ................................................................................ At 31 December 2009 ............................................................................ Carrying amount At 31 December 2007 ............................................................................

27,614 27,614 147,753 175,367

6,044 6,044 6,044 140,926

1,111 1,111 4,443 5,554

28,725 6,044 34,769 152,196 186,965 140,926

At 31 December 2008 ............................................................................ 26,766 465,644 438,878 At 31 December 2009 ............................................................................ 158,635 22,402 486,672 305,635 During the year, the carrying amount in respect of the Ebok field in Nigeria was transferred from intangible oil and gas assets to development.
Leasehold improvements US$000s Computer Fixtures and hardware equipment and software US$000s US$000s

Total US$000s

GROUP Other property, plant and equipment Cost At 1 January 2008 .................................................................................. Additions ............................................................................................... Foreign exchange movements ............................................................... At 1 January 2009 .................................................................................. Additions ............................................................................................... Disposal ................................................................................................. At 31 December 2009 ............................................................................ Accumulated depreciation At 1 January 2008 .................................................................................. Charge for the year ................................................................................ Foreign exchange movements ............................................................... At 1 January 2009 .................................................................................. Charge for the year ................................................................................ On disposal ............................................................................................ At 31 December 2009 ............................................................................ Carrying amount At 31 December 2007 ............................................................................ At 31 December 2008 ............................................................................ At 31 December 2009 ...........................................................................

1,222 1,786 3,008 1,678 4,686 752 372 1,124 837 1,961 1,884 2,725

1,090 1,716 3 2,809 1,046 (60) 3,795 413 429 (1) 841 722 (22) 1,541 140,926 1,968 2,254

661 2,066 2,727 1,084 3,811 263 504 (1) 766 1,028 1,794 1,961 2,017
Computer hardware and software US$000s

2,973 5,568 3 8,544 3,808 (60) 12,292 1,428 1,305 (2) 2,731 2,587 (22) 5,296 140,926 5,813 6,996

Leasehold improvements US$000s

Fixtures and equipment US$000s

Total US$000s

COMPANY Other property, plant and equipment Cost At 1 January 2008 .................................................................................. Additions ............................................................................................... Foreign exchange movements ............................................................... At 1 January 2009 .................................................................................. Additions ............................................................................................... At 31 December 2009 ............................................................................ Accumulated depreciation At 1 January 2008 .................................................................................. Charge for the year ................................................................................ Foreign exchange movements ............................................................... At 1 January 2009 .................................................................................. F-111

767 340 1,107 285 1,392 557 92 649

670 378 1 1,049 113 1,162 269 228 (1) 496

464 1,333 1,797 876 2,673 197 312 509

1,901 2,051 1 3,953 1,274 5,227 1,023 632 (1) 1,654

Charge for the year ................................................................................ At 31 December 2009 ............................................................................ Carrying amount At 31 December 2008 ............................................................................ At 31 December 2009 ............................................................................ 14. INVESTMENTS

93 742 458 650

158 654 553 508

611 1,120 1,288 1,553

862 2,516 2,299 2,711

Group 2009 2008 US$000s US$000s

Company 2009 2008 US$000s US$000s

Subsidiaries Shares at cost in subsidiary undertakings .............................................. 54,128 50,412 A list of the significant investments in subsidiaries and associated undertakings, including the name, proportion of ownership interest, country of operation and country of registration, is given below:
Name Principal activity Directly held Afren Gabon Limited .............................................................. Oil and gas exploration, development and production Gabon Investments (Iris Marin) Pty Limited .......................... Oil and gas exploration, development and production Gabon Investments (Themis Marin) Pty Limited ................... Oil and gas exploration, development and production Afren CI (UK) Limited ........................................................... Holding company Afren Congo Limited .............................................................. Oil and gas exploration, development and production Afren Energy International plc................................................ Holding of loan notes Afren USA Inc......................................................................... Service company Indirectly held Afren JDZ One Limited .......................................................... Holding company Dangote Energy Equity Resources Limited ............................ Oil and gas exploration, development and production Afren Energy Resources Limited ............................................ Oil and gas exploration, development and production Afren Okoro Limited ............................................................... Holding company Afren Global Energy Resources Limited ................................ Oil and gas exploration, development and production Afren Investments Oil & Gas (Nigeria) Limited .................... Oil and gas exploration, development and production Afren Energy Services Limited ............................................... Service company Afren Exploration and Production Nigeria Alpha Limited .... Oil and gas exploration, development and production Afren Exploration and Production Nigeria Beta Limited ....... Oil and gas exploration, development and production Afren Nigeria Holdings (Nigeria) Limited ............................. Holding company Afren CI One Corporation....................................................... Oil and gas exploration, development and production Afren Cte dlvoire Limited.................................................... Oil and gas exploration, development and production Lion GPL SA ........................................................................... Oil and gas exploration, development and production Afren Energy Ghana Limited .................................................. Oil and gas exploration, development and production Afren Resources Limited ........................................................ Oil and gas exploration, development and production (i) Accounted for via proportional consolidation as the Group exercises joint control over its operations. % Country of operation Country of registration

100 100 100 100 100 100 100 100 49(i) 100 100 50(i) 100 100 100 100 100 100 100 100 100 100

Gabon Gabon Gabon UK Congo UK USA Norway Nigeria Nigeria UK Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Cte dlvoire Cte dlvoire Cte dlvoire Ghana Nigeria

England & Wales Australia Australia England & Wales Bahamas England & Wales USA Norway Nigeria Nigeria England & Wales Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Cayman Cayman Cte dlvoire Bahamas Nigeria

F-112

During 2006, the Group acquired a 1.2% interest in Gasol plc, a company engaged in identifying and developing opportunities in the gas sector focused on liquefied natural gas sourced from Africas Gulf of Guinea region. The table below shows movements in the carrying value of the investment until the Group increased its interest to 21.3% on 12 February 2009, at which point it was reclassified as an investment in an associate (see note 15). The Group increased its interest by a further 0.4% on 27 May 2009. Following further equity raising by Gasol plc, Afrens holding decreased to 20.9% by end of August 2009.
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Available for sale investments At the beginning of the year .................................................................. Purchase in the year ............................................................................... Fair value of Gasol plc warrants granted ............................................... Revaluation ............................................................................................ Impairment (charge)/reversal ................................................................. Foreign exchange ................................................................................... Transfer to interests in associates .......................................................... Fair value at 31 December .................................................................. 15. INVESTMENTS IN ASSOCIATES

211 1,815 (242) 97 (1,881)

1,475 1,501 (472) (2,296) 3 211

211 1,815 (242) 97 (1,881)

1,475 1,501 (472) (2,296) 3 211

Group 2009 2008 US$000s US$000s

Company 2009 2008 US$000s US$000s

As at 1 January .................................................................................... Transfers from available for sale investments ....................................... 1,881 1,881 Share of associates loss ........................................................................ (1,277) (1,277) As at 31 December ............................................................................... 604 604 Aggregated amounts related to associates, representing Afrens 20.9% interest, were as follows:
Group 2009 2008 US$000s US$000s

Company 2009 2008 US$000s US$000s

Total assets ............................................................................................... 765 765 (108) Total liabilities .......................................................................................... (108) Revenues ................................................................................................... Loss........................................................................................................... (1,277) (1,277) As at 31 December 2009 Afren plc held 226,421,354 ordinary shares in Gasol plc representing 20.9% of its issued share capital. The closing price on 31 December 2009 was 2.33 pence per share. The fair value of the shares as at 31 December 2009 was $8.4 million. The financial information accounted for using the equity method as at 31 December 2009 has been taken from the unaudited management information of Gasol plc as at that date. Gasol plcs year end is 31 March. 16. INVENTORIES
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Oil and gas inventory ............................................................................. Spare parts .............................................................................................

20,099 8,652 14,465 4,624 13,276 34,564 Spare parts are stated net of a provision of US$1.2 million (2008: US$1.2 million) to write down recoverable amount. 17. INTEREST IN JOINT VENTURES

the inventory to

The Group has a 49% share of Dangote Energy Equity Resources Limited (DEER), a jointly controlled entity which is involved in operations in JDZ Block One. F-113

The Group has a 50% interest in Afren Global Energy Resources Limited (AGER), a jointly controlled entity. AGER holds the Production Sharing Contracts for OPLs 907 and 917 which were signed in February 2008. The Groups share of DEERs and AGERs assets, liabilities, income and expenses of the jointly controlled entities at 31 December 2009 and 2008 and for the years then ended, which are included in the consolidated financial statements, are as follows:
2009 50% share in AGER US$000s 49% share in DEER US$000s 50% share in AGER US$000s 2008 49% share in DEER US$000s

Current assets ......................................................................................... Non-current assets ................................................................................. Current liabilities ................................................................................... Non-current liabilities ............................................................................ Administrative expenses ........................................................................ Bank interest received............................................................................ Loss/(profit) before and after income tax ..........................................

701 4,384 5,085 (21) 5,064 55 55

159 17,597 17,756 (385) 17,371 1 1

879 3,206 4,085 4,085 113 113

121 17,221 17,342 (281) 17,061 (17) (17)

F-114

Notes To The Consolidated Financial Statements For the year ended 31 December 2009 18. TRADE AND OTHER RECEIVABLES
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Trade and other debtors ......................................................................... Prepayments and accrued income .......................................................... VAT recoverable ................................................................................... Due from subsidiary undertakings* ....................................................... Due from joint ventures .........................................................................

14,449 40,147 1,018 55,614

20,731 29,165 1,351 51,247

982 1,297 1,018 467,796 14,322 485,415

689 10,689 1,346 308,742 13,393 334,859

The amount in the Company is shown net of a provision for doubtful debt of US$25,353,000 (2008: US$20,931,000).

Prepayments and accrued income in respect of the Group includes a US$10.6 million (2008: US$13.6 million) accrued income on crude and gas sales and US$5.5 million (2008: US$7.9 million) in prepayment of operating costs relating to the Floating Production and Storage Offtake vessel (FPSO) for the Okoro field, of which $3.4 million (2008: 4.8 million) is disclosed as non-current prepayment in the balance sheet. In 2008 prepayments included US$10 million deposited with third parties in respect of pending transactions, which has now been transferred to intangible oil and gas assets. There were no material past due not impaired receivables at either balance sheet date, nor any material bad debt provisions (other than as disclosed above in respect of intercompany balances). 19. CASH AND CASH EQUIVALENTS
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Cash and cash equivalents ..................................................................... 321,312 117,719 203,117 39,106 Cash and cash equivalents comprise cash held by the Group and Company in the form of short-term bank deposits with an original maturity of three months or less and earn interest at respective short-term deposit rates. The carrying amount of these assets approximates their fair value. Cash and cash equivalents at 31 December 2009 includes US$5.4 million (2008: US$58.9 million) that is restricted. This relates to short-term restrictions on project cash, pending completion of certain milestones. 20. TRADE AND OTHER PAYABLES
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Trade creditors ....................................................................................... Other creditors and operated partners .................................................... Accruals ................................................................................................. PAYE and social security ...................................................................... VAT payable.......................................................................................... Due to subsidiary undertakings..............................................................

18,892 70,608 2,805 2,949 43,348 21,918 5,550 532 66,660 51,880 7,244 2,474 5,789 1,058 5,677 1,012 50 291 39,950 30,782 145,755 61,226 37,749 134,739 Group accruals include interest payable of US$5,741,000 (2008: US$5,562,000) relating to the bank borrowings described in note 21, and US$276,000 (2008: US$414,000) of coupon interest relating to loan notes described in note 24.

F-115

21.

BORROWINGS AND DERIVATIVE FINANCIAL INSTRUMENTS

Borrowings
Group 2009 Current Non-current US$000s US$000s Group 2008 Current Non-current US$000s US$000s

Loan notes (note 24) .............................................................................. Bank borrowings ....................................................................................

37,216 33,205 117,634 112,230 111,218 260,741 149,446 111,218 293,946 117,634 Bank borrowings at the year end included US$73.5 million (2008: US$191.6 million) relating to the US$230 million Okoro development facility from BNP Paribas. Interest on the loan is based on LIBOR plus a margin of between 4.5% and 5.75% as at 31 December 2009. The facility is repayable in semi-annual instalments of approximately US$30.0 million ending in 2011. The loan is secured by the assets of the Okoro field. The repayment profile is impacted by borrowing base calculations linked to the certified reserves of the Okoro field. In addition, the acquisition of operations in Cte dlvoire were financed by a financing package arranged through BNP Paribas. The outstanding balance on the financing package at 31 December 2009 was US$111.8 million (US$108.5 million net of financing arrangement costs), 2008: US$139.6 million (US$133.9 million net of financing arrangement costs). Repayment instalments for the senior debt of US$45.1 million (2008: US$72.9 million) of the facility amount are determined by borrowing base calculations linked to the certified reserves of the Cte dlvoire operations whilst US$66.7 million (subordinate debt) of the facility is repayable in semi-annual instalments of US$6.7 million commencing January 2010. Interest on the senior debt is based on LIBOR plus a margin of between 3.25% and 3.5% as at 31 December 2009. Interest on the subordinate debt is based on LIBOR plus a margin of 4.25%. The senior debt includes certain financial covenants which are assessed on a quarterly basis. Borrowings also include a balance of US$47.9 million (2008: US$46.5 million) relating to an unsecured loan facility from First City Monument Bank plc (FCMB). Interest on the loan is based on LIBOR plus a margin of 4.45%. The loan is repayable in six equal semi-annual instalments commencing 2010 and ending in 2012. Derivative financial instruments
Group 2009 Current Non-current US$000s US$000s Group 2008 Current Non-current US$000s US$000s

Financial assets ...................................................................................... Financial liabilities.................................................................................

4,523 2,153 29,161 20,354 (5,240) (379) 1,774 29,161 20,354 (717) In 2007 the Group entered into derivative financial instruments (swaps and call options) to economically protect against exposures to variability in the price of Okoro crude oil production for 2008, 2009 and 2010. During the first half of 2009 an additional derivative contract in respect of the Okoro crude was entered into for the period 2009 to 2011. The Group will receive a minimum amount if the market falls, but will receive a set discount from the market price if the oil price is above that minimum. The arrangement protects the Group against the risk of a significant fall in the price of crude oil by establishing a minimum price for the Okoro crude. During 2008 on acquisition of CI-11 field in Cte dlvoire from Devon, the Group entered into similar instruments to protect against variability in price of the CI-11 crude oil production for the period from 2008 to 2012. The loss of US$33.6 million (2008: US$54.7 million gain) arising during the year as a result of the changes in fair value of these derivative financial instruments has been accounted for in the income statement, as the criteria for hedge accounting were not met. In addition to the above commodity derivatives, the change in July 2008 of the functional currency of the holding company from pounds sterling to US dollar resulted in certain sterling denominated warrants being accounted for as derivatives from that date, as they are no longer convertible at a fixed price in that companys functional currency. Accordingly the fair value of the warrants at that date of US$27.1 million was recorded as a liability which resulted in a charge to retained earnings, after reversing the amounts previously recorded in equity, of US$23.7 million. The fair value of the warrants at 31 December 2009, recorded within other creditors, was US$5.5 million (2008: US$0.5 million) and the resultant movement during the year of US$5.0 million (2008: US$26.6 million) has been taken to the income statement. The maturity profile of the Groups borrowings is set out below on an undiscounted basis.

F-116

Group maturity profile

2009 US$000s

2008 US$000s

Due within one year ........................................................................................................................ Due within two to five years ........................................................................................................... Due after five years .........................................................................................................................

117,634 163,557 281,191

111,218 318,421 429,639

Fair values Set out below is a comparison by category of carrying amounts and fair values of all the Groups financial instruments:
Carrying amount 2009 2008 US$000s US$000s Fair value 2009 2008 US$000s US$000s

Financial assets Derivative financial instruments ............................................................ Cash and cash equivalents ..................................................................... Trade and other receivables ................................................................... Available for sale investments ............................................................... Financial liabilities Derivative financial instruments ............................................................ Trade creditors ....................................................................................... Other creditors and accruals .................................................................. BorrowingsBNP Paribas .................................................................... BorrowingsFCMB ............................................................................. BorrowingsCte dlvoire ................................................................... Loan notes..............................................................................................

6,676 321,312 41,634 369,622

49,515 117,719 34,365 211 201,810

6,676 321,312 41,634 369,622

49,515 117,719 34,365 211 201,810

5,619 18,892 70,608 110,208 73,798 73,464 191,588 47,900 46,501 108,499 133,870 33,205 37,216 549,570 401,798 The fair values of the derivative financial instruments have been determined by reference quoted markets at the balance sheet date and hence qualify as level 2 as defined in IFRS 7 (revised).

5,619 18,892 70,608 110,008 73,798 72,239 186,803 47,985 47,192 106,403 128,751 41,745 39,842 402,891 546,994 to observable data in

The fair value of bank borrowings and loan notes have been determined by discounting future cash outflows relating to the borrowings and loan notes respectively. Sensitivity analysis Interest rate risk The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups bank borrowings. The Group has managed the interest rate risk by using a mix of fixed and variable rates on convertible bonds, loan notes and bank borrowings respectively. The following table demonstrates the sensitivity to changes in LIBOR rate, with all other variables held constant, of the Groups loss before tax.
Increase in Group loss US$000s Decrease in Group loss US$000s

2009

Increase

Decrease

Interest payable ......................................................................................

1%

(3,574)
Increase in Group loss US$000s

1%

3,574
Decrease in Group loss US$000s

2008

Increase

Decrease

Interest payable ............................................................................................ Oil price risk

1%

(1,463)

1%

1,464

The Groups exposure to the risk of changes in oil price relates primarily to the Groups derivative financial instruments. The terms of the derivative financial instruments are such that the Group will receive a minimum amount if the F-117

market falls, but will receive a set discount from the market price if the oil price is above that minimum. The effect on Group loss and equity of changes in the oil price on the fair value of the derivative financial instruments is shown below:
Positive/ (adverse) 2009 US$000s Positive/ (adverse) 2008 US$000s

Increase in oil price by 10% ........................................................................................................... Decrease in oil price by 10% .......................................................................................................... Foreign exchange risk The impact of a 10% change in the sterling to US dollar exchange rate is shown below:

(5,270) 6,728

(8,872) 10,025

Positive/ (adverse) 2009 US$000s

Positive/ (adverse) 2008 US$000s

Increase in exchange rate by 10% ................................................................................................... 14,636 2,533 Decrease in exchange rate by 10% ................................................................................................. (14,636) (2,533) The impact of a 10% change in the Nigerian Naira to US dollar exchange rate would not be material in 2009 or in 2008. Capital management The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder value. The Groups funding needs are met through a combination of debt and equity. The Group monitors net debt position on an ongoing basis. The Group includes within net debt, interest bearing loans and borrowings less cash and cash equivalents. Capital includes share capital, share premium, other reserves and accumulated losses. 22. PROVISION FOR DECOMMISSIONING
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

At 1 January ................................................................................................. 20,276 Addition during the year .............................................................................. 510 19,926 350 Unwinding of discount ................................................................................ 1,050 At 31 December .......................................................................................... 20,276 21,836 The provision for decommissioning was recognised following the start of drilling at Okoro field and following the acquisition of the CI-11 field in 2008. The provision represents the present value of the amounts that are expected to be incurred up to 2016. The provision was made using Afrens internal estimates that management believe form a reasonable basis for the expected future costs of decommissioning. 23. CONVERTIBLE BONDS

Convertible bonds related to the private placement in 2006 of US$75.0 million equivalent in sterling (being 41.25 million) of Convertible Senior Unsecured Bonds due 2011. The bonds were at a coupon of 9% per annum (payable semi-annually) and were convertible into ordinary shares of the Company. The conversion price of 58.2 pence (approximately) per ordinary share was set at a 25% premium to the price determined in the pricing method at the time of issue. The bonds also contained other terms, including anti-dilution provisions effective in the event of certain future issuances, a bondholder put option, payable in cash or shares (at a discount to the share price during the period prior to payment) at the Companys option. The bonds were converted to equity in July 2008.
Group and Company 2009 2008 US$000s US$000s

Liability component at 1 January .................................................................................................... Interest charged ............................................................................................................................... Incentive on early conversion of bonds .......................................................................................... Amortisation of bond issue costs .................................................................................................... Exchange difference ....................................................................................................................... F-118

72,912 5,512 9,332 225 9

Interest paid .................................................................................................................................... Conversion of bonds ....................................................................................................................... At 31 December .............................................................................................................................

