|Reserves and Resources|
|An updated independent assessment of the Company's contingent and prospective resources on its Kenyan and Ethiopian exploration properties has been completed by Gaffney, Cline & Associates ("Gaffney Cline", or "GCA"). The independent assessment was carried out in accordance with the standards established by the Canadian Securities Administrators in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The effective date of the report is June 30, 2012. |
It should be noted that these estimates do not include the Company's Puntland (Somalia) oil and gas interests which is available at www.sedar.com under Horn Petroleum Corporation, Africa Oil's 45% owned subsidiary.
Given the large quantity of prospects and leads in the Company's portfolio, the following two tables have been prepared for the convenience of readers by Africa Oil. Readers should refer to the links below to the tables, which have been prepared by Gaffney Cline, detailing the contingent and prospective oil resources by prospect and lead with the associated geological chance of success:
|RISKS AND CAUTIONARY STATEMENTS|
Significant Positive and Negative Factors Relevant to the Resources Estimates:
This news release contains forward looking information including, but not limited to, estimated resources. The forward looking information is based on current expectations and is subject to a number of risks and uncertainties which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to the following:
Risks associated with ever making a discovery:
The estimation of prospective resource volumes for high-risk and poorly calibrated basins can be subject to large variation from the introduction of new information. The estimates presented herein are based on all of the information available; however, new data or information is likely to have a material effect on the resource assessment values. There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that the discovery will be commercially viable to produce any portion of the resources. Given that most of the resources in the portfolio are in leads that require additional data to fully define their potential it is likely that significant changes to the resource estimates will occur with the incorporation of additional data and information.
Risk Associated with the Estimates:
In the event of a discovery, basic reservoir parameters, such as porosity, net hydrocarbon pay thickness, fluid composition and water saturation, may vary from those assumed by GCA affecting the volume of hydrocarbon estimated to be present. Other factors such as the reservoir pressure, density and viscosity of the oil and solution gas/oil ratio will affect the volume of oil that can be recovered. Additional reservoir parameters such as permeability, the presence or absence of water drive and the specific mineralogy of the reservoir rock may affect the efficiency of the recovery process. Recovery of the resources may also be affected by well performance, reliability of production and process facilities, the availability and quality of source water for enhanced recovery processes and availability of fuel gas. There is no certainty that certain mineral interests are not affected by ownership considerations that have not yet come to light.
Risk Associated with the Classifications:
Substantial Capital Requirements:
Africa Oil expects to make substantial capital expenditures for exploration, development and production of oil and gas reserves in the future. The Company's ability to access the equity or debt markets in the future may be affected by any prolonged market instability. The inability to access the equity or debt markets for sufficient capital, at acceptable terms and within required time frames, could have a material adverse effect on the Company's financial condition, results of operations and prospects.
Ability to Execute Exploration and Development Program:
It may not always be possible for Africa Oil to execute its exploration and development strategies in the manner in which the Company considers optimal. Execution of exploration and development strategies is dependent upon the political and security climate in the host countries where the Company operates. The Company's exploration and development programs in East Africa may involve the need to obtain approvals from relevant authorities who may require conditions to be satisfied or the exercise of discretion by the relevant authorities. It may not be possible for such conditions to be satisfied.
Absence of a Formal Development Plan including Required Funding:
There is no certainty the Company will prepare and approve a development plan for any portion of the contingent resources or that the Company will be successful in funding any development should such a plan be prepared. General market conditions, the sufficiency of such a development plan and the outlook regarding oil and gas prices are some factors that will influence the availability of funding.
Access to Infrastructure:
Africa Oil's ability to produce and market hydrocarbons from any potential discoveries will depend on its ability to access suitable infrastructure. The Company may also be affected by deliverability uncertainties related to the proximity of its potential production to pipelines and processing facilities and operational problems affecting such pipelines and facilities as well as potential government regulation relating to price and the export of oil and gas. Currently there is limited local infrastructure and markets for oil, natural gas and condensate and export infrastructure to enable other markets to be accessed has not yet been developed. Africa Oil will work with its partners and government authorities to evaluate the commercial potential and technical feasibility of any discovery made.