(16,731) (71,259)

The interest charged until conversion is calculated by applying an effective interest rate of 15.2% to the liability component. 24. LOAN NOTES
Group 2009 2008 US$000s US$000s

Liability component at 1 January .................................................................................................... Nominal value at date of issue, net of issue costs ........................................................................... Equity component (note 32) ........................................................................................................... Unwinding of discount ................................................................................................................... Coupon interest ............................................................................................................................... Interest paid .................................................................................................................................... Amortised issue costs ..................................................................................................................... At 31 December ............................................................................................................................. Reported in:

33,619 2,625 1,822 (1,960) 1,386 37,492

39,901 (7,350) 422 414 232 33,619

Group 2009 2008 US$000s US$000s

Interest payable in current liabilities ............................................................................................... 276 414 Non-current liabilities ..................................................................................................................... 37,216 33,205 Total liability component ............................................................................................................. 33,619 37,492 On 9 October 2008 Afren entered into a strategic alliance with Sojitz, a Japanese investment and industrial conglomerate, to jointly pursue acquisition opportunities of scale in Africa. Sojitz invested US$45 million in the form of loan notes in Afren which become convertible bonds at the time of entering into or announcing joint acquisitions. The loan notes bear a coupon based on LIBOR plus a margin of 2%. The net proceeds from the issue of the loan notes were split between a liability component and an equity component at the date of issue. The liability component of the loan notes was US$37.2 million as at 31 December 2009 (2008: US$33.2 million). The interest charged for the year is calculated by applying an effective interest rate of 10.3% (2008: 11.7%) to the liability component. The loan notes are repayable in full in October 2011. 25. DEFERRED TAXATION (GROUP)

The Group has recognised a deferred tax liability in respect of its Nigerian operation of US$12,460,000 (2008: US$nil), primarily relating to temporary differences arising on property, plant and equipment. At the balance sheet date the Group and Company also had tax losses (primarily arising in UK) of US$97,190,000 (2008: US$101,956,000) and US$77,126,000 (2008: US$95,673,000) respectively, in respect of which a deferred tax asset has not been recognised as there is insufficient evidence of future taxable profits. Such losses can be carried forward indefinitely. The Group and Company had temporary differences of US$15,643,000 (2008: US$34,185,000) and US$7,200,000 (2008: US$1,444,000) in respect of share-based payments, property, plant and equipment and pensions in respect of which deferred tax assets have not been recognised as there is insufficient evidence of future taxable profits. Deferred tax has not been recognised on undistributed earnings of subsidiaries as the Group has no intention to remit the earnings to the UK in the foreseeable future. The extent of the unrecognised deferred tax in respect of this is not material. 26. CONTINGENT LIABILITIES
As at 31 December 2009 2008 US$000s US$000s

Performance bond issued by a bank in respect of OPL 907/917 .................................................... Standby letter of credit in respect of contractual agreements of the Okoro FPSO.......................... F-119

24,100 6,000

24,100 6,000

As part of the contractual arrangements on the Ofa field in Nigeria, Afren may be liable to contribute up to a maximum of US$500,000 in respect of abandonment should certain events specified in the contract occur.

F-120

Notes To The Consolidated Financial Statements For the year ended 31 December 2009 Upon meeting certain operational criteria, Afren is required to reimburse a proportion of the office costs incurred by its partner on Okwok field in Nigeria. The estimated amount payable as at 31 December 2009 is US$600,000 (2008: US$nil). 27. SHARE CAPITAL AND SHARE PREMIUM
2009 US$000s 2008 US$000s

(i) Authorised 1,200 million ordinary shares of 1p each (equivalent to approx US$1.59 cents) (2008: 800 million)

19,111

11,600
Share premium US$000s

Equity share capital allotted and fully paid Number US$000s

(ii) Allotted equity share capital and share premium As at 1 January...................................................................................................... Issued during the year for cash* ........................................................................... Non-cash shares issued** ..................................................................................... As at 31 December ..............................................................................................
* ** Share premium figure is shown net of issue costs of US$14.2 million (2008: US$7.7 million). Non-cash shares issued were primarily in respect of the contractual arrangements of the Ebok field.

446,991,859 438,722,357 3,351,138 889,065,354

8,806 6,843 53 15,702

446,958 305,890 2,321 755,169

28.

TAXATION
2009 US$000s 2008 US$000s

UK corporation tax ......................................................................................................................... Overseas corporation tax ................................................................................................................ Deferred tax charge (note 25) ......................................................................................................... The overall tax charge can be reconciled to the profit for the year as follows:

4,801 4,801 12,460 17,261

520 520 520

2009 US$000s

2008 US$000s

Pre-tax profit/(loss) ......................................................................................................................... 483 (55,602) Tax at the UK corporate tax rate of 28% (2008: 28.5%) ................................................................ 135 (15,847) Tax effect of items which are not deductible for tax ...................................................................... 9,149 12,927 Temporary differences not recognised............................................................................................ 13,348 9,045 Items not subject to tax ................................................................................................................... (16,436) (25,474) Tax effect of share of associate results ........................................................................................... 357 Effect of different tax rates ............................................................................................................. 534 19 Loss not recognised ........................................................................................................................ 10,174 19,850 Tax charge for the year ................................................................................................................ 520 17,261 The Groups tax charge for the year includes current and deferred tax in Nigeria of US$0.8 million and US$12.5 million respectively. The detailed mechanics of the Groups tax filing arrangements in Nigeria are subject to agreement with the local tax authorities and while the Group is satisfied that the 2009 charge is its best estimate of its tax position, adjustments may be required once these discussions have been finalised. 29. OPERATING LEASE AND CAPITAL COMMITMENTS
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Minimum lease payments under operating leases recognised in income for the year ......................................................................................... F-121

41,605

23,748

1,004

1,379

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under noncancellable operating leases, which fall due as follows:
Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

Within one year...................................................................................... In the second to fifth years.....................................................................

91,749 40,998 1,276 949 102,516 103,109 2,762 2,530 144,107 4,038 3,479 194,265 Operating lease commitments includes rentals of US$29.5 million (2008: US$28.6 million) within one year and US$73.8 million (2008: US$100.0 million) between two and five years for the FPSO that is used on the Okoro field production and US$27.4 million (2008: US$5.5 million) within one year, for the terminal, security boats and field transport rentals in respect of the Okoro field. In addition, US$30.6 million (2008: US$nil) within one year primarily relates to the lease of rig and field transport rentals in respect of the Ebok field. Other operating lease represents rentals payable by the Company and Group for certain of its office properties. Property leases are negotiated for an average term of three years and rentals are fixed for an average term of three years.
2009 US$000s 2008 US$000s

Capital commitmentsGroup Oil and gas assetsDevelopment .................................................................................................. Oil and gas assetsExploration and evaluation .............................................................................

58,952 5,637 64,589

11,154 11,154

30.

SHARE-BASED PAYMENTS

During 2009 the Group had in place four share-based payment arrangements for its employees and has also issued warrants to contractors. The charge in relation to these arrangements is shown below, with further details of each scheme following:
2009 US$000s 2008 US$000s

2005 Share Option Scheme............................................................................................................. Long Term Incentive Plan .............................................................................................................. Share Award Scheme ...................................................................................................................... Founders and other warrants ...........................................................................................................

1,742 2,281 2,404 2,865 9,292

2,528 1,051 7,123 117 10,819

2005 share option scheme The Group operates a share option scheme for employees. The Groups policy is to award options to employees on appointment or completion of their probationary period and periodically thereafter. Options are issued at market price on the grant date and have vesting periods of up to three years. The options expire after ten years if they remain unexercised and are forfeited if the employee leaves the Group before the options vest except at the discretion of the Board. Details of the share options outstanding during the year are as follows:
2009 Weighted average exercise price 2008 Weighted average exercise price

Number of share options

Number of share options

Outstanding at beginning of period....................................................... Granted during period ........................................................................... Exercised during period ........................................................................ Lapsed during period ............................................................................

26,452,998 0.77 27,520,000 0.72 33,315,000 0.65 2,620,000 1.45 (2,283,333) 0.32 (1,482,002) 0.56 0.70 (2,205,000) 1.07 (1,796,666) 0.72 26,452,998 0.77 55,687,999 Exercisable at end of year .................................................................. 15,858,337 0.69 15,953,231 0.68 The weighted average remaining contractual life of the options outstanding at 31 December 2009 was 8.5 years (31 December 2008: 7.7 years). F-122

The weighted average share price at the date of exercise for share options exercised during the year ended 31 December 2009 was 86 pence. In 2009 options were granted on 23 January, 7 April, 1 July, 26 September, 29, 30 and 31 December. The aggregate of the estimated fair values of the options granted on those dates was US$12.4 million. In 2008 options were granted on 7 January, 28 March, 1 April, 25 April, 27 May, 23 June, 14 July, 30 September and 1 October. The aggregate of the estimated fair values of the options granted on those dates is US$2.3 million. Inputs to Barrier option valuation model:
2009 2008

Weighted average share price (pence) ............................................................................................ 64.2 131.3 Weighted average exercise price (pence)........................................................................................ 65.2 144.9 Weighted average target price before eligibility to exercise (barrier) (pence) ................................ 91.7 147.2 Expected volatility .......................................................................................................................... 50% 50% Expected life (years) ....................................................................................................................... 3 3 Risk free rate ................................................................................................................................... 4% 5% Expected dividends ......................................................................................................................... The volatility of Afren shares was again reviewed following a further 12 months of share price data. The volatility was measured utilising several formulae, including an Exponentially Weighted Moving Average model and a GARCH (Generalised Autoregressive Conditional Heteroscedasticity) model, and over several time periods. These gave a range of estimates for the share price volatility, but no significant change from the previous year. Therefore the volatility assumption was kept as for last year, but will remain under review. The Company and Group recognised total expenses related to equity-settled share-based payment transactions in the form of options in 2009 of US$1,742,000 of which US$1,625,000 related to employees, including Executive Directors, of the Group (2008: US$2,528,000 and US$2,512,000 respectively). Long Term Incentive Plan Equity-settled share option scheme An alternative share plan was introduced during 2007 (and first grants made in June 2008) to give awards to Directors and staff subject to outperforming a comparator group of similarly focused oil and gas exploration and production companies in terms of shareholder return over a three-year period. The Afren Performance Share Plan awards a number of shares to Directors and staff based on a multiple of salary. However, these shares only vest after a three-year period and the full award made only if Afren has performed in the top quartile when compared against a selected peer group of upstream oil and gas companies mainly focused on Africa: Addax, Bowleven, Gulf Keystone Petroleum, Gulfsands Petroleum, Hardy Oil & Gas, Mart Resources, Petroceltic International, Roc Oil Company, Serica Energy, Soco International, Sterling Energy, Stratic Energy, Tullow Oil, Vaalco Energy and White Nile. If Afren does not achieve at least median performance in the peer group, no shares will be awarded. At the median level, 30% of the shares will vest and there is a sliding scale between median and top quartile performance where only a percentage of the total award will vest. Awards are forfeited if the employee leaves the Group before the awards vest, except under certain circumstances e.g. redundancies, where the number of awards vesting will be prorated according to the length of time the employee has been employed during the three-year vesting period. Details of the share awards outstanding during the year are as follows:
2009 Weighted average exercise price 2008 Number of share options Weighted average exercise price

Number of share options

Outstanding at beginning of period.............................................................. 2,752,562 Granted during the period ............................................................................ 15,552,824 Exercised in period ...................................................................................... (26,188) Forfeited during the period .......................................................................... (1,512,683) Outstanding at end of period .................................................................... 16,766,515 F-123

0.01 0.01 0.01 0.01 0.01

3,017,020 (264,458) 2,752,562

0.01 0.01 0.01

Exercisable at end of period ...................................................................... 6,677 0.01 The awards outstanding at the end of 31 December 2009 have a weighted average remaining contractual life of 2.4 years (at 31 December 2008: 2.4 years) and an exercise price of 0.01 (at 31 December 2008: 0.01). The aggregate of the fair value of the options granted during the year ended 31 December 2009 was US$4.4 million (year ended 31 December 2008: US$5.6 million). The fair values were calculated using a stochastic model. The inputs used for fair valuing awards granted during the two periods were as follows:
2009 2008

Weighted average share price (pence) ............................................................................................ 45.5 171.0 Weighted average exercise price (pence)........................................................................................ 1.0 1.0 Expected volatility .......................................................................................................................... 50% 53% Expected life (years) ....................................................................................................................... 3 3 Risk free rate ................................................................................................................................... 2.2% 5.0% Expected dividends ......................................................................................................................... 0.0% 0.0% The volatility of Afren shares was calculated by looking at the available historic movements in Afrens return index as defined by Datastream (an index which tracks share price plus reinvested dividends on the ex-dividend date) over the period commensurate with the proportion of the performance period that had not elapsed by the date of grant. The results were adjusted to take out anomalous periods of extreme volatility which are not expected to be typical for future periods. The resulting estimate was consistent with prior periods. The Company and Group recognised total expenses related to the above equity-settled share-based payment transactions in the form of options in during the year ended 31 December 2009 of US$1,626,000 and US$2,281,000 respectively (2008: US$749,000 and US$1,051,000 respectively). Share award scheme Equity-settled share award scheme As part of the incentives to attract the Jefferies, Randall & Dewey technical team, a number of shares were awarded in 2008, subject to continuing employment in the most part, to the team. None of this team was eligible for an award under the Long Term Incentive Plan in 2008. The timing of the shares issued range from six months to three years over which the fair value was spread. Details of the awards outstanding during the year are as follows:
2009 Weighted average exercise price 2008 Weighted average exercise price

Number of share awards

Number of share awards

Outstanding at the beginning of the period ........................................... 2,969,563 0.01 Granted during the period ..................................................................... 5,113,094 Exercised in the period ......................................................................... (1,902,357) 0.01 (2,143,531) 0.01 Lapsed in the period.............................................................................. (84,550) Outstanding at the end of the period................................................. 0.01 2,969,563 982,656 Exercisable at the end of the period .................................................. 0.01 The weighted average share price of awards exercised in the year to 31 December 2009 was 0.51.

0.01 0.01 0.01 0.01

The weighted average remaining contractual life of the options outstanding at 31 December 2009 was 0.7 years (31 December 2008: 0.9 years). All awards have an exercise price of 0.01. In the year to 31 December 2008 awards were granted to 13 new employees on joining from Randall & Dewey. The aggregate of the fair value of the options granted during 2008 was US$11 million. No awards were made in 2009.

F-124

As the exercise price for these awards is nominal and there are no market based vesting criteria, the awards granted during 2008 were valued using the share prices on dates of grant which was 137 pence on a weighted average basis. The Company and Group recognised total expenses related to equity-settled share-based payment transactions in relation to the above awards in the year ended 31 December 2009 of US$861,000 and US$2,404,000 respectively (year ended 31 December 2008: US$3,283,000 and US$7,123,000 respectively). Other equity-settled share consideration (warrants) From time to time, the Company will give consideration for services or assets in the form of warrants. In December 2009 the Company issued 200,000 warrants to a contractor.

F-125

Notes To The Consolidated Financial Statements For the year ended 31 December 2009 Details of the warrants outstanding during the year are as follows:
2009 Weighted average exercise price 2008 Weighted average exercise price

Number of warrants

Number of warrants

Outstanding at beginning of year ................................................... 2,345,000 0.67 15,959,981 Granted during the year ................................................................. 200,000 1.00 250,000 Exercised during the year .............................................................. (1,864,981) Redesignated as financial liabilities in the year ............................. (12,000,000) Outstanding at end of year .......................................................... 2,545,000 0.70 2,345,000 Exercisable at end of year ........................................................... 2,461,666 0.68 2,095,000 On 1 July 2008 the warrants granted to FCMB in 2007 were redesignated as a financial liabilities.

0.79 1.00 0.59 0.85 0.67 0.63

The weighted average remaining contractual life of the options outstanding at 31 December 2009 was 2.6 years (2008: 3.4 years). The aggregate of the fair value of the warrants granted in 2009 was US$0.1 million (2008: US$0.1 million). The warrants granted have been valued by reference to the Black-Scholes option valuation model. The inputs into the Black-Scholes model were as follows:
2009 2008

Weighted average share price (pence) ............................................................................................ 84.8 65.0 Weighted average exercise price (pence)........................................................................................ 100.0 100.0 Expected volatility .......................................................................................................................... 50% 50% Weighted average expected life (years) .......................................................................................... 5 3 Risk free rate ................................................................................................................................... 5.0% 5.0% Expected dividends ......................................................................................................................... 0 0 The Company and Group recognised total costs of US$95,000 (2008: US$117,000) related to equity-settled share-based transactions in the form of warrants in 2009. Other equity settled share consideration (warrantsFounders Scheme) As presented to the AGM in June 2007, a Founders Scheme has been introduced. Under this scheme the Founders of Afren undertook to invest a total of US$5.0 million equivalent in Afren shares prior to 30 September 2008 and were granted a total of 40 million warrants. The agreements were finalised and warrants granted in January 2009. The warrants had an exercise price of 1.60 per share but were only exercisable if the share price reached 2.50 for at least 30 days (an increase of 56% above the exercise price). The warrants expired in December 2009. The warrants were also subject to certain anti-dilution clauses which meant that they were re-priced following the private placement in May 2009 to 0.38 being the lower of the share price over the five days prior to the issue of the shares or the issue price of the new shares plus 20%. The performance target was similarly repriced to 56% above the warrant price.
2009 Weighted average exercise price 2008 Weighted average exercise price

Number of share options

Number of share options

Outstanding at beginning of period................................................ Granted during the period .............................................................. 40,000,000 Exercised during the period ........................................................... (40,000,000) Outstanding at end of period .......................................................... Exercisable at end of period........................................................... The weighted average share price of awards exercised in the year was 81 pence.

1.60 0.38

The aggregate of the fair value of the warrants granted in 2009 was US$2.77 million and the Group and Company recognised total expenses related to equity-settled share-based payments in relation to the above awards of US$2.77 million. F-126

The warrants granted under the Founders Scheme were valued by reference to the Barrier Option Valuation Model, and probability weighted to reflect the 50% likelihood (being the Directors estimate at the time of grant) of a repricing event occurring prior to the end of the life of the options due to a subsequent equity-raising event. The other inputs into the Barrier model at grant date (i.e. before May 2009 repricing) were as follows:
2009

Weighted average share price (pence) ................................................................................................................ 26 Weighted average exercise price (pence)............................................................................................................ 160 Weighted average target price before eligibility to exercise (barrier) (pence) .................................................... 250 Expected volatility .............................................................................................................................................. 90% Weighted average expected life (years) .............................................................................................................. 0.96 Risk free rate ....................................................................................................................................................... 1% Expected dividends ............................................................................................................................................. The volatility of Afren shares was reviewed as part of the option valuation exercise and the volatility adjusted for the valuation of the warrants granted under the Founders Scheme to reflect the one-year life of the warrants, and the relatively high volatility expected to continue over this time frame. 31. ACQUISITION OF SUBSIDIARIES

On 25 September 2008, Afren announced that it had completed the acquisition of Devon Energy Corporations interests in Cte dIvoire, comprising a 47.96% working interest and operatorship of the producing Block CI-11, a direct participating 65% interest (with rights over an additional 15% interest) and operatorship in the undeveloped Block CI-01 and a 100% interest in the onshore Lion Gas Plant, effective 30 June 2007. The adjusted consideration for the acquisition, including transaction costs and working capital adjustments, was US$184.3 million funded through a financing package arranged by BNP Paribas. The transaction took the form of an acquisition of 100% of the ordinary shares of Devon Cte dIvoire Ltd (CI-11), Devon CI One Corporation (CI-01) and Lion G.P.L., S.A. (Lion GPL). The fair value of net assets acquired was as follows (as restated):
CI-11 US$000s CI-01 US$000s Lion GPL US$000s Total US$000s

Oil and gas assets ................................................................................... Other property, plant and equipment ..................................................... Inventories ............................................................................................. Trade and other receivables ................................................................... Cash and cash equivalents ..................................................................... Trade and other payables ....................................................................... Provision for decommissioning ............................................................. Total consideration .............................................................................. Total consideration ................................................................................ Less cash and cash equivalents acquired ............................................... Less accrued consideration .................................................................... Less non-cash costs of acquisition* ....................................................... Cash outflow on acquisition ................................................................
*

51,534 399 7,093 8,077 285 (5,275) (9,831) 52,282

100,626 100,626

27,770 162 1,591 1,929 238 (344) 31,346

179,930 561 8,684 10,006 523 (5,619) (9,831) 184,254 184,254 184,254 (523) (12,735) (2,247) 168,749

Non-cash costs of acquisition relates to shares issued to satisfy professional fees payable in respect of the acquisition.

The book values of identifiable assets and liabilities acquired and their fair value to the Group is as follows:
CI-11 Fair value to the Group US$000 s CI-01 Fair value to the Group US$000 s

Book value US$000 s

Fair value adjustmen ts US$000s

Book value US$000 s

Fair value adjustmen ts US$000s

Oil and gas assets ...... 16,083 Other property, plant and equipment .................................. F-127 648 35,451 51,534 (249) 399 57,189 160 43,437 (160)

100,62 6

Inventories ................ Trade and other receivables .............................. Cash and cash equivalents .............................. Trade and other payables .............................. Deferred tax balances Investment in subsidiaries .............................. Provision for decommissioning ..............................

4,994 73,081 285 (6,128 ) (425) (933) 87,605

2,099 (65,004) 853 425

7,093 8,077

98,766 2,165

285 (5,275 (98,766 ) )

(2,165) (9,831 (8,898) ) (43,582 ) (35,323) 52,282

100,62 6 144,208

Book value US$000s

Lion GPL Fair value adjustments US$000s

Fair value to the Group US$000s

Oil and gas assets ....................................................................................................... Other property, plant and equipment ......................................................................... Inventories ................................................................................................................. Trade and other receivables ....................................................................................... Cash and cash equivalents ......................................................................................... Trade and other payables ...........................................................................................

19,606 8,164 87 75 163 1,428 35,968 (34,039) 238 (386) 42 (24,330) 55,676 CI-11 contributed US$0.1 million to the Groups revenue and a US$9.9 million loss to the Groups result period between the date of acquisition and 31 December 2008.

27,770 162 1,591 1,929 238 (344) 31,346 for the

Lion GPL contributed US$5.3 million to the Groups revenue and made a US$1.6 million profit, reducing the Groups loss for the period between the date of acquisition and 31 December 2008. If the acquisition had been completed on 1 January 2008, the total Group revenue for 2008 would have been US$85.2 million, and Group loss for the year would have been US$44.7 million. This proforma information is for illustrative purposes only and is not necessarily an indication of the revenue and results of the Group that actually would have been achieved had the acquisition been completed on 1 January 2008, nor is it intended to be a projection of future results. Reallocation of provisional fair value allocation The provisional fair values of oil and gas assets acquired were finalised during 2009 to reflect additional information which became available concerning conditions that existed at the date of acquisition, in accordance with the provisions of IFRS 3Business Combinations. The resulting changes to the 2008 financial statements are set out in the following table:
Provisional fair value as previously reported US$000s

Oil and gas assets*

Fair value adjustments US$000s

Fair value as restated US$000s

CI-01 .............................................................................................................................. CI-11 .............................................................................................................................. Lion GPL .......................................................................................................................

35,502 89,850 54,578 179,930

65,124 (38,316) (26,808)

100,626 51,534 27,770 179,930

CI-01 is recorded within intangible assets; CI-11 and Lion GPL are within property, plant and equipment.

The changes in fair values of CI-01 have arisen following completion of an independent review of pre-acquisition data. The review by Netherland, Sewell & Associates, Inc. (NSAI) indicated existence of higher commercial reserves than previously thought. In respect of CI-11 the changes have arisen following adoption of a recently completed NSAI reserves case instead of the previously used internal technical case. The changes in fair value of Lion GPL arose following F-128

adjustment to internal pricing of fuel gas purchased from CI-11 and the reduction in expected throughput upon adoption of NSAI case for CI-11. A reduction in depreciation, depletion and amortisation of US$0.4 million charged in second half 2008 has arisen following the above fair value changes and has also been reflected in the restated 2008 comparative financial statements. 32. OTHER RESERVES
Loan notes US$000 s Investmen t revaluatio n reserve US$000s Share-base d payment reserve US$000s Shares to be issued US$000 s

Translatio n reserve US$000s

Convertibl e bond US$000s

Total US$000 s

Group At 1 January 2008 ......................................... Share-based payments for services ............... Other share-based payments ......................... Shares to be issued ........................................ Transfer to accumulated losses ..................... Issue of loan notes, net of issue costs ........... Revaluation of available for sale investments .................................................................. Redesignation of statements of financial liabilities .................................................................. Conversion of bonds into shares ................... Exchange differences .................................... At 31 December 2008 .................................. Share-based payments for services ............... Other share-based payments ......................... Transfer to accumulated losses ..................... Shares to be issued ........................................ At 31 December 2009 ..................................

(3,019)

(370) 7,350

11,289 (1,789) (9,500)

472 (472)

8,130 10,701 118 (3,849) (3,395) 11,705 9,197 95 (7,562) 13,435

16,872 10,701 118 319 319 (6,008) 7,350 (472)

2,188 (831) 6,980 (2,312) 4,668 (831)

(3,395) (9,500) 2,188 319 18,173 9,197 95 (9,874) (319) (319) 17,272

Translatio n reserve US$000s

Loan notes US$000 s

Convertibl e bond US$000s

Investmen t revaluatio n reserve US$000s

Share-base d payment reserve US$000s

Shares to be issued US$000 s

Total US$000 s

Company At 1 January 2008 ......................................... Share-based payments for services ............... Other share-based payments ......................... Transfer to accumulated losses ..................... Issue of loan notes, net of issue costs ........... Redesignation of warrants as financial liabilities .................................................................. Conversion of bonds in shares ...................... Shares to be issued ........................................ Revaluation of available for sale investments .................................................................. Exchange differences .................................... At 31 December 2008 .................................. Share-based payments for services ............... Other share-based payments ......................... Transfer to accumulated losses ..................... Shares to be issued ........................................ At 31 December 2009 ..................................

(551)

(370) 7,350

11,289 (1,789) (9,500)

472 (472)

8,130 10,701 118 (3,849) (3,395) 11,705 9,197 95 (7,562) 13,435

19,340 10,701 118 (6,008) 7,350 (3,395) (9,500) 319 319 (472) 2,154 319 20,607 9,197 95 (9,874) (319) (319) 19,706

2,154 6,980 1,603 (2,312) 4,668 1,603

F-129

33.

PROFIT AND LOSS ACCOUNT

Group 2009 2008 US$000s US$000s Company 2009 2008 US$000s US$000s

At 1 January ........................................................................................... Loss for the year .................................................................................... Redesignation of warrants as financial liabilities................................... Transfer from other reserves .................................................................. At 31 December .................................................................................... 34. scheme. POST BALANCE SHEET EVENTS

(122,991) (16,778) 9,874 (129,895)

(58,666) (56,122) (23,711) 15,508 (122,991)

(87,233) (28,469) 9,874 (105,828)

(32,188) (46,842) (23,711) 15,508 (87,233)

On 4 January 2010, 187,500 shares were awarded to a Director of the Company in respect of the 2008 share awards On 28 January 2010, Afren announced that it had entered into a joint venture agreement with Oriental Energy Resources Limited and Energy Equity Resources (EER) for the acquisition of 32.5% interest in OML 115 offshore Nigeria. US$6 million will be paid including signature bonuses and licence extension fees in addition to the requirement to drill one firm exploration well at an estimated cost of US$30 million to be borne by Afren. On 28 January 2010, Afren provided an operational update and announced that production, processing and storage facilities for the Ebok field, offshore Nigeria had been contracted for. The Group signed a contract a seven-year lease of a Mobile Offshore Production Unit (MOPU) and a Floating Storage Offloading Vessel (FSO) unit for the Ebok field, which commits the Group to a US$98,750 day rate exclusive of VAT and withholding tax, over the term of the lease. On 1 March 2010 Afren noted an announcement by Maurel et Prom, operator of the La Noumbi exploration licence in Congo Brazzaville. The Tie Tie NE well had reached its final depth but although it had shown hydrocarbon indications these were not considered commercial. The well was plugged and abandoned resulting in a 2009 write-off of US$2.1 million, being costs incurred up to the balance sheet date, with a further write-off of 2010 costs of US$0.5 million to be recorded in H1 2010 results. On 17 March, 2010 Afren announced the signing of an additional drilling contract with Transocean for a drilling rig to carry out planned drilling at the Ebok/Okwok/OML 115 complex and Okoro field offshore south east Nigeria. The contract will run for a period of up to 210 days and has been secured at an operating rate of US$84,000 per day. On 25 March 2010, Afren announced that a bank facility agreement for up to US$450 million had been executed. The facility is secured against the Ebok field reserves has a maturity of a maximum of five years and is repayable semiannually. 35. RELATED PARTY TRANSACTIONS

The transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Amounts owed by and to such subsidiaries are disclosed in notes 18 and 20 respectively. Transactions between the Company and its subsidiaries were as follows:
Subsidiaries US$000s Joint ventures US$000s

2009

Net loan advances ........................................................................................................................... Investments .....................................................................................................................................

159,054 3,716
Subsidiaries US$000s

929
Joint Ventures US$000s

2008

Net loan advances ........................................................................................................................... Investments .....................................................................................................................................

156,385 10,213

3,034

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Remuneration of key management personnel The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2009 US$000s 2008 US$000s

Short-term employee benefits* ....................................................................................................... Other long-term benefits ................................................................................................................. First oil bonus ................................................................................................................................. Termination benefits ....................................................................................................................... Share-based payment ......................................................................................................................

3,201 74 5,577 8,852

3,665 87 1,217 549 4,555 10,073

These amounts exclude amounts payable to Bert Cooper through Energy Investment Holdings Ltd as described further below.

Trading transactions
Purchase of goods/services Year ended Year ended 2009 2008 US$000s US$000s Amounts owed to related parties Year ended Year ended 2009 2008 US$000s US$000s

Energy Investment Holdings Ltd ........................................................... 3,092 8,298 St. John Advisors .................................................................................. 1,083 524 28 Tzell Travel Group ................................................................................ 367 556 22 83 HArt of Africa ...................................................................................... 69 87 Energy Investment Holdings Ltd is the contractor company for the consulting services of Bert Cooper, a member of the International Advisory Board and Special Adviser to Afren plc. The majority of the payments relate to success fees for acquisitions and financing arrangements. Of this total, US$2.1 million (2008: US$2.25 million) was paid in shares. St. John Advisors is the contractor company for the consulting services of John St. John, a Non-executive Director. The majority of the payments relate to success fees for equity financing. St. John Advisors also receive a monthly retainer of 15,000 for equity consulting advice. This contract is for 12 months from 27 June 2008 and automatically continues thereafter unless terminated by either party. Tzell Travel Group operates as a franchise. The franchisee utilised by Afren for some of its travel needs is a close family member of the Chief Executive Officer and Tzell Travel Group is therefore considered a related party. Afren uses several travel agents as there is a significant travel element to its operations and Tzell competes on an even basis with these. Tzell provided approximately 14% (2008: 20%) of the travel arrangements by value. HArt of Africa is a business specialising in the importation of African art. It is owned and run by a close family member of a Director of Afren appointed in 2008 and was engaged to source art for the Afren office in the UK. Gasol plc became an associate of Afren plc during the year. Information on the investment in Gasol plc is disclosed in notes 14 and 15.

F-131

Directors Report The Directors submit their annual report on the affairs of the Group together with the financial statements and audit report of Afren plc for the year ended 31 December 2008. PRINCIPAL ACTIVITIES The principal activities of the Group are oil and gas exploration and development in Africa. The subsidiary undertakings principally affecting the Groups financial statements are listed in note 14 to the financial statements. BUSINESS REVIEW The Company is required by the Companies Act to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2008 and of the position of the Group at the end of the year and a description of the principal risks and uncertainties facing the Group (business review). The information that fulfils the requirements can be found within the Chairman and Chief Executives Statement, the Review of Operations and the Financial Review, which are incorporated into this report by reference. These sections also include details of expected future developments in the business of the Group and details of Key Performance Indicators that management use. PRINCIPAL RISKS AND UNCERTAINTIES Critical to the Groups achievement of its objectives is effective risk management. Afren utilises several strands to mitigate risk where it can in an industry acknowledged as one in which risks have to be taken to succeed. It is clear that there is no certainty to oil and gas operations as the geological reality several thousand feet beneath the surface can not be known fully, the fiscal and political landscape can change rapidly and the oil market, always volatile, has been especially difficult to predict in recent times. However, within this environment there are certain actions that can be taken. Key principles to Afrens risk management are: Balanced portfolioAlthough small, Afren has a mix of exploration, development and producing assets. These are spread over six countries, mitigating political risk. In addition, there is now a mix of gas and oil production, reducing the exposure to the oil market. Recruitment of able, skilled and experienced personnelAfren has significantly enhanced its technical skill base during the year by the recruitment of nine professional staff from the Randall and Dewey technical team. In addition, local staff have been recruited in both Nigeria and Cte dIvoire to ensure both technical and local knowledge. With the substantial growth experienced by Afren in its first few years, there has been a large learning curve and Afren fully intends to continue training and developing its staff to manage the future challenges. Review of policies and proceduresAs a fast-growing company, the policies and procedures that suited a small start-up do not always suit a larger company. As such, Afren is reviewing its procedures to ensure that these fit the business stage it is at. Selected derivative instruments to protect against oil price movementsWith significant production onstream that has been financed in part by debt finance, Afren has to ensure that it has sufficient certainty over its minimum cash flows. As such we have taken out positions protecting our net receipts for a proportion of both the Cte dIvoire production and the Okoro field production. Constant review of Afrens liquidity positionAs a small company Afren has always reviewed its cash flows closely to ensure that it is operating within its means as the company grows. The recent fall in the oil price has led to some strain on the cash resources but the management is confident that it has sufficient resources to fulfil all its commitments at current prices. Regular review of operationsA new reporting regime is being introduced to reflect the fact that Afren is now a fully-fledged operator with regular forecasting updates. Strong business relationshipsAfren seeks to build strong relationships with its partners and its financersboth debt and equity. The successful finance raised during the year and the new partnerships brokered are testament to this and ensure that potential issues can be proactively considered. F-132

GOING CONCERN The Groups business activities, together with the factors likely to affect its future development, performance and position are set out in the Review of Operations. The financial position of the Group at the year end, its cash flows, liquidity position and borrowing facilities are described in the Financial Review. In addition note 20 to the financial statements includes the Groups objectives, policies and processes for managing its capital, its financial risk management objectives and details of its financial instruments and hedging activities; and note 3 describes its exposures to credit risk and liquidity risk. There has been, for the reasons set out in the Financial Review, a reduction in cash reserves in the first quarter of 2009, however the Group had funds of around US$60 million at the end of March 2009, of which around US$34 million was restricted. Going forward, the Group is expecting to make a total of around US$86 million of loan repayments during the remainder of 2009 but has limited capital commitments in its current portfolio. Cash flows generated from the Okoro field can only be utilised on field expenditure and to service and repay the Okoro loan until the completion of certain start-up tests specified in the financing facility arrangements, which is expected to occur in the second quarter of 2009. We are monitoring our short-term cash requirements with care and based on our latest forecasts and projections, we are confident that we have sufficient resources to cover expenditures as required utilising existing Group reserves and revenue generated in Cte dIvoire. Once completion of the existing Okoro facility is obtained, our cash flow is projected to be robust throughout the remainder of 2009, with the Okoro field cash generative at the operating level at relatively low oil prices. In addition, proceeds from the recently completed US$126 million equity placing (before fees and expenses) were received in early May. After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. RESULTS AND DIVIDENDS The Groups loss for the year was US$56.6 million (2007: US$39.0 million). The Directors have not recommended the payment of a dividend (2007: US$nil). EVENTS SINCE THE BALANCE SHEET DATE On 23 January 2009, Afren announced the Board of Directors had approved 6.5 million share option awards over the ordinary shares of 1p each in the Company to Executive Directors of the Company. On 12 February 2009, Gasol plc announced that it had successfully placed 200 million shares with Afren plc at 0.5p raising 1 million and increasing Afrens ownership to 21.3%. On 26 March 2009, Afren announced the results of an independent assessment of the in place oil and recoverable reserves from the Ebok field in Nigeria by Netherland, Sewell & Associates Inc. (NSAI) together with details of future development scenarios for the field. On 1 May 2009, Afren obtained shareholder approval for a placing with institutional investors of 265 million new ordinary shares of the Company at 32p per share which will result in 84.8 million (US$126 million) being raised, before commissions and expenses. THE DIRECTORS AND THEIR INTERESTS The Directors who served the Company during the year and subsequently, together with their and their families beneficial interests in shares in the Company, were as follows:
Committees Audit and ris k Nominatio n Remuneratio n Ordinary shares of 0.01 each At At At 6 May 31 Decembe 31 Decembe r 2008* r 2007** 2009

Name

Rilwanu Lukman(i) Chairman (to December 2008) .......................................................... Osman Shahenshah Chief Executive ..

n/a 6,000,000 6,000,000 1,412,00 1 1,412,001 875,001

F-133

Committees Audit and ris k Nominatio n Remuneratio n

Name

Ordinary shares of 0.01 each At At At 6 May 31 Decembe 31 Decembe 2009 r 2008* r 2007**

Egbert Imomoh Chairman (from December 2008)# ................................................................. Constantine Ogunbiyi(ii) Director ....... Shahid Ullah(iii) Chief Operating Officer .......................................................... Evert Jan Sibinga Mulder(iv) Director Peter Bingham Non-executive Director .......................................................... Guido Pas Senior Non-executive Director .......................................................... John St. John Non-executive Director
* ** # (i) (ii) Or resignation, if earlier Or on appointment, if later

772,458 205,000 1,100,00 0 n/a

772,458 205,000 375,000 23,500

664,385 25,000 23,500

2,000,00 0 2,000,000 2,000,000 50,922 50,922 50,922

Formerly Executive Director and Chairman of the Groups primary Nigerian subsidiary Stepped down from all roles 18 December 2008 Appointed 3 January 2008

(iii) Appointed 1 July 2008 (iv) Resigned 30 June 2008 Chairman of Committee during 2008 Chairman of Committee from December 2008

Appointed to Audit and Risk Committee 25 March 2009 Chairman of Committee from 25 March 2009

Details of the Directors share options are provided in the Directors Remuneration Report. SUPPLIER PAYMENT POLICY The Companys policy, which is also applied by the Group, is to settle terms of payment with suppliers when agreeing the terms of each transaction, to ensure that the supplier is aware of the terms of the payment and to abide by the terms of the payment. Trade creditors of the Group at 31 December 2008 were equivalent to 59 days purchases (2007: 35 days), based on the actual year end balance. CHARITABLE AND POLITICAL DONATIONS During the year the Group made charitable donations of US$156,159, the majority of which related to African focused charities and institutions (2007: US$38,700). No political donations were made in either 2008 or 2007. SUBSTANTIAL INTERESTS As of 1 May 2009, interests notified to the Company in accordance with Chapter 5 of the Disclosure and Transparency Rules comprised:
%

Credit Suisse Securities ...................................................................................................................................... Lansdowne Partners ............................................................................................................................................ Vidacos Nominees .............................................................................................................................................. GLG Partners ...................................................................................................................................................... JP Morgan Chase & Co ...................................................................................................................................... Standard Bank..................................................................................................................................................... FMR Corp ........................................................................................................................................................... Percentages are based on the issued share capital at the date of notification. F-134