Additional risks associated with the estimate of the prospective and contingent resources include risks associated with the oil and gas industry generally (i.e. financing; operational risks in exploration, development and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections related to production; costs and expenses; health, safety, security and environmental risks; and the uncertainty of resource estimates), drilling equipment availability and efficiency, the ability to attract and retain key personnel, the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with dealing with governments and obtaining regulatory approvals, and the risk associated with international activities.
|BASIS OF OPINION|
This report has been prepared in accordance with GCA's understanding of the requirements of Canadian National Instrument 51-101. In this context GCA has followed the Canadian Oil and Gas Evaluation Handbook (COGEH) which in turn recognizes the Petroleum Resource Management System (PRMS) of the Society of Petroleum Engineers (SPE), World Petroleum Congress (WPC), American Association of Petroleum Geologists (AAPG) and Society of Petroleum Evaluation Engineers (SPEE).
This assessment has been conducted within the context of GCA's understanding of the effects of petroleum legislation, taxation, and other regulations that currently apply to these properties and GCA's best professional judgment, subject to the generally recognized uncertainties associated with the interpretation of geoscience and engineering data.
GCA is not in a position to attest to property title or rights, conditions of these rights including environmental and abandonment obligations, and any necessary licenses and consents including planning permission, financial interest relationships or encumbrances thereon for any part of the appraised properties.
The report is based on the data set made available by Africa Oil Corp. GCA is not aware of any falsification of data and does not warrant the accuracy of the data and accepts no liability for any losses from actions based upon reliance on data, which is subsequently shown to be falsified or erroneous. In any evaluation of natural resources, basic physical measurements taken over time cannot be verified in retrospect.
GCA has no reason to believe that any material facts have been withheld from it, but does not warrant that its inquiries have revealed all of the matters that a more extensive examination might otherwise disclose. The opinions and statements contained in this report are made in good faith and in the belief that such opinions and statements are representative of prevailing physical and economic circumstances.
It should be understood that any determination of Reserve volumes, particularly involving petroleum developments, or any assessment of Contingent Resources, may be subject to significant variations over short periods of time as new information becomes available and perceptions change. GCA does not guarantee the correctness or accuracy of any interpretation made by it and does not warrant that the opinions herein will be in any form of guarantee of the outcome.
CONTINGENT AND PROSPECTIVE RESOURCES
Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no evident viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorized in accordance with the level of certainty associated with the estimates and may be sub- classified based on project maturity and/or characterized by their economic status.
It must be appreciated that the Contingent Resources reported herein are unrisked in terms of economic uncertainty and commerciality.
There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources.
Prospective Resources are those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be sub- classified based on project maturity.
There is no certainty that any portion of the Prospective Resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
Prospective Resources include Prospects and Leads. Prospects are features that have been sufficiently well defined, on the basis of geological and geophysical data, to the point that they are considered drillable. Leads, on the other hand, are not sufficiently well defined to be drillable, and need further work and/or data. In general, leads are significantly more risky than prospects and therefore are not suitable for explicit quantification.
Prospective Resource volumes are presented as unrisked. It must be appreciated that Prospective Resources are risk assessed only in the context of applying the stated
'Geological Chance of Success', a percentage which pertains to the percentage probability of achieving the status of a Contingent Resource (where the Geological Chance of Success is unity). This dimension of risk assessment does not incorporate the considerations of economic uncertainty and commerciality.
GCA is an energy consultancy specializing in independent petroleum advice on resource evaluation and economic analysis. In preparation of this report, GCA has maintained, and continues to maintain, a strict consultant -- client relationship with AOC. The management and employees of GCA have been and continue to be, independent of AOC in the services they provide to the company including the provision of the opinion expressed in this report. Furthermore the management and employees of GCA have no interest in any assets or share capital of AOC or in the promotion of the company.
Opinions concerning sub-surface petroleum resources are associated with considerable uncertainty and represent best estimates based on the data available at the time the opinion is given. The acquisition of new data in the future and/or variations in economic circumstances and market forces may result in significant upward or downward movements in revised total resource estimates.