11.30 10.68 6.11 4.87 4.48 4.29 3.62

DIRECTORS REMUNERATION Details of the Directors remuneration are set out in the Directors Remuneration Report. SERVICE CONTRACTS No Director has a service contract, consultancy agreement or other such arrangement with a notice period in excess of one year. AUDITORS Each of the persons who is a Director at the date of approval of this annual report confirms that: So far as the Director is aware, there is no relevant audit information of which the Companys auditors are unaware; and The Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Companys auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s234ZA of the Companies Act 1985. The auditors for the year ended 31 December 2008 were Deloitte LLP. Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappointment them will be proposed at the forthcoming Annual General Meeting. ANNUAL GENERAL MEETING At the Annual General Meeting of the Company, resolutions will be proposed to receive these accounts and the Directors and auditors reports and to re-elect the Directors who are retiring at the Annual General Meeting, in accordance with the Companys Articles of Association. Resolutions to reappoint Deloitte LLP as the Companys auditor, to authorise the Directors to fix Deloitte LLPs remuneration as auditor, to authorise the Directors to make political donations and to incur political expenditure, to grant the Directors authority to allot ordinary shares and to buy back the Companys ordinary shares will also be proposed. For a more detailed explanation of these and other amendments, please refer to the Notes on Resolutions set out in the Notice of Annual General Meeting. A copy of the current Articles of Association and the proposed new Articles of Association that reflect these amendments will be available for inspection during normal business hours (Saturdays, Sundays and public holidays excepted) at the registered office of the Company (Kinnaird House, 1 Pall Mall East, London SW1Y 5AU) and the offices of Herbert Smith, Exchange House, Primrose Street, London EC2A 2HS up until the close of the meeting. On behalf of the Board Osman Shahenshah Chief Executive 6 May 2009

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Corporate Governance Statement The Directors are committed, where practicable for a company of this size and nature, to applying the requirements of the Combined Code on Corporate Governance. This statement explains how the Directors applied the principles of the code during the period ended 31 December 2008. INTERNAL CONTROLS The Board has responsibility for establishing and maintaining the Groups system of internal controls and reviewing its effectiveness. The procedures which include inter alia financial, operational and compliance matters and risk management are reviewed on an ongoing basis. The Board has approved the annual budget. Performance against budget is monitored and reported to the Board. The internal control system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has considered the need for an internal audit function but does not consider it necessary at the current time. BOARD STRUCTURE The Board is responsible to shareholders for the proper management of the Group. During the year, the Board comprised the Non-executive Chairman, four Executive Directors (the Chief Executive, the Chief Operating Officer, the Managing Director, Nigeria and an additional Director) and three further Non-executive Directors. During the year, one Director stepped down at the end of June (Mr Evert Jan Sibinga Mulder) and one Director joined the Board in July (Mr. Shahid Ullah). In December Dr Rilwanu Lukman stepped down as Chairman due to his appointment as Nigerias Minister of Petroleum Resources and Mr Egbert Imomoh, who had been serving as the Managing Director, Nigeria, was appointed as Non-executive Chairman. Currently, Afrens Board consists of a Non-executive Chairman, three Executive Directors and three Non-executive Directors. Brief biographies are on pages 40 and 41 and demonstrate a range of relevant experience at a senior level. The Board meets at least quarterly and as issues arise which require Board attention. The Board has a formal schedule of matters specifically referred to it for decision. In addition to those formal matters required by the Companies Act(s) to be set before a board of directors, the Board will also consider strategy and policy, acquisition and divestment proposals, approval of major capital investments, risk management policy, significant financing matters and statutory shareholder reporting. During 2008, all operational Board meetings were attended by all the Board members in office at the time of the Board meetings, except for a board meeting in March 2008 that Mr Evert Jan Sibinga Mulder was unable to attend, a board meeting in September that Mr Egbert Imomoh and Mr Shahid Ullah were unable to attend and a board meeting in December that Guido Pas was unable to attend. To enable the Board to discharge its duties, all Directors receive appropriate and timely information and the Chairman ensures that the Directors take independent professional advice as required. Appropriate training is available where necessary. A statement of the Directors responsibilities in respect of the accounts is set out on page 55. The Company has established Audit and Risk, Nomination and Remuneration Committees. Terms of Reference for the Committees are available on request from the Company. AUDIT AND RISK COMMITTEE The Audit and Risk Committee comprises of Mr Peter Bingham (Chairman), Mr Guido Pas and Mr John St. John. In addition, Mr Egbert Imomoh was appointed to serve on this committee in March 2009. It meets at least three times a year and is responsible for ensuring that the financial performance of the Group is properly reported on and monitored. It liaises with the auditors and reviews the reports from the auditors relating to the accounts and internal control matters. If required, meetings are attended by appropriate members of senior management. The Audit Committee is also responsible for reviewing the requirement for an internal audit function. NOMINATION COMMITTEE The Nomination Committee comprised of Dr Rilwanu Lukman (Chairman) until he stepped down and Guido Pas. Mr Egbert Imomoh took over the Chairmans role from Dr Lukman in March 2009. The Committee meets as required and is responsible for reviewing and recommending to the Board the appointment of Directors.

F-136

REMUNERATION COMMITTEE The Remuneration Committee consisted of Mr John St. John (Chairman from March 2009), Dr Rilwanu Lukman (until December 2008), Mr Peter Bingham (Chairman until March 2009) and, since March 2009, Mr Egbert Imomoh. The Committee is responsible for making recommendations to the Board on the Companys overall framework for remuneration and its cost. In addition, it determines the individual remuneration for the Executive Directors giving due regard to the overall framework for the Companys remuneration, external advisers where appropriate, the interests of shareholders, the performance of the Group and all relevant legal requirements. The Remuneration Committee also makes recommendations to the Board concerning employee incentives, including share-based schemes and pension contributions. Directors of the Group are not permitted to participate in discussions or decisions of the Committee regarding their own remuneration. Full details of the Directors remuneration are presented in the Directors Remuneration Report. RELATIONSHIPS WITH SHAREHOLDERS The Board remains fully committed to maintaining regular communication with its shareholders. There is regular dialogue with major institutional shareholders and meetings are offered regularly following significant announcements. Press releases have been issued throughout the year and the Company maintains a website (www.afren.com) on which all press releases are posted and which also contains major corporate presentations and the reports and accounts. Additionally, this Annual Report, which is sent to all registered shareholders, contains extensive information about the Groups activities. Enquiries from individual shareholders on matters relating to their shareholdings and the business of the Group are welcomed. Shareholders are also encouraged to attend the Annual General Meeting to discuss the progress of the Group. CONFLICT OF INTERESTS The Company amended its articles of association in June 2008 to deal with, amongst other things, the provisions on conflicts of interest in the Companies Act 2006 which came into force in October 2008. Following this the Company has put in place procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation of such conflict matters by the Board. In deciding whether to authorise a conflict or potential conflict the Directors must have regard to their general duties under the Companies Act 2006. The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board and will be reviewed on an annual basis by the Nominations Committee. INFORMATION NOT SUBJECT TO AUDIT REMUNERATION COMMITTEE The members of the Remuneration Committee consisted of Mr John St. John (Chairman from March 2009), Mr Peter Bingham (Chairman until March 2009), Dr Rilwanu Lukman (until December 2008) and since March 2009, Mr Egbert Imomoh. All are Non-executive Directors. No Director plays a part in any discussion about his or her own remuneration. Executive remuneration packages are designed to attract, motivate and retain Directors of the calibre required to grow the business and enhance value to shareholders. The performance measurement of the Executive Directors and the determination of their annual remuneration package are undertaken by the Committee. Executive Directors are entitled to accept appointments outside the Company providing that the Chairmans permission is sought and fees in excess of 10,000 from all such appointments are accounted for to the Company, except where specific approval is gained from the Board. There are five main elements of the remuneration package for Executive Directors: Basic annual salary Benefits in kind Pension contribution Annual bonus payments F-137

Share option incentives or other equity instruments

The Companys policy is that a substantial proportion of the remuneration of the Executive Directors and senior management should be performance related. BASIC SALARY An Executive Directors annual salary is reviewed by the Remuneration Committee prior to the beginning of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee relies on objective research which gives up-to-date information on a comparable group of companies. Basic salaries are reviewed in December, with increases taking effect from 1 January. BENEFITS IN KIND The Executive Directors receive certain benefits in kind, principally private medical insurance, club membership and critical illness cover. PENSION CONTRIBUTION UK-based Executive Directors are members of the Company pension scheme. The scheme is a defined contribution scheme and the Company contributes 10% of salary subject to the participant contributing at least 5% of their salary. ANNUAL BONUS PAYMENTS A formal annual cash bonus scheme has been in place since 2006. During 2008 bonuses were awarded to all the Executive Directors serving throughout the relevant period. In addition, three Executive Directors received bonuses upon achieving First Oil at the Okoro Setu Project. Details of the Executive Directors bonuses are on page 51. SHARE OPTIONS The 2005 Share Option Scheme was established to incentivise the Directors and staff, aid recruitment to the Company and enable Directors and employees to share in the benefit from the increased market capitalisation of the Company. The Remuneration Committee has responsibility for supervising the scheme and the grant of options under its terms. Options were awarded to Constantine Ogunbiyi in April 2008 under this scheme. LONG TERM INCENTIVE PLAN An alternative share plan was introduced during 2008 to give awards to Directors and staff subject to outperforming a comparator group of similarly focused oil and gas exploration and production companies in terms of shareholder return over a three-year period. The Afren Performance Share Plan awards a number of shares to Directors and staff based on a multiple of salary. However, these shares only vest after a three-year period and the full award is made only if Afren has performed in the top quartile when compared against a selected peer group of upstream oil and gas companies focused on Africa: Addax, Bowleven, Gulf Keystone Petroleum, Gulfsands Petroleum, Hardy Oil & Gas, Mart Resources, Petroceltic International, Roc Oil Company, Serica Energy, Soco International, Sterling Energy, Stratic Energy, Tullow Oil, Vaalco Energy and White Nile. If Afren does not achieve at least median performance in the peer group, no shares will be awarded. At the median level, 30% of the shares will vest and there is a sliding scale between median and top quartile performance where only a percentage of the total award will vest. The first awards under this scheme were granted in June 2008 and will vest in June 2011 subject to meeting the performance criteria detailed above. Details of the awards by Director are included below. SHARE AWARDS As part of the incentives to attract the Jefferies, Randall & Dewey technical team, a number of shares were awarded, subject to continuing employment in the most part, to the team. None of this team was eligible to an award under the Long Term Incentive Plan. The timing of the shares issued range from six months to three years. Mr. Shahid Ullah was eligible for some of the shares awarded under this scheme.

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The Companys policy is to grant options or an alternative share-based incentive on appointment and at regular intervals thereafter. DIRECTORS CONTRACTS It is the Companys policy that Executive Directors should have contracts of an indefinite term providing for a maximum of one years notice. The details of the Directors contracts are summarised below:
Name of Director Date of contract Notice period

Egbert Imomoh ................... Non-executive Director and Chairman Osman Shahenshah .......... Chief Executive Officer Constantine Ogunbiyi ...... Executive Director Shahid Ullah .................... Chief Operating Officer NON-EXECUTIVE DIRECTORS

1 January 2009 27 February 2009 12 June 2008 16 April 2008

3 months 12 months 12 months 6 months

All Non-executive Directors have specific terms of engagement and their remuneration is determined by the Board based on independent surveys of fees paid to non-executive directors of similar companies. The Chairman, in recognition of his role as both Chairman and ambassador for the Company, is paid a basic fee of 85,000 p.a. The basic fee paid to each other Non-executive is 40,000 p.a. pro rata. All Non-executive Directors participate in the share option scheme, but are not eligible to join the Companys pension scheme. TOTAL SHAREHOLDER RETURNS The graph shows the relative performance of Afren plc against the AIM Oil & Gas Index, the AIM All Share Index and the Ernst and Young Oil & Gas Index since Afrens IPO. As an AIM listed oil and gas company, Afren would look to compare its performance with other AIM companies and other similar-sized oil and gas companies. The selected indices give the most appropriate benchmark for these categories. AUDITED INFORMATION DIRECTORS EMOLUMENTS
Fees/basic salary US$000 426 380 569 269 237 1,881 Benefits in kind US$000 7 22 37 11 77 Pension contributions US$000 26 57 4 87 Termination payments US$000 549 549 First Oil bonus US$000 292 255 670 1,217 Annual bonuses US$000 324 216 432 100 1,072 Total 2008 US$000 1,049 899 1,765 822 348 4,883 Total 2007 US$000 699 n/a 1,237 667 n/a 232 2,835

Name of Director Executive Mr Egbert Imomoh* ............................................. Mr Constantine Ogunbiyi ..................................... Dr Osman Shahenshah ......................................... Mr Evert Jan Sibinga Mulder ............................... Mr Shahid Ullah ................................................... Mr Brian OCathain .............................................

Egbert Imomohs remuneration relates to his service as an Executive Director to the end of 2008. Fees/basic salary US$000 75 160 75 75 385 2,266 Benefits in kind US$000 77 Pension contributions US$000 87 Termination payments US$000 549 First Oil bonus US$000 1,217 Annual bonuses US$000 250 250 1,322 Total 2008 US$000 75 410 75 75 635 5,518 Total 2007 US$000 70 170 70 58 368 3,203

Name of Director Non-executive Mr Peter Bingham ................................................ Dr Rilwanu Lukman ............................................. Mr Guido Pas........................................................ Mr John St. John.................................................. Aggregate emoluments .........................................

Three of the Executive Directors were members of the Companys defined contribution scheme during the year (2007: three).

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DIRECTORS EQUITY INTERESTS Share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of the options held and granted during the year under the 2005 Share Option Scheme are as follows:
Share price at grant date

Name of Director

As at 1 January 2008

Granted

Exercised

Lapsed

Date granted

As at 31 December 2008

Exercise price

Exercisable from

Exercisable to

E Imomoh .........................................

C Ogunbiyi .......................................

O Shahenshah ..................................

133,334 133,333 133,333 250,000 250,000 166,667 166,667 166,666 200,000 200,000 200,000 25,000 75,000 75,000 75,000 25,000 75,000 75,000 75,000 25,000 75,000 75,000 75,000 33,334 33,333 33,333 75,000 75,000 83,334 83,333 83,333 66,667 66,667 66,666 100,000 100,000 100,000 383,334 383,333 383,333 425,001 424,999 183,334 183,333 183,333 200,000 200,000 200,000 41,667 125,000 125,000 125,000 41,667 125,000

50,000 100,000 100,000 150,000 300,000 300,000

28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 30.05.06 30.05.06 30.05.06 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 30.05.06 30.05.06 30.05.06 26.06.07 26.06.07 26.06.07 25.04.08 25.04.08 25.04.08 25.04.08 25.04.08 25.04.08 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 30.05.06 30.05.06 30.05.06 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07

133,334 133,333 133,333 250,000 250,000 166,667 166,667 166,666 200,000 200,000 200,000 25,000 75,000 75,000 75,000 25,000 75,000 75,000 75,000 25,000 75,000 75,000 75,000 33,334 33,333 33,333 75,000 75,000 83,334 83,333 83,333 66,667 66,667 66,666 100,000 100,000 100,000 50,000 100,000 100,000 150,000 300,000 300,000 383,334 383,333 383,333 425,001 424,999 183,334 183,333 183,333 200,000 200,000 200,000 41,667 125,000 125,000 125,000 41,667 125,000

36p 36p 36p 36p 36p 36p 36p 36p 63p 63p 63p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 36p 36p 36p 36p 36p 36p 36p 36p 63p 63p 63p 67.5p 67.5p 67.5p 144.5p 144.5p 144.5p 144.5p 144.5p 144.5p 36p 36p 36p 36p 36p 36p 36p 36p 63p 63p 63p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p

20p 20p 20p 50p 50p 100p 100p 100p 63p 63p 63p 80p 80p 80p 80p 120p 120p 120p 120p 180p 180p 180p 180p 20p 20p 20p 50p 50p 100p 100p 100p 63p 63p 63p 70p 70p 70p 150p 150p 150p 190p 190p 190p 20p 20p 20p 50p 50p 100p 100p 100p 63p 63p 63p 80p 80p 80p 80p 120p 120p

28.06.05 01.03.06 01.03.07 28.06.05 01.03.06 28.06.05 01.03.06 01.03.07 30.05.07 30.05.08 30.05.09 28.03.07 28.03.08 28.03.09 28.03.10 28.03.07 28.03.08 28.03.09 28.03.10 28.03.07 28.03.08 28.03.09 28.03.10 28.06.05 01.03.06 01.03.07 28.06.05 01.03.06 28.06.05 01.03.06 01.03.07 30.05.07 30.05.08 30.05.09 26.06.08 26.06.09 26.06.10 25.04.09 25.04.10 25.04.11 25.04.09 25.04.10 25.04.11 28.06.05 01.03.06 01.03.07 28.06.05 01.03.06 28.06.05 01.03.06 01.03.07 30.05.07 30.05.08 30.05.09 28.03.07 28.03.08 28.03.09 28.03.10 28.03.07 28.03.08

27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 29.05.16 29.05.16 29.05.16 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 29.05.16 29.05.16 29.05.16 25.06.17 25.06.17 25.06.17 25.04.18 25.04.18 25.04.18 25.04.18 25.04.18 25.04.18 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 29.05.16 29.05.16 29.05.16 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17

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EJ Sibinga Mulder ............................

P Bingham ........................................

R Lukman ........................................

G Pas .................................................

J St. John .........................................

Total ..................................................

125,000 125,000 41,666 125,000 125,000 125,000 100,000 300,000 300,000 300,000 100,000 300,000 300,000 300,000 100,000 300,000 300,000 300,000 62,500 62,500 43,334 43,333 43,333 72,500 72,500 62,500 62,500 43,334 43,333 43,333 500,000 62,500 62,500 43,334 43,333 43,333 72,500 72,500 132,000 132,000 136,000 13,105,000 1,000,000

(150,000) (300,000) (300,000) (300,000) (62,500) (62,500) (43,334) (43,333) (43,333) (500,000) (1,805,000)

28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.03.07 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 21.06.07 21.06.07 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 18.12.06 28.06.05 28.06.05 28.06.05 28.06.05 28.06.05 21.06.07 21.06.07 21.06.07 21.06.07 21.06.07

125,000 125,000 41,666 125,000 125,000 125,000 100,000 300,000 300,000 300,000 100,000 300,000 150,000 100,000 300,000 62,500 62,500 43,334 43,333 43,333 72,500 72,500 62,500 62,500 43,334 43,333 43,333 72,500 72,500 132,000 132,000 136,000 12,300,000

53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 53.5p 36p 36p 36p 36p 36p 69p 69p 36p 36p 36p 36p 36p 50p 36p 36p 36p 36p 36p 69p 69p 69p 69p 69p

120p 120p 180p 180p 180p 180p 80p 80p 80p 80p 120p 120p 120p 120p 180p 180p 180p 180p 50p 50p 100p 100p 100p 70p 70p 50p 50p 100p 100p 100p 50p 50p 50p 100p 100p 100p 70p 70p 70p 70p 70p

28.03.09 28.03.10 28.03.07 28.03.08 28.03.09 28.03.10 28.03.07 28.03.08 28.03.09 28.03.10 28.03.07 28.03.08 28.03.09 28.03.10 28.03.07 28.03.08 28.03.09 28.03.10 28.06.05 01.03.06 28.06.05 01.03.06 01.03.07 21.06.07 20.06.08 28.06.05 01.03.06 28.06.05 01.03.06 01.03.07 18.12.06 28.06.05 01.03.06 28.06.05 01.03.06 01.03.07 21.06.07 21.06.08 21.06.07 21.06.08 21.06.09

27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 27.03.17 n/a 27.03.17 27.03.17 n/a n/a 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 20.06.17 20.06.17 n/a n/a n/a n/a n/a n/a 27.06.15 27.06.15 27.06.15 27.06.15 27.06.15 20.06.17 20.06.17 20.06.17 20.06.17 20.06.17

There have been no variations to the terms and conditions or performance criteria for the share options during the financial year. The options issued on 28 June 2005, 28 March 2007, 25 April 2008 and those issued to Peter Bingham and Guido Pas on 21 June 2007 have no performance criteria attached to them. Those issued to John St. John on 21 June 2007 only vest if a closing share price for the Company of over 1.00 has been achieved for a three-month period. The options issued on 30 May 2006 will only vest if the share price has increased by 40% over the market price at date of grant for a period of 10 days. LONG TERM INCENTIVE PLAN On 1 June 2008, awards were made to Afren Directors and employees under the Afren Performance Share Plan. Shares were awarded to each member of the scheme that will vest in full only if Afren achieves top quartile performance against its peers of oil and gas upstream companies with significant interests in Africa over a three-year period, based on Total Shareholder Return (TSR). No shares will vest if Afren does not at least perform at the median level. At the median level, 30% of the shares will vest and there is a straight-line calculation between the median level and the top quartile. Awards under this scheme were as follows:
Date of award Date of vesting Maximum number of shares

Director

Egbert Imomoh .......................................................................................................... 01.06.2008 01.06.2011 Constantine Ogunbiyi ....................................................................................................... 01.06.2008 01.06.2011 Osman Shahenshah ........................................................................................................... 01.06.2008 01.06.2011

271,084 240,964 361,446

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SHARES ON JOINING On joining, Shahid Ullah was granted shares which will be issued for a nominal consideration subject to certain time constraints. The amounts and timing of these awards are as follows:
Date Number shares

Quarter 4, 2008 .......................................................................................................................................................... 375,000 Quarter 2, 2009 .......................................................................................................................................................... 1,087,500 Quarter 4, 2009 .......................................................................................................................................................... 562,500 Total .......................................................................................................................................................................... 2,025,000 The closing market price of the ordinary shares at 31 December 2008 was 0.26 and the range during the year was 0.26 to 1.86. FOUNDERS SCHEME As presented to the AGM in June 2007, a Founders Scheme has been introduced. Under this scheme the Founders of Afren undertook to invest a total of US$5.0 million equivalent in Afren shares prior to 30 September 2008 and were granted a total of 40 million warrants at an exercise price of 1.60 per share but only if the share price has reached 2.50 for at least 30 days (an increase of 56% above the exercise price). The warrants expire in December 2009. The shares were purchased at an average price of 1.28 and the agreements were finalised in January 2009. The warrants were subject to certain anti-dilution clauses and as such will be repriced in the recently announced private placement to the lower of the share price of the financing over the five days prior to the issue of the shares or the issue price of the new shares plus 20%. The performance criteria is similarly repriced to 56% above the warrant price. APPROVAL This report was approved by the Board of Directors on 6 May 2009 and signed on its behalf by: Mr John St. John Chairman, Remuneration Committee 6 May 2009

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Statement Of Directors Responsibilities The Directors are responsible for preparing the Annual Report, Directors Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. The directors are required by the IAS Regulation to prepare the Group financial statements under International Financial Reporting Standards (IFRS) as adopted by the European Union and have also elected to prepare the parent company financial statements in accordance with IFRS as adopted by the European Union. The financial statements are also required by law to be properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Companys financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Boards Framework for the preparation and presentation of financial statements. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, directors are also required to: properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entitys financial position and financial performance.

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Companys website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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Independent Auditors Report To The Members Of Afren Plc We have audited the Group and Parent Company financial statements (the financial statements) of Afren plc for the year ended 31 December 2008 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Equity and the related notes 1 to 33. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors Remuneration Report that is described as having been audited. This report is made solely to the Companys members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Companys members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Companys members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Directors responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union are set out in the Statement of Directors Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors Report is consistent with the financial statements. The information given in the Directors Report includes that specific information presented in the Chairman and Chief Executives Statement, the Review of Operations and the Financial Review that is cross referred from the Business Review section of the Directors Report. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors remuneration and other transactions is not disclosed. We read the other information contained in the Annual Report as described in the contents section and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the Annual Report. BASIS OF AUDIT OPINION We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Groups and Companys circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors Remuneration Report to be audited. OPINION In our opinion: F-144

the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the Groups affairs as at 31 December 2008 and of its loss for the year then ended; the parent Company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the Parent Companys affairs as at 31 December 2008; the financial statements and the part of the Directors Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and the information given in the Directors Report is consistent with the financial statements.

Deloitte LLP Chartered Accountants and Registered Auditors London United Kingdom 6 May 2009

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Group Income Statement For the Year Ended 31 December 2008

Group 2008 2007 US$000s US$000s

Notes

Revenue ..................................................................................................................... Cost of sales ............................................................................................................... Gross loss .................................................................................................................. Administrative expenses ............................................................................................ Other operating income/(expenses) derivative financial instruments ............................................................................. impairment of oil and gas assets ............................................................................ Operating loss .......................................................................................................... Investment revenue .................................................................................................... Finance costs.............................................................................................................. Other gains and (losses) foreign currency losses .......................................................................................... fair value of financial liabilities ............................................................................. impairment charge on available for sale investments ............................................ Loss before tax ......................................................................................................... Income tax expense.................................................................................................... Loss after tax ............................................................................................................ Loss per share Basic and diluted........................................................................................................ All operations were continuing throughout both years.

42,501 (70,980) (28,479) (32,491) 54,682 (38,212) (44,500) 5,286 (25,760) (15,382) 26,607 (2,296) (56,045) (520) (56,565) 15.1c

(18,100) (5,983) (12,037) (36,120) 2,515 (5,171) (263) (39,039) (39,039) 16.5c

20 6 7 9 10 20 14 26

11

F-146

Balance Sheets As At 31 December 2008

Group 2008 US$000 2007 s US$000s Company 2008 2007 US$000 US$000 s s

Notes Assets Non-current assets Intangible oil and gas assets ................................................................................................. Property, plant and equipment oil and gas assets other 13 14 20 14

12 13

148,809 530,325 5,813 20,354 211 705,512 13,276 56,030 29,161 117,719 216,186 921,698

49,656 140,926 1,545 1,475 193,602 3,090 12,626 91,783 107,499 301,101

2,299 43,062 211 45,572 330,731 39,106 369,837 415,409

3,868 878 32,849 1,475 39,070 139,885 39,937 179,822 218,892

Investments in subsidiaries .................................................................................................. Derivative financial instruments .......................................................................................... Available for sale investments ............................................................................................. Current assets Inventories ............................................................................................................................ Trade and other receivables ................................................................................................. Derivative financial instruments .......................................................................................... Cash and cash equivalents .................................................................................................... Total assets .......................................................................................................................... Liabilities Current liabilities Trade and other payables...................................................................................................... Borrowings ........................................................................................................................... Net current (liabilities)/assets ............................................................................................ Non-current liabilities Provision for decommissioning............................................................................................ Borrowings ........................................................................................................................... Derivative financial instruments .......................................................................................... Total liabilities .................................................................................................................... Net assets ............................................................................................................................. Equity Share capital ......................................................................................................................... Share premium ..................................................................................................................... Other reserves ....................................................................................................................... Accumulated losses .............................................................................................................. Total equity .........................................................................................................................

15 17 20 18

19 (145,755) 20 (111,218) (256,973) (40,787) 21 (20,276) 20 (293,946) 20 (314,222) (571,195) 350,503 25 25 30 8,806 446,958 18,173 (123,434) 350,503

(40,019) (37,749) (40,019) (37,749) 67,480 332,088 (146,691) (4,575) (151,266) (191,285) (37,749) 109,816 377,660 5,365 8,806 146,245 446,958 16,872 10,416 (58,666) (88,520) 109,816 377,660

(10,924) (10,924) 168,898 (69,206) (69,206) (80,130) 138,762 5,365 146,245 19,340 (32,188) 138,762

The financial statements were approved by the Board of Directors and authorised for issue on 6 May 2009. They were signed on its behalf by: Osman Shahenshah Chief Executive 6 May 2009

F-147

Cash Flow Statements For the year ended 31 December 2008

Group 2008 US$000s 2007 US$000s Company 2008 US$000 2007 s US$000s

Notes

Operating loss for the year ................................................................................. Depreciation, depletion and amortisation .......................................................... Derivative financial instruments ........................................................................ Impairment of oil and gas assets ........................................................................ Provision for inventoriesspare parts............................................................... Other operating expensesinvestment write off ............................................... Share-based payments charge ............................................................................ Operating cash flows before movements in working capital ............................. Increase in trade and other operating receivables .............................................. Increase/(decrease) in trade and other operating payables ................................. Derivative financial instruments realised losses ................................................ Corporation tax paid .......................................................................................... Currency translation adjustments....................................................................... Net cash used in operating activities .............................................................. Purchases of property, plant and equipment: oil and gas assets other

28

(44,500) 30,473 (54,682) 38,212 1,206 10,819 (18,472) (30,757) 23,018 (817) (520) 737 (26,811)

(36,120) (45,786) 973 632 5,983 12,037 1,995 6,691 (15,132) (38,463) (4,287) (7,550) 10,183 30,861 (171) 710 (9,407) (14,442)

(15,918) 675 377 796 1,995 (12,075) (3,645) (3,144) (166) (19,030)

(224,297) Exploration and evaluation expenditure ............................................................ Advances to Group undertakings ....................................................................... Investment in subsidiaries.................................................................................. Increase in inventoriesspare parts .................................................................. Purchase of investments .................................................................................... Investment revenue ............................................................................................ Acquisition of subsidiaries, net of cash acquired ............................................... Net cash used in investing activities ............................................................... Issue of ordinary share capital ........................................................................... Costs of share issues .......................................................................................... Proceeds from borrowings ................................................................................. Borrowing costs ................................................................................................. Incentive paid on early conversion of bonds ..................................................... Repayment of borrowings.................................................................................. Interest and financing fees paid ......................................................................... Net cash provided by financing activities ...................................................... Net increase in cash and cash equivalents ......................................................... Cash and cash equivalents at beginning of year................................................. Effect of foreign exchange rate changes ............................................................ Cash and cash equivalents at end of year ........................................................... (5,115) (62,396) (2,709) (1,501) 5,349 (168,749) (459,418) 238,313 (7,663) 362,502 (11,597) (9,332) (29,032) (16,282) 526,909 40,680 91,783 (14,744) 117,719

(63,060) (1,216) (24,538) 2,372 (86,442) 84,625 (3,219) 84,000 (7,338) (6,855) 151,213 55,364 35,665 754 91,783

(2,051) (175,78 8) (10,761) (1,501) 4,529 (185,57 2) 238,313 (7,663) (9,332) (7,399) 213,919 13,905 39,937 (14,736) 39,106

(729) (211) (52,315) 1,944 (51,311) 84,625 (3,219) (7,317) 74,089 3,748 35,521 668 39,937

29

18

The Group cash and cash equivalents balance at 31 December 2008 included US$58.9 million to which the Group has restricted access, as discussed further in note 18 (Company: US$nil). During the year a material non-cash transaction occurred, being the early conversion of the Groups convertible bonds (see note 22).

F-148

Statements Of Changes In Equity For The Year Ended 31 December 2008

Share capital US$000s Share premium account US$000s Other reserves US$000s Accumulated losses US$000s Total equity US$000s

Group At 1 January 2007 ........................................................................ Issue of share capital.................................................................... Deductable costs of share issues .................................................. Share-based payments for services .............................................. Other share-based payments ........................................................ Reserves transfer relating to convertible bonds ........................... Reserves transfer on exercise of options ...................................... Revaluation of available for sale investments .............................. Translation differences ................................................................ Net loss for the year ..................................................................... Balance at 31 December 2007 ................................................... Issue of share capital.................................................................... Deductible costs of share issues................................................... Issue of loan notes, net of costs (note 23) .................................... Share-based payments for services .............................................. Other share-based payments ........................................................ Reserves transfer relating to convertible bonds ........................... Reserves transfer on exercise of options ...................................... Revaluation of available for sale investments .............................. Conversion of bonds into shares .................................................. Redesignation of warrants as financial liabilities (note 20) ......... Translation differences ................................................................ Other movements ......................................................................... Net loss for the year ..................................................................... Balance at 31 December 2008 ................................................... Company At 1st January 2007 ..................................................................... Issue of share capital.................................................................... Deductible costs of share issues................................................... Share-based payments for services .............................................. Other share-based payments ........................................................ Reserves transfer relating to convertible bonds ........................... Reserves transfer on exercise of options ...................................... Revaluation of available for sale investments .............................. Exchange differences ................................................................... Net loss for the year ..................................................................... Balance at 31 December 2007 ................................................... Issue of share capital.................................................................... Deductible costs of share issues................................................... Share-based payments for services .............................................. Reserves transfer relating to convertible bonds ........................... Conversion of bonds into shares .................................................. Reserves transfer on exercise of options ...................................... Other share-based payments ........................................................ Revaluation of available for sale investment ............................... Exchange differences ................................................................... Redesignation of warrants as financial liabilities ......................... Other movements ......................................................................... Net loss for the year ..................................................................... Balance at 31 December 2008 ...................................................

3,752 1,613 5,365 2,021 1,420 8,806 3,752 1,613 5,365 2,021 1,420 8,806

58,266 91,198 (3,219) 146,245 238,537 (7,663) 69,839 446,958 58,266 91,198 (3,219) 146,245 238,537 (7,663) 69,839 446,958

16,042 1,936 3,454 (2,974) (1,495) 227 (318) 16,872 7,350 10,701 118 (1,789) (3,849) (472) (9,500) (3,395) 2,188 (51) 18,173 18,743 1,936 3,454 (2,974) (1,495) 227 (551) 19,340 6,573 (1,789) (9,500) (2,932) 118 (472) 2,154 (3,395) 319 10,416

(24,096) 2,974 1,495 (39,039) (58,666) 1,789 3,849 9,500 (23,711) 370 (56,565) (123,434) (11,065) 2,974 1,495 (25,592) (32,188) 1,789 9,500 2,932 (23,711) (46,842) (88,520)

53,964 92,811 (3,219) 1,936 3,454 227 (318) (39,039) 109,816 240,558 (7,663) 7,350 10,701 118 (472) 71,259 (27,106) 2,188 319 (56,565) 350,503 69,696 92,811 (3,219) 1,936 3,454 227 (551) (25,592) 138,762 240,558 (7,663) 6,573 71,259 118 (472) 2,154 (27,106) 319 (46,842) 377,660

F-149

Notes To The Consolidated Financial Statements For the year ended 31 December 2008 1. GENERAL INFORMATION

Afren plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on the inside back cover. The nature of the Groups operations and its principal activities are set out in note 4 and in the Chairman and Chief Executives Statement and Review of Operations on pages 11 to 33. These financial statements are presented in US dollars. Foreign operations are included in accordance with the policies set out in note 2. Adoption of new and revised standards In the current year, two Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 11 IFRS 2Group and Treasury Share Transactions and IFRIC 14 IAS 19The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The adoption of these Interpretations has not led to any changes in the Groups accounting policies. At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IFRS 2 (amended) ................................................ Share-based PaymentVesting Conditions and Cancellations IFRS 3 (revised 2008) .......................................... Business Combinations IFRS 8 .................................................................. Operating Segments IAS 1 (revised 2007) ............................................ Presentation of Financial Statements IAS 23 (revised 2007) .......................................... Borrowing Costs IAS 27 (revised 2008) .......................................... Consolidated and Separate Financial Statements IAS 32 (amended)/IAS 1 (amended) ................... Puttable Financial Instruments and Obligations Arising on Liquidation IFRIC 12 .............................................................. Service Concession Arrangements IFRIC 15 .............................................................. Agreements for the Construction of Real Estate IFRIC 16 .............................................................. Hedges of a Net Investment in a Foreign Operation The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group except for: 2. additional segment disclosures when IFRS 8 comes into effect for periods commencing on or after 1 January 2009; treatment of acquisition of subsidiaries when IFRS 3 comes into effect for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July 2009. IFRS 1 (amended)/IAS 27 (amended) .................

ACCOUNTING POLICIES

Functional and presentation currencies The Companys major subsidiaries changed their functional currencies from local currency to US dollar in prior year. In July 2008, the sterling denominated convertible bond held by Afren plc converted into shares and following this, Afren management reviewed the functional currency of the holding company and concluded that it should be changed from pound sterling to US dollars, aligning it with all the major subsidiaries in the Group. The majority of the Companys transactions, in value, and assets and liabilities are now in US dollar and hence it was appropriate to change the functional currency. Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have also been prepared in accordance with IFRS adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. F-150

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments and oil inventory subject to certain commodity swap arrangements that have been measured at fair value. Going concern The financial statements have been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting takes into consideration the Groups current and forecast financing position, additional details of which are provided in note 20 and the Going Concern section of the Directors Report. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the 31 December each year. Control is achieved where the Company has the power to govern the financial and operational policies of an entity so as to gain benefit from its activities. Entities over which the Company exercises joint control are accounted for using proportional consolidation, under which the Group records its share of revenue, expenditure, assets and liabilities. As a consolidated Group income statement is published, a separate profit and loss account for the parent Company has not been published in accordance with section 230(4) of the Companies Act 1985. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquirees identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Goodwill arising on acquisitions is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Groups interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Property, plant and equipmentother Property, plant and equipment are stated at cost less depreciation and any provision for impairment. Depreciation is provided at rates calculated to write off the cost of the tangible fixed assets, less anticipated disposal proceeds, on a straight-line basis over their estimated useful economic life as follows: Leasehold improvements ................................................................................................................ Fixtures and equipment................................................................................................................... Computer hardware and software ................................................................................................... Gas plant ......................................................................................................................................... Exploration, evaluation and oil and gas assets over life of lease over three years over three years over ten years

The Group follows the successful efforts method of accounting for exploration and evaluation (E&E) costs. All licence acquisition, exploration and evaluation costs are initially capitalised as intangible fixed assets in costs centres by field or exploration area, as appropriate, pending determination of commerciality of the relevant property. Directly attributable administration costs are capitalised insofar as they relate to specific exploration activities. Pre-licence costs and general exploration costs not specific to any particular licence or prospect are expensed as incurred. If prospects are deemed to be impaired (unsuccessful) on completion of the evaluation, the associated costs are charged to the income statement. If the field is determined to be commercially viable, the attributable costs are transferred to property, plant and equipment in single field cost centres. These costs are then depreciated on a unit of production basis.

F-151

All field development costs are capitalised as property, plant and equipment. Property, plant and equipment related to production activities are amortised in accordance with the Groups Depletion and Amortisation accounting policy. Revenues Revenue represents the sales value, net of VAT and royalties paid in kind or where the financial obligation does not fall directly to Afren, of the Groups share of oil liftings in the year together with gas and tariff income. Revenue is recognised when goods are delivered and title has passed. Commercial reserves Commercial reserves are proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as a proven and probable reserves and a 50% statistical probability that it will be less. Depletion and amortisationoil and gas assets All expenditure carried within each field is amortised from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field-by-field basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. Where there has been a change in economic conditions that indicates a possible impairment in a discovery field, the recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future cash flows based on managements expectations of future oil and gas prices and future costs. Any impairment identified is charged to the Income Statement as additional depletion and amortisation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the Income Statement, net of any depreciation that would have been charged since the impairment. Decommissioning Provision for decommissioning is recognised in full when the related facilities are installed. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related property, plant and equipment. The amount recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the decommissioning is included as a finance cost. Impairment Non-current assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such triggering events are defined in IFRS 6 in respect of E&E assets and include the point at which determination is made as to whether commercial reserves exist. Where there has been an indication of a possible impairment, management assesses the recoverability of the carrying value of the asset by comparison with the estimated discounted future net cash flows based on managements expectation of future production, oil prices and costs. Any identified impairment is charged to the Income Statement. Investment in subsidiaries Investment in subsidiaries held by the Company as fixed assets are stated at cost less any provision for permanent diminution of value.

F-152

Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency, which is US dollar for the majority of the subsidiaries). For the purpose of consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, the presentational currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entitys functional currency (foreign currencies) are recorded at the rate of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Exchange differences arising are included in the profit and loss for the period. For the purposes of presenting consolidated financial statements, the assets and liabilities of each Group company are translated into US dollars at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are classified as equity and transferred to the Groups translation reserve. Such translation differences are recognised as income or as expense in the period in which the operation is disposed of. Operating leases Rentals under operating leases are charged to the income statement on a straight-line basis over the period of the relevant lease. Taxation The tax expense represents the sum of tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the rates of tax expected to apply in the period when the liability is settled or the asset realised. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payment. The Group makes equity-settled share-based payments to certain employees and other third parties. Equity-settled share-based schemes are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant, measured by use of an option valuation model. The expected life used in the model has been adjusted, based on managements best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the period to exercise, based on the Groups estimate of shares that will eventually vest. The Company is liable for Employers National Insurance on the difference between the market value at date of exercise and exercise price. This expense is accrued by reference to the share price of the Company at the balance sheet date. Pensions Payments to a defined contribution pension scheme are charged as an expense as they fall due.

F-153

Inventories Inventories (spare parts) are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less costs to be incurred in marketing, selling and distribution. Inventories (oil and butane inventories) are stated at the lower of cost and net realisable value other than certain oil inventory in Cte dIvoire, which is settled via a reduction in the amount recoverable in respect of realised gas sales from the Lion Gas Plant. The inventory subject to this swap is recorded at its fair value. Finance costs and debt Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Financial costs of debt are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition of the liability and are amortised and charged to the Income Statement as finance costs over the term of the debt. Financial instruments Financial assets and financial liabilities are recognised on the Groups balance sheet when the Group becomes party to the contractual provision of the instrument. Derivative financial instruments The Group has entered into swaps and call options to economically protect against exposures to variability in the price of a proportion of Okoro and Cte dIvoire crude oil production for 2008 to 2012. Derivative financial instruments are stated at fair value. The gains and losses arising out of changes in fair value of these derivative financial instruments are accounted for in the income statement in the period in which they are incurred. Available for sale investments Available for sale investments are initially measured at cost, including transaction costs. Gains and losses arising from changes in fair value of available for sale investments are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Trade receivables Trade receivables are measured at initial recognition of their fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Trade payables Trade payables are stated at their fair value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

F-154

Convertible bonds Convertible bonds are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Groups accounting policies, which are described in note 2, management has made the following judgements that may have a significant effect on the amounts recognised in the financial statements. Oil and gas assets Management is required to assess the oil and gas assets for indicators of impairment. Note 13 discloses the carrying value of tangible oil and gas assets. As part of this assessment, management has carried out an impairment test (ceiling test) on the tangible oil and gas assets (Okoro Setu and Cte dIvoire assets). This test compares the carrying value of the assets at the balance sheet date with the expected discounted cash flows from each project. For the discounted cash flows to be calculated, management has used a production profile based on its best estimate of proven and probable reserves of the assets and a range of assumptions, including an internal oil price profile benchmarked to mean analysts consensus and a 10% pretax discount rate. Intangible assets Management is required to assess impairment in respect of intangible exploration assets. Note 12 discloses the carrying value of such assets. The triggering events are defined in IFRS 6. In making the assessment management is required to make judgements on the status of each project and the future plans towards finding commercial reserves. Share-based payments Management is required to make assumptions in respect of the inputs used to calculate the fair values of share-based payment arrangements. Details of these can be found in note 28. Fair value of Cte dlvoire acquisition The assets and liabilities in Cte dIvoire acquired during the year have been recorded at fair value at the completion date, as outlined further in note 29. The estimates of such fair values required significant judgement to be applied, particularly in respect of oil and gas assets, inventory and decommissioning provisions. Decommissioning The Group has decommissioning obligations in Nigeria and Cte dIvoire. The extent to which a provision is required depends on the legal requirements at the date of decommissioning, the costs and timing of work and the discount rate to be applied. Financial risk management In respect of financial risk management, at the balance sheet date, the Groups principal financial assets are cash and cash equivalents; trade and other receivables and its derivative asset. The Group manages liquidity risk by ensuring that sufficient funds are available to meet its commitments as they fall due. The Group uses projected cash flows to monitor funding requirements for the Groups activities. Additional details in respect of the Groups financing facilities are in note 20.

F-155

The Groups exposure to the risk of changes in market interest rates is mitigated by regular reviews of available fixed and variable rate debts and taking the most favourable for the Groups needs. The interest on borrowings from BNP Paribas, Sojitz and FCMB is based on LIBOR plus a margin and therefore the interest charged is affected by movement in LIBOR. Credit risk management Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the Group. The Group reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group. The Groups business is diversified in terms of both region and the number of counter-parties and, other than transactions with major oil companies with high credit rating, the Group does not have significant exposure to any single counter-party or group of counter-parties with similar characteristics. The credit risk on cash is limited because the majority is deposited with banks with good credit ratings assigned by international credit rating agencies. The Groups total maximum exposure to credit risk as at 31 December 2008 was US$223 million made up of cash and bank balances, derivative financial instruments and trade and other receivables.

F-156

Notes to the Consolidated Financial Statements For the year ended 31 December 2008 4. SEGMENTAL REPORTING

Geographical segments The Group currently operates in three geographical markets: Nigeria, Cte dIvoire and Other West Africa. This is the basis on which the Group records its primary segment information. Unallocated operating expenses, assets and liabilities relate to the general management, financing and administration of the Group.
Nigeria US$000s Cte dIvoire US$000s Other West Africa US$000s Unallocated US$000s Consolidated US$000s

2008

Sales revenue by origin ...................................................... Operating loss before derivative financial instruments ...... Derivative financial instruments gains............................... Segment result ................................................................... Investment revenue ............................................................ Finance costs...................................................................... Other gains and lossesimpairment charge on available for sale investment ......................................................... Other gains and lossesfair value of financial liabilities.. Other gains and lossesforeign currency losses ............... Loss before tax ................................................................. Segment assets ................................................................... Segment liabilities ............................................................. Capital additionsoil and gas assets ................................. Capital additionsoil and gas assets (acquisition of subsidiaries) ................................................................... Capital additionsexploration and evaluation .................. Capital additionsexploration and evaluation (acquisition of subsidiaries) ............................................................... Capital additionsother .................................................... Depletion, depreciation and amortisation .......................... Impairment of oil and gas assets ........................................ Impairment of available for sale investments ....................

37,117 (33,458) 13,338 (20,120)

5,384 (7,888) 41,344 33,456

(29,013) (29,013)

(28,823) (28,823)

42,501 (99,182) 54,682 (44,500) 5,286 (25,760) (2,296) 26,607 (15,382) (56,045) 921,698 (571,195) 280,183 144,428 95,819 35,502 5,557 (30,473) (38,212) (2,296)
Consolidated US$000s

538,840 (351,655) 280,076 51,866 2,703 (25,295) (9,222)

Nigeria US$000s

237,591 (160,628) 107 144,428 387 35,502 561 (4,535)

Cte dIvoire US$000s

80,899 (18,008) 43,566 (28,990)

Other West Africa US$000s

64,368 (40,904) 2,293 (643) (2,296)

Unallocated US$000s

2007

Sales revenue by origin ...................................................... Operating loss before derivative financial instruments ...... Derivative financial instruments losses ............................. Segment result ................................................................... Investment revenue ............................................................ Finance costs...................................................................... Other gains and lossesforeign currency losses ............... Loss before tax ................................................................. Segment assets ................................................................... Segment liabilities ............................................................. Capital additionsoil and gas assets ................................. Capital additionsexploration and evaluation .................. Capital additionsother .................................................... Depreciation............................................................................ Impairment of oil and gas assets .............................................

(10,109) (5,983) (16,092)

(4,906) (4,906)

(15,122) (15,122)

210,254 (108,780) 92,450 9,944 484 (298) (7,128)

45,993 (2,516) 12,002 4 (4,909)

44,854 (79,989) 728 (675)

(30,137) (5,983) (36,120) 2,515 (5,171) (263) (39,039) 301,101 (191,285) 92,450 21,946 1,216 (973) (12,037)

F-157

Business segments The operations of the Group comprise one class of business, being oil and gas exploration, development and production. 5. REVENUE
2008 US$000s 2007 US$000s

Oil revenue ..................................................................................................................................... Gas revenue ....................................................................................................................................

35,699 6,802 42,501

6.

IMPAIRMENT OF OIL AND GAS ASSETS

2008 US$000s 2007 US$000s

Impairment of tangible oil and gas assets ....................................................................................... Exploration costs written off........................................................................................................... Pre-licence costs written off ...........................................................................................................

6,044 32,168 11,660 377 12,037 38,212 Impairment of oil and gas assets includes US$23.8 million (2007: US$nil) relating to Keta Block in Ghana, US$6.0 million (2007: US$nil) relating to Eremor Block in Nigeria, US$1.0 million (2007: US$7.1 million) relating to the Ofa well test operations in Nigeria, US$1.9 million (2007: US$2.4 million) relating to the Themis Marin licence in Gabon and US$3.3 million (2007: US$nil) relating to the Iris Marin licence in Gabon. In 2007 US$2.1 million costs of the Doungou well on the La Noumbi licence in Congo (Brazzaville) were written off. 7. OPERATING LOSS The operating loss for the year is stated after charging:
2008 US$000s 2007 US$000s

Staff costs (note 8) .......................................................................................................................... 28,343 12,886 Depletion, depreciation and amortisation ....................................................................................... 30,473 973 Property lease rentals ...................................................................................................................... 1,843 1,289 FPSO lease rentals .......................................................................................................................... 16,747 Provision for inventoriesspares ................................................................................................... 1,206 An analysis of auditors remuneration is as follows: Fees payable to the Companys auditors for the audit of the Companys annual accounts ............ 166 174 Fees payable to the Companys auditors and their associates for other services to the Group: 100 The audit of the Companys subsidiaries pursuant to legislation 173 Total audit fees .............................................................................................................................. 274 339 Tax services ................................................................................................................................ 250 76 Corporate finance services .......................................................................................................... 97 156 Recruitment and remuneration services ...................................................................................... 48 Other services ............................................................................................................................. 174 50 Total non-audit fees ...................................................................................................................... 330 521 Corporate finance services primarily represents due diligence work performed in connection with corporate transaction activities of the Group. Other services represent amounts in respect of the review of the Groups and Nigerian subsidiaries interim results. During the year a proportion of the Groups staff costs shown above is recharged to the Groups joint venture partners and a proportion is capitalised into the cost of intangible and tangible oil and gas assets under the Groups accounting policy for exploration, evaluation and oil and gas assets. 8. STAFF COSTS The average monthly number of employees (including Executive Directors) employed was as follows: F-158

2008

2007

Administration ................................................................................................................................ Professional .................................................................................................................................... Their aggregate remuneration comprised:

16 76 92

9 29 38

2008 US$000s

2007 US$000s

Wages and salaries .......................................................................................................................... Share-based payments..................................................................................................................... Social security costs ........................................................................................................................ Pension costs...................................................................................................................................

16,036 8,462 10,670 1,759 892 2,348 317 745 12,886 28,343 Details of Directors remuneration are provided in the part of the Directors Remuneration Report described as having been audited. 9. INVESTMENT REVENUE
2008 US$000s 2007 US$000s

Interest on bank deposits................................................................................................................. 10. FINANCE COSTS

5,286

2,515

2008 US$000s

2007 US$000s

Convertible bond interest payable .................................................................................................. Incentive on early conversion of bonds .......................................................................................... Bank interest payable ...................................................................................................................... Other finance costs ......................................................................................................................... Interest and unwinding of discount on loan notes........................................................................... Unwinding of discount on decommissioning..................................................................................

5,512 10,514 9,332 19,750 3,198 6,905 2,530 836 350 42,685 16,242 Less: capitalised interest ................................................................................................................. (16,925) (11,071) 5,171 25,760 Capitalised interest includes all the interest charged relating to the Okoro field development financing facilty up to First Oil, plus a share thereafter during completion of the drilling programme. It also includes a proportion of the FCMB loan interest and the convertible bond interest. The effective interest rate used for the interest capitalisation is 11.1% and 15.2% in respect of the FCMB loan and the convertible bond respectively. The Okoro loan interest is based on LIBOR plus a margin of between 4.5% and 5.75%. Upon conversion of the bond interest expense was capitalised based on rates of between 12.2% and 13.7%. In July, an agreement was reached for early conversion of the 41.25 million Senior Unsecured Bonds resulting in a one-off conversion incentive of US$9.3 million being paid to the holders of the convertible bonds. 11. LOSS PER ORDINARY SHARE

The calculation of basic loss per share is based on the loss for the year after taxation of US$56,565,000 (2007: US$39,039,000) and 373,370,052 ordinary shares (2007: 236,862,944), being the weighted average number of shares in issue for the year. As there is a loss for the year, there is no difference between the basic and diluted earnings per share.
2008 2007

Basic and diluted.............................................................................................................................

15.1

16.5

F-159

12.

INTANGIBLE OIL AND GAS ASSETS

Costs of explorationpending determination

Group US$000s Company US$000s

At 1 January 2007 ........................................................................................................................... 87,846 3,657 Additions ........................................................................................................................................ 21,946 142 Transfer to tangible oil assets ......................................................................................................... (48,476) Amounts written off ........................................................................................................................ (11,660) Foreign exchange differences ......................................................................................................... 69 At 1 January 2008 ........................................................................................................................... 49,656 3,868 Additions ........................................................................................................................................ 95,819 401 Acquisition of subsidiaries (see note 29) ........................................................................................ 35,502 Transfer to a subsidiary company ................................................................................................... (4,269) Amounts written off (see note 6) .................................................................................................... (32,168) At 31 December 2008 .................................................................................................................... 148,809 The Groups carrying value at 31 December 2008 includes US$28.9 million (2007: US$28.0 million) relating to the La Noumbi permit in Congo (Brazzaville) and US$17.2 million (2007: US$16.8 million) in respect of JDZ Block One of the NigeriaSo Tom & Prncipe Joint Development Zone (JDZ Block One). Additions in the year includes the Groups farm-in for the development of Ebok field located offshore South East Nigeria. The carrying value at 31 December 2008 in respect of Ebok was US$47.0 million. In addition, the Group completed the acquisition of its interest in the Keta Block, Ghana, and Block CI-01, in Cte dlvoire, during the year. The carrying value at 31 December was US$13.2 million and US$35.9 million respectively.

F-160

Notes To The Consolidated Financial Statements For the year ended 31 December 2008 Additional amounts are payable in relation to JDZ Block One if proved reserves are discovered and upon approval of a field development programme. The amount payable is based on the level of proven reserves and prevailing oil and gas prices and is subject to adjustment upon any subsequent amendments to such oil and gas reserves. Additional amounts are payable in relation to the Ebok field upon meeting certain operational criteria and the approval of the fields development plan by the Nigerian Government. 13. PROPERTY, PLANT AND EQUIPMENT
Production US$000s Development US$000s Gas plant US$000s Total US$000s

GROUP Oil and gas assets Cost At 1 January 2007 .................................................................................. Transfer from intangible assets .............................................................. Additions ............................................................................................... At 1 January 2008 .................................................................................. Additions ............................................................................................... Acquisition of subsidiaries (see note 29) ............................................... Transfers ................................................................................................ At 31 December 2008 ........................................................................... Depletion, depreciation and amortisation At 1 January 2008 .................................................................................. Charge for the year ................................................................................ Impairment charge ................................................................................. At 31 December 2008 ........................................................................... Carrying amount At 31 December 2007 ............................................................................ At 31 December 2008 ............................................................................ During the year, the carrying amount in respect of the Okoro field producing assets.

125,221 89,850 289,737 504,808 27,804 27,804

48,476 92,450 140,926 154,855 (289,737) 6,044 6,044 6,044

107 54,578 54,685 1,364 1,364

48,476 92,450 140,926 280,183 144,428 565,537 29,168 6,044 35,212

140,926 140,926 53,321 530,325 477,004 in Nigeria was transferred from development to
Computer Fixtures and hardware equipment and software US$000s US$000s

Leasehold improvements US$000s

Total US$000s

GROUP Other property, plant and equipment Cost At 1 January 2007 .................................................................................. Additions ............................................................................................... Foreign exchange movements ............................................................... At 1 January 2008 .................................................................................. Additions ............................................................................................... Foreign exchange movements ............................................................... At 31 December 2008 ........................................................................... Accumulated depreciation At 1 January 2007 .................................................................................. Charge for the year ................................................................................ Foreign exchange movements ............................................................... At 1 January 2008 .................................................................................. Charge for the year ................................................................................ Foreign exchange movements ............................................................... At 31 December 2008 ........................................................................... F-161

723 487 12 1,222 1,786 3,008 157 581 14 752 372 1,124

621 464 5 1,090 1,716 3 2,809 192 212 9 413 429 (1) 841

387 265 9 661 2,066 2,727 77 180 6 263 504 (1) 766

1,731 1,216 26 2,973 5,568 3 8,544 426 973 29 1,428 1,305 (2) 2,731

Carrying amount At 31 December 2007 ............................................................................ At 31 December 2008 ............................................................................

470 1,884

677 1,968

398 1,961
Computer hardware and software US$000s

1,545 5,813

Leasehold improvements US$000s

Fixtures and equipment US$000s

Total US$000s

COMPANY Other property, plant and equipment Cost At 1 January 2007 .................................................................................. Additions ............................................................................................... Foreign exchange movements ............................................................... At 1 January 2008 .................................................................................. Additions ............................................................................................... Foreign exchange movements ............................................................... At 31 December 2008 ........................................................................... Accumulated depreciation At 1 January 2007 .................................................................................. Charge for the year ................................................................................ Foreign exchange movements ............................................................... At 1 January 2008 .................................................................................. Charge for the year ................................................................................ Foreign exchange movements ............................................................... At 31 December 2008 ........................................................................... Carrying amount At 31 December 2007 ............................................................................ At 31 December 2008 ............................................................................ 14. INVESTMENTS

522 233 12 767 340 1,107 142 401 14 557 92 649 210 458

374 291 5 670 378 1 1,049 114 146 9 269 228 (1) 496 401 553

251 205 8 464 1,333 1,797 63 128 6 197 312 509 267 1,288

1,147 729 25 1,901 2,051 1 3,953 319 675 29 1,023 632 (1) 1,654 878 2,299

Group 2008 2007 US$000s US$000s

Company 2008 2007 US$000s US$000s

Subsidiaries Shares at cost in subsidiary undertakings .............................................. 43,062 32,849 A list of the significant investments in subsidiaries and associated undertakings, including the name, proportion of ownership interest, country of operation and country of registration, is given below:
Name Directly held Afren Block One Limited ........................................ Afren Nigeria Holdings Limited ............................. Afren Gabon Limited .............................................. Gabon Investments (Iris Marin) Pty Limited .......... Gabon Investments (Themis Marin) Pty Limited ... Afren CI (UK) Limited (formerly Afren Production and Shipping Limited)........................................ Afren Congo Limited .............................................. Afren Energy International plc................................ Afren Energy Ghana Holdings Limited .................. Afren USA Inc......................................................... Indirectly held Principal activity Oil and gas exploration, development and production Holding company Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Holding company Service company % Country of operation Country of registration

100 100 100 100 100 100 100 100 100 100

UK UK Gabon Gabon Gabon UK Congo UK Ghana USA

England & Wales England & Wales England & Wales Australia Australia England & Wales Bahamas England & Wales Bahamas USA, Delaware

F-162

Afren JDZ One Limited .......................................... Dangote Energy Equity Resources Limited ............ Afren Energy Resources Limited ............................ Afren Okoro Limited ............................................... Afren Global Energy Resources Limited ................ Afren Onshore Limited ........................................... Afren Block 90 Limited .......................................... Afren Oil and Gas Development Limited ............... Afren OML 46 Resources Limited ......................... Afren Investments Oil & Gas (Nigeria) Limited .... Afren Energy Services Limited ............................... Afren Nigeria Holdings (Nigeria) Limited ............. Zetah Noumbi Limited ............................................ Afren CI (II) Limited............................................... Afren CI One Corporation....................................... Afren Cte dlvoire Limited.................................... Lion GPL SA ........................................................... Afren Energy Ghana Limited .................................. Afren Resources Limited ........................................

Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Service company Holding company Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production Oil and gas exploration, development and production

100 49
(i)

Norway Nigeria Nigeria UK Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Congo UK Cte dlvoire Cte dlvoire Cte dlvoire Ghana Nigeria

Norway Nigeria Nigeria England & Wales Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Nigeria Bahamas England & Wales Cayman Cayman Cte dlvoire Bahamas Nigeria

100 100 50(i) 100 100 100 100 100 100 100 14 100 100 100 100 100 100

(i)

Accounted for via proportional consolidation as the Group exercises joint control over its operations.

All operating companies are engaged in the exploration, development and production of oil and gas properties whilst holding and service companies manage the operating companies.
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

Available for sale investments At the beginning of the year .................................................................. Purchase in the year ............................................................................... Revaluation ............................................................................................ Impairment charge ................................................................................. Foreign exchange ................................................................................... Reversal of revaluation gain .................................................................. Fair value at 31 December .................................................................. 15. INVENTORIES

1,475 1,501 647 (2,296) 3 (1,119) 211

1,224 227 24 1,475

1,475 1,501 647 (2,296) 3 (1,119) 211

1,224 227 24 1,475

Group 2008 2007 US$000s US$000s

Company 2008 2007 US$000s US$000s

Oil and gas inventory ............................................................................. Spare parts .............................................................................................

8,652 3,090 4,624 3,090 13,276 Spare parts include a provision of US$1.2 million (2007: US$nil) to write-down the inventory to recoverable

amount.

F-163

16.

INTEREST IN JOINT VENTURES

The Group has a 49% share of Dangote Energy Equity Resources Limited (DEER), a jointly controlled entity which is involved in operations in JDZ Block One. The Group has a 50% interest in Afren Global Energy Resources Limited (AGER), a jointly controlled entity. AGER holds the Production Sharing Contracts for OPLs 907 and 917 which were signed in February 2008. In 2007 AGERs operations as at the year end were not material to the Group. The Groups share of DEERs and AGERs assets, liabilities, income and expenses of the jointly controlled entities at 31 December 2008 and 2007 and for the years then ended, which are included in the consolidated financial statements, are as follows:
2008 50% share in AGER US$000s 49% share in DEER US$000s 2007 49% share in DEER US$000s

Current assets ............................................................................................................. Non-current assets ..................................................................................................... Current liabilities ....................................................................................................... Non-current liabilities ................................................................................................ Administrative expenses ............................................................................................ Bank interest received................................................................................................ Loss/(profit) before and after income tax .............................................................. 17. TRADE AND OTHER RECEIVABLES

879 3,206 4,085 4,085 113 113

121 17,221 17,342 (281) 17,061 (17) (17)

29 16,809 16,838 (33) 16,805 13 13

Group 2008 2007 US$000s US$000s

Company 2008 2007 US$000s US$000s

Trade and other debtors ......................................................................... Prepayments and accrued income .......................................................... VAT recoverable ................................................................................... Due from subsidiary undertakings(i)....................................................... Due from joint ventures .........................................................................

20,731 33,948 1,351 56,030

5,266 6,354 1,006 12,626

689 10,689 1,346 304,614 13,393 330,731

4,840 2,171 940 121,575 10,359 139,885

(i)

The amount in the Company is shown net of a provision for doubtful debt of US$20,931,000 (2007: US$nil).

Trade and other debtors in respect of the Group includes US$14.6 million (2007: US$nil) owed by customers in respect of crude oil and gas sales. Prepayments and accrued income in respect of the Group includes a US$13.6 million (2007: US$nil) accrued income on crude and gas sales and US$7.9 million in prepayment of operating costs relating to the Floating Production and Storage Offtake vessel (FPSO) for the Okoro field (2007: US$4.0 million). Prepayments also include US$10 million (2007: US$nil) deposited with third parties in respect of pending transactions. There were no material past due not impaired receivables at either balance sheet date, nor any material bad debt provisions (other than as disclosed above in respect of intercompany balances). 18. CASH AND CASH EQUIVALENTS
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

Cash and cash equivalents ..................................................................... 117,719 91,783 39,106 39,937 Cash and cash equivalents comprise cash held by the Group and Company in the form of short-term bank deposits with an original maturity of three months or less and earn interest at respective short-term deposit rates. The carrying amount of these assets approximates their fair value. F-164

Cash and cash equivalents at 31 December 2008 includes US$58.9 million (2007: US$25 million) that is restricted. This relates to short-term restrictions on project cash, pending completion of certain milestones. 19. TRADE AND OTHER PAYABLES
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

Trade creditors ....................................................................................... Other creditors ....................................................................................... Accruals ................................................................................................. PAYE and social security ...................................................................... VAT payable.......................................................................................... Derivative financial instruments ............................................................ Due to subsidiary undertakings..............................................................

70,608 10,980 2,949 1,832 21,918 3,695 532 51,880 23,469 2,474 8,753 1,058 286 1,012 261 291 181 1,408 30,782 78 40,019 37,749 10,924 145,755 Group accruals include interest payable of US$5,562,000 (2007: US$1,495,000) relating to the bank borrowings described in note 20, and US$414,000 of coupon interest relating to loan notes described in note 23.

F-165

Notes To The Consolidated Financial Statements For the year ended 31 December 2008 20. BORROWINGS AND DERIVATIVE FINANCIAL INSTRUMENTS

Borrowings
Group 2008 Current Non-current US$000s US$000s Group 2007 Current Non-current US$000s US$000s

Convertible bond (note 22) .................................................................... Loan notes (note 23) .............................................................................. Bank borrowings (see below) ................................................................

111,218 111,218

33,205 260,741 293,946

69,206 77,485 146,691

Company 2008 Current Non-current US$000s US$000s

Company 2007 Current Non-current US$000s US$000s

Convertible bond (note 22) .................................................................... 69,206 Bank borrowings at the year end included US$191.6 million (2007: US$32.4 million) relating to the US$230 million Okoro Development facility from BNP Paribas. Interest on the loan is based on LIBOR plus a margin of between 4.5% and 5.75% as at 31 December 2008. The facility is repayable in semi-annual instalments of approximately US$30.0 million ending in 2011. The loan is secured by the assets of the Okoro field. The repayment profile is impacted by borrowing base calculations linked to the certified reserves of the Okoro field. In addition, the acquisition of operations in Cte dlvoire were financed by a financing package arranged through BNP Paribas. The outstanding balance on the financing package was US$139.6 million (US$133.9 million net of financing arrangement costs) as at 31 December 2008. Repayment instalments for US$72.9 million (senior debt) of the facility amount are determined by borrowing base calculations linked to the certified reserves of the Cte dlvoire operations whilst US$66.7 million (subordinate debt) of the facility is repayable in semi-annual instalments of US$6.7 million commencing January 2010. Interest on the senior debt is based on LIBOR plus a margin of between 3.25% and 3.5% as at 31 December 2008. Interest on the subordinate debt is based on LIBOR plus a margin of 4.25% . The senior debt includes certain financial covenants which are assessed on a quarterly basis. Borrowings also include a balance of US$46.5 million (2007: US$45.1 million) relating to an unsecured loan facility from First City Monument Bank plc (FCMB). Interest on the loan is based on LIBOR plus a margin of 4.45% . The loan is repayable in six equal semi-annual instalments commencing 2010 and ending in 2012. Derivative financial instruments
Group 2008 Current Non-current US$000s US$000s Group 2007 Current Non-current US$000s US$000s

Financial assets ...................................................................................... Financial liabilities.................................................................................

29,161 20,354 1,408 4,575 20,354 1,408 4,575 29,161 In 2007 the Group entered into derivative financial instruments (swaps and call options) to economically protect against exposures to variability in the price of Okoro crude oil production for 2008, 2009 and 2010. The Group will receive a minimum amount if the market falls, but will receive a set discount from the market price if the oil price is above that minimum. The arrangement protects the Group against the risk of a significant fall in the price of crude oil by establishing a minimum price for the Okoro crude. During 2008 on acquisition of CI-11 field in Cte dlvoire from Devon, the Group entered into similar instruments to protect against variability in price of CI-11 crude oil production for 2008, 2009, 2010, 2011 and 2012. The gains of US$54.7 million (2007: loss of US$6.0 million) arising during the year as a result of the changes in fair value of these derivative financial instruments are accounted for in the income statement, as the criteria for hedge accounting were not met. In addition to the above commodity derivatives, the change in functional currency of the holding company from pound sterling to US dollar in July 2008 described in note 2 has resulted in certain sterling denominated warrants being F-166

accounted for as derivatives from that date, as they are no longer convertible at a fixed price in that companys functional currency. Accordingly the fair value of the warrants at that date of US$27.1 million was recorded as a liability which resulted in a charge to retained earnings, after reversing the amounts previously recorded in equity, of US$23.7 million. The fair value of the warrants at 31 December 2008, recorded within other creditors, was US$0.5 million and the resultant movement since July of US$26.6 million has been taken to the income statement. The maturity profile of the Groups borrowings is set-out below on an undiscounted basis.
Group maturity profile 2008 US$000s 2007 US$000s

Due within one year ........................................................................................................................ Due within two to five years ........................................................................................................... Due after five years .........................................................................................................................

111,218 318,421 429,639

11,030 157,410 168,440

Company maturity profile

2008 US$000s

2007 US$000s

Due within one year ........................................................................................................................ Due within two to five years ........................................................................................................... Due after five years .........................................................................................................................

7,360 71,061 78,421

Fair values Set out below is a comparison by category of carrying amounts and fair values of all the Groups financial instruments:
Carrying amount 2008 2007 US$000s US$000s Fair value 2008 2007 US$000s US$000s

Financial assets Derivative financial instruments ............................................................ Cash and cash equivalents ..................................................................... Trade and other receivables ................................................................... Available for sale investments ............................................................... Financial liabilities Derivative financial instruments ............................................................ Trade creditors ....................................................................................... Other creditors ....................................................................................... BorrowingsBNP Paribas .................................................................... BorrowingsFCMB ............................................................................. BorrowingsCte dlvoire ................................................................... Loan notes.............................................................................................. Convertible bond ...................................................................................

49,515 117,719 34,365 211 201,810

91,783 5,266 1,475 98,524

49,515 117,719 34,365 211 201,810

91,783 5,266 1,475 98,524

5,983 70,608 10,980 21,918 3,695 191,588 32,384 46,501 45,101 133,870 33,205 69,206 167,349 497,690 The fair values of the derivative financial instruments have been determined by reference quoted markets at the balance sheet date.

5,983 70,608 10,980 21,918 3,695 186,803 37,604 47,192 50,415 128,751 39,842 136,299 495,114 244,976 to observable data in

The fair value of bank borrowings and loan notes have been determined by discounting future cash outflows relating to the borrowings and loan notes respectively.

F-167

Sensitivity analysis Interest rate risk The Groups exposure to the risk of changes in market interest rates relates primarily to the Groups bank borrowings. The Group has managed the interest rate risk by using a mix of fixed and variable rates on convertible bonds, loan notes and bank borrowings respectively. The following table demonstrates the sensitivity to changes in LIBOR rate, with all other variables held constant, of the Groups loss before tax.
Increase in Group loss US$000s Decrease in Group loss US$000s

2008

Increase

Decrease

Interest payable ......................................................................................

2007

1%
Increase

(1,463)
Increase in Group loss US$000s

1%
Decrease

1,464
Decrease in Group loss US$000s

Interest payable ...................................................................................... Oil price risk

1%

(155)

1%

144

The Groups exposure to the risk of changes in oil price relates primarily to the Groups derivative financial instruments. The terms of the derivative financial instruments are such that the Group will receive a minimum amount if the market falls, but will receive a set discount from the market price if the oil price is above that minimum. The effect on Group loss and equity of changes in the oil price on the fair value of the derivative financial instruments is shown below:
Positive/ (adverse) 2008 US$000s Positive/ (adverse) 2007 US$000

Increase in oil price by 10% ........................................................................................................... Decrease in oil price by 10% .......................................................................................................... Foreign exchange risk below:

(8,872) 10,025

(582) 902

The effect on Group loss and equity of a 10% change in the closing sterling to US dollar exchange rate is shown
Positive/ (adverse) 2008 US$000s

Increase in exchange rate by 10% ....................................................................................................................... 2,533 Decrease in exchange rate by 10% ..................................................................................................................... (2,533) The impact of a 10% change in the Nigerian Naira to US Dollar exchange rate would not be material in 2008 or in 2007. The impact of a 10% change in the Sterling to US Dollar exchange rate was not material in 2007. Capital management The Group manages its capital to ensure that it remains sufficiently funded to support its business strategy and maximise shareholder value. The Groups funding needs are met through a combination of debt and equity. The Group monitors net debt position on an ongoing basis. The Group includes within net debt, interest bearing loans and borrowings less cash and cash equivalents. Capital includes share capital, share premium, other reserves and accumulated losses. 21. PROVISION FOR DECOMMISSIONING
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

At 1 January ........................................................................................... Provision in respect of Okoro and CI-11 producing fields .................... Unwinding of discount .......................................................................... At 31 December .................................................................................... F-168

19,926 350 20,276

The provision for decommissioning has been recognised following the start of production from the Okoro field and following the acquisition of the CI-11 field in 2008. The provision represents the present value of the amounts that are expected to be incurred up to 2016. The provision has been made using Afrens internal estimates that management believe form a reasonable basis for the expected future costs of decommissioning. 22. CONVERTIBLE BONDS

Convertible bonds related to the private placement in 2006 of US$75.0 million equivalent in British Pounds (being 41.25 million) of Convertible Senior Unsecured Bonds due 2011. The bonds were at a coupon of 9% per annum (payable semi-annually) and were converted into ordinary shares of the Company during 2008. The conversion price of 58.2p (approximately) per ordinary share was set at a 25% premium to the price determined in the pricing method at the time of issue. The Bonds also contained other terms, including anti-dilution provisions effective in the event of certain future issuances, and a bondholder put option, payable in cash or shares (at a discount to the share price during the period prior to payment) at the Companys option. The bonds were converted to equity in July 2008.
Group and Company 2008 2007 US$000s US$000s

Liability component at 1 January .................................................................................................... Interest charged ............................................................................................................................... Incentive on early conversion of bonds .......................................................................................... Amortisation of bond issue costs .................................................................................................... Exchange difference ....................................................................................................................... Interest paid .................................................................................................................................... Conversion of bonds ....................................................................................................................... Reported in:

72,912 5,512 9,332 225 9 (16,731) (71,259)

68,177 10,514 405 1,133 (7,317) 72,912

Group and Company 2008 2007 US$000s US$000s

Interest payable in current liabilities ............................................................................................... 3,706 Non-current liabilities ..................................................................................................................... 69,206 Total liability component at 31 December .................................................................................. 72,912 The interest charged until conversion is calculated by applying an effective interest rate of 15.2% to the liability component. 23. LOAN NOTES
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

Nominal value at date of issue, net of issue costs .................................. Equity component (note 30) .................................................................. Unwinding of discount .......................................................................... Coupon interest ...................................................................................... Amortised issue costs ............................................................................ Reported in:

39,901 (7,350) 422 414 232 33,619

Group 2008 2007 US$000s US$000s

Company 2008 2007 US$000s US$000s

Interest payable in current liabilities ...................................................... Non-current liabilities ............................................................................ Total liability component at 31 December .........................................

414 33,205 33,619

On 9 October 2008 Afren entered into a strategic alliance with Sojitz, a Japanese investment and industrial conglomerate, to jointly pursue acquisition opportunities of scale in Africa. Sojitz invested US$45 million in the form of F-169

loan notes in Afren which become convertible bonds at the time of entering into or announcing joint acquisitions. The loan notes bear a coupon based on LIBOR plus a margin of 2%. The net proceeds from the issue of the loan notes were split between a liability component and an equity component at the date of issue. The liability component of the loan notes was US$33.2 million as at 31 December 2008. The interest charged for the year is calculated by applying an effective interest rate of 11.7% to the liability component. The loan notes are repayable in full in October 2011.

F-170

Notes To The Consolidated Financial Statements For the year ended 31 December 2008 24. CONTINGENT LIABILITIES

As at 31 December 2008 the Group had US$nil (2007: US$17.6 million) outstanding letter of credit issued by a bank relating to a drilling contract on the Okoro development. The Group had a US$6.0 million (2007: US$nil) stand-by letter of credit issued by a bank in respect of contractual arrangements of the FPSO. As part of the contractual arrangements on the Ofa field in Nigeria, Afren may be liable to contribute up to a maximum of US$500,000 in respect of abandonment should certain events specified in the contract occur. 25. SHARE CAPITAL AND SHARE PREMIUM
2008 US$000s 2007 US$000s

(i) Authorised 800 million ordinary shares of 1p each (equivalent to approx US$1.45 cents) (2007: 400 million)

11,600

7,836
Share premium US$000s

Equity share capital allotted and fully paid Number US$000s

(ii) Allotted equity share capital and share premium As at 1 January 2008............................................................................................. Issued during the year for cash (i)......................................................................... Non-cash shares issued (ii) ................................................................................... As at 31 December 2008 .....................................................................................
(i) (ii) Share premium figure is shown net of issue costs of US$7.7 million.

273,006,563 100,490,511 73,494,785 446,991,859

5,365 1,977 1,464 8,806

146,245 228,673 72,040 446,958

Non-cash shares issued were primarily in respect of the conversion of the convertible bonds during 2008.

26.

TAXATION
2008 US$000s 2007 US$000s

UK corporation tax ......................................................................................................................... Overseas corporation tax ................................................................................................................ The current tax can be reconciled to the overall tax charge as follows:

520 520

2008 US$000s

2007 US$000s

Pre-tax loss ..................................................................................................................................... (56,045) (39,039) Tax at the UK corporate tax rate of 28.5% (2007: 30%) ................................................................ 15,973 11,712 Tax effect of items which are not deductible for tax ...................................................................... (12,628) (5,855) Temporary differences not recognised............................................................................................ (9,117) (1,348) Adjustment to tax losses in respect of prior years .......................................................................... 72 Items not subject to UK corporation tax ......................................................................................... 25,474 Effect of different tax rates ............................................................................................................. (19) Overseas corporation tax ................................................................................................................ 520 Loss not recognised ........................................................................................................................ (19,683) (4,581) Tax charge for the year ................................................................................................................ 520 At the balance sheet date the Group and Company had tax losses of US$101,956,000 (2007: US$32,827,000) and US$95,673,000 (2007: US$27,680,000) respectively, in respect of which a deferred tax asset has not been recognised as there is insufficient evidence of future taxable profits. Such losses can be carried forward indefinitely. The Group and Company had temporary differences of US$34,185,000 (2007: US$2,396,000) and US$1,444,000 (2007: US$69,000) in respect of share-based payments, property, plant and equipment and pensions in respect of which deferred tax assets have not been recognised as there is insufficient evidence of future taxable profits.

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Deferred tax has not been recognised on undistributed earnings of subsidiaries as the Group has no intention to remit the earnings to the UK in the foreseeable future. The extent of the unrecognised deferred tax in respect of this is not material. 27. OPERATING LEASE AND CAPITAL COMMITMENTS
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

Minimum lease payments under operating leases recognised in income for the year ......................................................................................... 18,590 1,289 1,379 1,209 At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under noncancellable operating leases, which fall due as follows:
Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

Within one year...................................................................................... In the second to fifth years.....................................................................

40,998 26,520 949 1,178 103,109 125,339 2,530 4,418 144,107 151,859 3,479 5,596 Operating lease commitments includes rentals of US$28.6 million (2007: US$25.2 million) within one year and US$100.0 million (2007: US$120.8 million) between two and five years for the FPSO that is used on the Okoro field production. Other operating lease represents rentals payable by the Company and Group for certain of its office properties. Property leases are negotiated for an average term of three years and rentals are fixed for an average term of three years.
2008 US$000s 2007 US$000s

Capital commitmentsGroup Oil and gas assetsDevelopment .................................................................................................. Oil and gas assetsExploration & Evaluation ...............................................................................

11,154 11,154

183,278 3,951 187,229

28.

SHARE-BASED PAYMENTS

During 2008 the Group had in place three share-based payment arrangements for its employees and also issued warrants to a contractor. The charge in relation to these arrangements is shown below, with further details of each scheme following:
2008 US$000s 2007 US$000s

2005 Share Option Scheme............................................................................................................. Long Term Incentive Plan .............................................................................................................. Share Award Scheme ...................................................................................................................... Other (warrants) ..............................................................................................................................

2,528 1,051 7,123 117 10,819

1,936 59 1,995

2005 share option scheme The Group operates a share option scheme for employees. The Groups policy is to award options to employees on appointment or completion of their probationary period and periodically thereafter. Options are issued at market price on the grant date and have vesting periods of up to three years. The options expire after 10 years if they remain unexercised and are forfeited if the employee leaves the Group before the options vest except at the discretion of the Board. Details of the share options outstanding during the year are as follows:
2008 Weighted average exercise price 2007 Weighted average exercise price

Number of share options

Number of share options

Outstanding at beginning of year .......................................................... Granted during year .............................................................................. F-172

27,520,000 2,620,000

0.72 1.45

22,478,152 12,595,000

0.52 0.92

Exercised during year ........................................................................... Lapsed during year ...............................................................................

(1,482,002) 0.56 (5,600,000) 0.35 1.07 (1,953,152) 0.83 (2,205,000) 0.77 27,520,000 0.72 26,452,998 Exercisable at end of year .................................................................. 0.68 10,315,000 0.56 15,953,231 The weighted average remaining contractual life of the options outstanding at 31 December 2008 was 7.7 years (2007: 8.6 years). In 2008 options were granted to eight new employees on joining or completion of their probationary period. One Director received an award in April 2008 upon his appointment as Director. The aggregate of the fair value of the options granted during 2008 was US$1.2 million (2007: US$1.9 million). The weighted average share price for exercised options in 2008 was 158p (2007: 76p). The options granted during the year have been valued by reference to the Barrier option valuation model, consistent with the prior year. The inputs into the Barrier model were as follows:
2008 2007

Weighted average share price (pence) ............................................................................................ 131.3 63.0 Weighted average exercise price (pence)........................................................................................ 144.9 92.2 Weighted average target price before eligibility to exercise (barrier) (pence) ................................ 147.2 111.1 Expected volatility .......................................................................................................................... 50% 50% Expected life (years) ....................................................................................................................... 3 3 Risk free rate ................................................................................................................................... 5.0% 5.0% Expected dividends ......................................................................................................................... The volatility of Afren shares was again reviewed following a further 12 months of share price data. The volatility was measured utilising several formulae, including an Exponentially Weighted Moving Average model and a GARCH (Generalised Autoregressive Conditional Heteroscedasticity) model, and over several time periods. These gave a range of estimates for the share price volatility, but no significant change from the previous year. Therefore the volatility assumption was kept as for last year, but will remain under review going forwards. The Company and Group recognised total expenses related to equity-settled share-based payment transactions in the form of options in 2008 of US$2,528,000 of which US$2,512,000 related to employees, including Executive Directors, of the Group (2007: US$1,936,000 and US$1,759,000 respectively). Long Term Incentive Plan Equity-settled share option scheme An alternative share plan was introduced during 2007 (and first grants made in June 2008) to give awards to Directors and staff subject to outperforming a comparator group of similarly focused oil and gas exploration and production companies in terms of shareholder return over a three-year period. The Afren Performance Share Plan awards a number of shares to Directors and staff based on a multiple of salary. However, these shares only vest after a three-year period and the full award made only if Afren has performed in the top quartile when compared against a selected peer group of upstream oil and gas companies focused on Africa: Addax, Bowleven, Gulf Keystone Petroleum, Gulfsands Petroleum, Hardy Oil & Gas, Mart Resources, Petroceltic International, Roc Oil Company, Serica Energy, Soco International, Sterling Energy, Stratic Energy, Tullow Oil, Vaalco Energy and White Nile. If Afren does not achieve at least median performance in the peer group, no shares will be awarded. At the median level, 30% of the shares will vest and there is a sliding scale between median and top quartile performance where only a percentage of the total award will vest. Awards are forfeited if the employee leaves the Group before the awards vest, except under certain circumstances e.g. redundancies, where the number of awards vesting will be prorated according to the length of time the employee has been employed during the three-year vesting period. Details of the share awards outstanding during the year are as follows:
2008 Weighted average exercise price 2007 Weighted average exercise price

Number of share options

Number of share options

Outstanding at beginning of year ................................................................. Granted during the year ......................................................................... 3,017,020 F-173

0.01

Exercised in year.................................................................................... 0.01 Forfeited during the year........................................................................ (264,458) Outstanding at end of year .................................................................. 0.01 2,752,562 Exercisable at end of year ................................................................... The awards outstanding at the end of the year have a weighted average remaining contractual life of 2.4 years and an exercise price of 0.01. The aggregate of the fair value of the options granted during 2008 was US$5.6 million. The fair values were calculated using a stochastic model. The inputs used for fair valuing awards granted during 2008 were as follows:
2008

Weighted average share price (pence) ................................................................................................................ 171.0 Weighted average exercise price (pence)............................................................................................................ 1.0 Expected volatility .............................................................................................................................................. 53% Expected life (years) ........................................................................................................................................... 3 Risk free rate ....................................................................................................................................................... 5.0% Expected dividends ............................................................................................................................................. The volatility of Afren shares was calculated by looking at the available historic movements in Afrens return index as defined by Datastream (an index which tracks share price plus reinvested dividends on the ex-dividend date) over the period commensurate with the proportion of the performance period that had not elapsed by the date of grant. The Company and Group recognised total expenses related to the above equity-settled share-based payment transactions in the form of Long Term Incentive Plan in 2008 of US$749,000 and US$1,051,000 respectively (2007: US$nil). Share award scheme Equity-settled share award scheme As part of the incentives to attract the Jefferies, Randall & Dewey technical team, a number of shares were awarded in 2008, subject to continuing employment in the most part, to the team. None of this team was eligible to an award under the Long Term Incentive Plan. The timing of the shares issued range from six months to three years over which the fair value was spread. Details of the awards outstanding during the year are as follows:
2008 Weighted average exercise price

Number of share awards

Outstanding at beginning of year ................................................................................................ Granted during the year .............................................................................................................. Exercised in year......................................................................................................................... Lapsed during the year................................................................................................................ Outstanding at end of year ....................................................................................................... Exercisable at end of year ........................................................................................................ The weighted average share price of awards exercised in the year was 51p.

5,113,094 (2,143,531) 2,969,563

0.01 0.01 0.01

The weighted average remaining contractual life of the options outstanding at 31 December 2008 was 0.9 years. All awards have an exercise price of 0.01. In 2008 awards were granted to 13 new employees on joining from Randall and Dewey. The aggregate of the fair value of the options granted during 2008 was US$11.0 million. As the exercise price for these awards is nominal and there are no market based vesting criteria, the awards granted during the year were valued using the share prices on dates of grant which was 137p on a weighted average basis. The Company and Group recognised total expenses related to equity-settled share-based payment transactions in relation to the above awards in 2008 of US$3,283,000 and US$7,123,000 respectively (2007: US$nil). F-174

Other equity-settled share consideration (warrants) From time to time, the Company will give consideration for services or assets in the form of warrants. In October 2008 the Company issued 250,000 warrants to a contractor. Details of the warrants outstanding during the year are as follows:
2008 Weighted average exercise price 2007 Weighted average exercise price

Number of warrants

Number of warrants

Outstanding at beginning of year ........................................... 15,959,981 Granted during the year ......................................................... 250,000 Exercised during the year ...................................................... (1,864,981) Redesignated as financial liabilities in the year ..................... (12,000,000) Outstanding at end of year .................................................. 2,345,000 Exercisable at end of year ................................................... 2,095,000 The weighted average share price of warrants exercised in the year was 170p. note 20).

0.79 1.00 0.59 0.85 0.67 0.63

3,552,702 12,407,279 15,959,981 15,809,981

0.59 0.85 0.79 0.79

On 1 July 2008 the 12 million warrants granted to FCMB in 2007 were redesignated as financial liabilities (see The weighted average remaining contractual life of the options outstanding at 31 December 2008 was 3.4 years (2007: 4.3 years). The aggregate of the fair value of the warrants granted in 2008 was US$0.1 million (2007: US$3.5 million). The warrants granted during 2008 have been valued by reference to the Black Scholes option valuation model. The inputs into the Black Scholes model were as follows:
2008 2007

Weighted average share price (pence) ............................................................................................ 65.0 60.3 Weighted average exercise price (pence)........................................................................................ 100.0 84.7 Expected volatility .......................................................................................................................... 50% 50% Weighted average expected life (years) .......................................................................................... 3.1 2.5 Risk free rate ................................................................................................................................... 5.0% 5.0% Expected dividends ......................................................................................................................... The Company and Group recognised total costs of US$117,000 (2007: US$3,454,400), of which US$117,000 (2007: US$59,000) was expensed, related to equity-settled share-based transactions in the form of warrants in 2008. During the year the Company and Group issued 2,314,102 shares (US$2,247,000) to satisfy professional fees payable in respect of the acquisition of subsidiaries described in note 29. 29. ACQUISITION OF SUBSIDIARIES

On 25 September 2008, Afren announced that it had completed the acquisition of Devon Energy Corporations interests in Cte dIvoire, comprising a 47.96% working interest and operatorship of the producing Block C1-11, a direct participating 65% interest (with rights over an additional 15% interest) and operatorship in the undeveloped Block C1-01 and a 100% interest in the onshore Lion Gas Plant, effective 30 June 2007. The adjusted consideration for the acquisition, including transaction costs and working capital adjustments, was US$184.3 million funded through a financing package arranged by BNP Paribas. The transaction took the form of an acquisition of 100% of the ordinary shares of Devon Cte dIvoire Ltd (CI-11), Devon CI One Corporation (CI-01) and Lion G.P.L., S.A. (Lion GPL).

F-175

Notes To The Consolidated Financial Statements For the year ended 31 December 2008 The fair value of net assets acquired was as follows:
CI-11 US$000s CI-01 US$000s Lion GPL US$000s Total US$000s

Oil and gas assets ................................................................................... Other property, plant and equipment ..................................................... Inventories ............................................................................................. Trade and other receivables ................................................................... Cash and cash equivalents ..................................................................... Trade and other payables ....................................................................... Provision for decommissioning ............................................................. Total consideration .............................................................................. Total consideration ................................................................................ Less cash and cash equivalents acquired ............................................... Less accrued consideration .................................................................... Less non-cash costs of acquisition(i) ...................................................... Cash outflow on acquisition ................................................................
(i)

89,850 399 7,093 8,077 285 (5,275) (9,831) 90,598

35,502 35,502

54,578 162 1,591 1,929 238 (344) 58,154

179,930 561 8,684 10,006 523 (5,619) (9,831) 184,254 184,254 184,254 (523) (12,735) (2,247) 168,749

Non-cash costs of acquisition relates to shares issued to satisfy professional fees payable in respect of the acquisition.

The book values of identifiable assets and liabilities acquired and their fair value to the Group is as follows:
CI-11 Fair value to the Fair value Group adjustments US$000s US$000s CI-01 Fair value to the Fair value Group adjustments US$000s US$000s

Book value US$000s

Book value US$000s

Oil and gas assets ........................................................... Other property, plant and equipment ............................. Inventories ..................................................................... Trade and other receivables ........................................... Cash and cash equivalents ............................................. Trade and other payables ............................................... Deferred tax balances..................................................... Investment in subsidiaries .............................................. Provision for decommissioning .....................................

16,083 648 4,994 73,081 285 (6,128) (425) (933) 87,605

73,767 (249) 2,099 (65,004) 853 425 (8,898) 2,993

89,850 399 7,093 8,077 285 (5,275) (9,831) 90,598

57,189 160 (98,766) (2,165) (43,582)

(21,687) (160) 98,766 2,165 79,084

35,502 35,502

Book value US$000s

Lion GPL Fair value adjustments US$000s

Fair value to the Group US$000s

Oil and gas assets ....................................................................................................... Other property, plant and equipment ......................................................................... Inventories ................................................................................................................. Trade and other receivables ....................................................................................... Cash and cash equivalents ......................................................................................... Trade and other payables ...........................................................................................

19,606 34,972 87 75 163 1,428 35,968 (34,039) 238 (386) 42 2,478 55,676 CI-11 contributed US$0.1 million to the Groups revenue and a US$10.1 million loss to the Groups result period between the date of acquisition and the balance sheet date.

54,578 162 1,591 1,929 238 (344) 58,154 for the

Lion GPL contributed US$5.3 million to the Groups revenue and made a US$1.4 million profit, reducing the Groups loss for the period between the date of acquisition and the balance sheet date.

F-176

If the acquisition had been completed on 1 January 2008, the total Group revenue for the year would have been US$85.2 million, and Group loss for the year would have been US$45.1 million. This proforma information is for illustrative purposes only and is not necessarily an indication of the revenue and results of the Group that actually would have been achieved had the acquisition been completed on 1 January 2008, nor is it intended to be a projection of future results. 30. OTHER RESERVES
Loan notes US$000 s Investment revaluatio n reserve US$000s Share-base d payment reserve US$000s Shares to be issued US$000 s

Translatio n reserve US$000s

Convertibl e bond US$000s

Total US$000 s

GROUP At 1 January 2007 ........................................... Share-based payments for services ................. Other share-based payments ........................... Transfer to retained earnings .......................... Revaluation of available for sale investments. Exchange differences ...................................... At 31 December 2007 .................................... Share-based payments for services ................. Other share-based payments ........................... Issue of loan notes, net of costs ...................... Transfer to retained earnings .......................... Conversion of bonds into shares ..................... Redesignation of warrants as financial liabilities .................................................................... Revaluation of available for sale investments. Shares to be issued .......................................... Exchange differences ...................................... At 31 December 2008 ....................................

(2,701) (318) (3,019) 2,188 (831)

7,350 (370) 6,980

14,263 (2,974) 11,289 (1,789) (9,500)

245 227 472 (472)

4,235 1,936 3,454 (1,495) 8,130 10,701 118 (3,849) (3,395) 11,705

16,042 1,936 3,454 (4,469) 227 (318) 16,872 10,701 118 7,350 (6,008) (9,500) (3,395) (472) 319 319 2,188 319 18,173

Translation reserve US$000s

Convertible bond US$000s

Investment revaluation reserve US$000s

Share-based payment reserve US$000s

Shares to be issued US$000s

Total US$000s

Company At 1 January 2007 ............................................. Share-based payments for services ................... Other share-based payments ............................. Transfer to retained earnings ............................ Revaluation of available for sale investments... Exchange differences ........................................ At 31 December 2007 ...................................... Share-based payments for services ................... Other share-based payments ............................. Transfer to retained earnings ............................ Conversion of bonds into shares ....................... Redesignation of warrants as financial liabilities ...................................................................... Shares to be issued ............................................ Revaluation of available for sale investments... Exchange differences ........................................ At 31 December 2008 ......................................

(551) (551) 2,154 1,603

14,263 (2,974) 11,289 (1,789) (9,500)

245 227 472 (472)

4,235 1,936 3,454 (1,495) 8,130 6,573 118 (2,932) (3,395) 8,494

319 319

18,743 1,936 3,454 (4,469) 227 (551) 19,340 6,573 118 (4,721) (9,500) (3,395) 319 (472) 2,154 10,416

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31.

PROFIT AND LOSS ACCOUNT

Group 2008 2007 US$000s US$000s Company 2008 2007 US$000s US$000s

At 1 January ........................................................................................... Loss for the year .................................................................................... Redesignation of warrants as financial liabilities................................... Transfer from other reserves .................................................................. At 31 December .................................................................................... 32. POST BALANCE SHEET EVENTS

(58,666) (56,565) (23,711) 15,508 (123,434)

(24,096) (39,039) 4,469 (58,666)

(32,188) (25,911) (23,711) 14,221 (67,589)

(11,065) (25,592) 4,469 (32,188)

On 23 January 2009, Afren announced the Board of Directors had approved 6.5 million share option awards over the ordinary shares of 1p each in the Company to Executive Directors of the Company. On 12 February 2009, Gasol plc announced that it had successfully placed 200 million shares with Afren plc at 0.5p raising 1 million and increasing Afrens ownership to 21.3%. On 26 March 2009, Afren announced the results of an independent assessment of the in place oil and recoverable reserves from the Ebok field in Nigeria by Netherland, Sewell & Associates Inc. (NSAI) together with details of future development scenarios for the field. On 1 May 2009, Afren obtained shareholder approval for a placing with institutional investors of 265 million new ordinary shares of the Company at 32p per share which resulted in 84.8 million (US$126 million) being raised, before commissions and expenses. 33. RELATED PARTY TRANSACTIONS

The transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Amounts owed by and to such subsidiaries are disclosed in notes 17 and 19 respectively. Transactions between the Company and its subsidiaries were as follows:
Subsidiaries US$000s Joint ventures US$000s

2008

Net loan advances ........................................................................................................................... Investments .....................................................................................................................................

152,257 10,213
Subsidiaries US$000s

3,034
Joint Ventures US$000s

2007

Net loan advances ........................................................................................................................... Remuneration of key management personnel

63,388

559

The remuneration of the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2008 US$000s 2007 US$000s

Short-term employee benefits ......................................................................................................... Other long-term benefits ................................................................................................................. Termination benefits ....................................................................................................................... Share-based payment ......................................................................................................................

4,882 87 549 4,555 10,073

3,034 63 105 764 3,966

F-178

Trading transactions
Purchase of goods/services Year ended Year ended 2008 2007 US$000s US$000s Amounts owed to related parties Year ended Year ended 2008 2007 US$000s US$000s

Energy Investment Holdings Ltd ........................................................... 8,298 4,710 St. John Advisors .................................................................................. 524 20 Tzell Travel Group ................................................................................ 556 177 83 HArt of Africa ...................................................................................... 87 n/a n/a Energy Investment Holdings Ltd is the contractor company for the consulting services of Bert Cooper, a member of the International Advisory Board and Special Adviser to the Board. The majority of the payments relate to success fees for acquisitions and financing arrangements. Of this total, US$2.25 million was paid in shares in 2008 (2007: US$3.15 million). St. John Advisors is the contractor company for the consulting services of John St. John, a non-executive Director. The majority of the payments relate to success fees for equity financing. St. John Advisors also receive a monthly retainer of 15,000 for equity consulting advice. This contract is for 12 months from 27 June 2008. Tzell Travel Group operates as a franchise. The franchisee utilised by Afren for some of its travel needs is a close family member of the Chief Executive Officer and Tzell Travel Group is therefore considered a related party. Afren uses several travel agents as there is a significant travel element to its operations and Tzell competes on an even basis with these. Tzell provided approximately 20% of the travel arrangements by value in 2008. HArt of Africa is a business specialising in the importation of African art. It is owned and run by a close family member of a Director of Afren appointed in 2008 and was engaged to source art for the Afren office in the UK.

F-179

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F-180

THE COMPANY AFREN PLC Kinnaird House 1 Pall Mall East London SW1Y 5AU United Kingdom INITIAL PURCHASERS Global Coordinator Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom Joint Bookrunners Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom Senior Co-Managers Global Hunter Securities, LLC 400 Poydras Street, Suite 3100 New Orleans, Louisiana 70130 USA LEGAL ADVISORS To the Company: As to United States and English Law Latham & Watkins (London) LLP 99 Bishopsgate London EC2M 3XF United Kingdom As to Nigerian Law Templars 4th Floor, 13A AJ Marinho Drive Victoria Island, Lagos Nigeria Natixis 30 avenue Pierre Mends France 75013 Paris France

BNP Paribas Securities Corp. 787 Seventh Avenue New York, New York 10019 USA

Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom

To the Initial Purchasers: As to United States and English Law As to Nigerian Law Milbank, Tweed, Hadley & McCloy LLP Banwo & Ighodalo 10 Gresham Street 98, Awolowo Road London EC2V 7JD South West Ikoyi, Lagos United Kingdom Nigeria AUDITORS OF THE COMPANY Deloitte LLP 2 New Street Square London EC4A 3BZ United Kingdom TRUSTEE, REGISTRAR, TRANSFER AGENT, PRIMARY COLLATERAL AGENT AND LUXEMBOURG PAYING AGENT, TRANSFER PAYING AGENT AGENT AND LISTING AGENT Deutsche Bank Luxembourg SA Deutsche Bank Trust Company Americas 2, Boulevard Konrad Adenauer Trust and Agency Services L-1115 Luxembourg 60 Wall Street, 27th Floor New York, New York 10005 USA

Afren plc $300,000,000 101/4% Senior Secured Notes due 2019